At first glance, the leading consumer goods companies' strategy for handling the fierce competition of the past ten years looks robust enough to carry them through the next ten. Indeed, with the industry still caught between price-sensitive consumers and powerful retailers, some of the challenges facing it remain the same.

In the 1990s the industry's executives developed strikingly similar strategies to address these issues: focusing rigorously on the strongest brands and pursuing productivity gains. The results confounded those who forecast the demise of brands and the industry's rapid consolidation. Remember "Marlboro Friday," the day in 1993 when Philip Morris slashed the price of its core cigarette brand by almost 20 percent? A business weekly wrote, "Many brands will perish or never be so profitable again."¹ But such pessimists were wrong. Anyone who invested every year since 1993 in the top 50 consumer goods companies (minus the tobacco companies, whose shares were affected by liability lawsuits) received a 12 percent annual return over ten years—results that outperformed those of most industry sectors. Eight of the top ten companies of 1993 (ranked by sales) were still in the list of leaders in 2003, and roughly in the same order.

But...