You Can't Sugarcoat the Future
It’s pretty clear that a dramatic transformation is underway when the industry’s largest company sells off its namesake brand.
That’s exactly what happened to the consumer goods industry in 2018, when Nestle S.A. kicked off the year by selling off its flagship U.S. confectionery business to privately held Ferrero Group.
Granted, considering that Nestle has roughly $89 billion in total revenue worldwide, divesting $900 million worth of U.S. candy sales (for $2.8 billion) isn’t that big a deal financially, especially since the business had declined steadily in recent years.
Yet the sale was still among the more noteworthy of the many consumer goods mergers and acquisitions that occurred over the course of the year because of the way it reflected a leading company’s response to changing consumer demand; a brand that for decades had been synonymous with confectionery was abandoning the category in its largest market.
Shortly after the deal was announced, Nestle continued revamping its portfolio to address the growing need for healthier eating options by acquiring a majority stake in Terrafertil, an Ecuador-based manufacturer of natural, organic, plant-based foods and healthy snacks under the Nature’s Heart brand. Terrafertil had itself entered the U.S. market in 2017 by acquiring Torrance, California-based healthy snack maker Essential Living Foods.
Such radical business transformation and strategic portfolio building has become critical in the consumer goods industry, where less than 3% of net industry growth over the last three years has been driven by traditional, large companies like Nestle, according to IDC Manufacturing Insights.
Nearly three-quarters of the global enterprises represented on sister publication Consumer Goods Technology’s annual “Top 100 Consumer Goods Companies” rankings posted revenue growth in 2018. However, a significant portion of that growth came not through organic sales increases but from M&A activity. (To view the full list, visit ConsumerGoods.com.)
What’s more, the total dollar figure represented by the group was $1.73 trillion, which actually is $150 million lessthan the complete tally back in 2003, the first year CGTcompiled the list. While the top players might not have changed very much over the last 16 years, their CAGRs haven’t either, apparently.
Many of these traditional companies are buying up the emerging brands that, in so many cases, have stolen market share by being first, faster and more flexible in the e-commerce arena; the latest example was the acquisition of ankle-biting ethnic beauty company Walker & Co. by Procter & Gamble (No. 3 on CGT’slist).
A vital aspect of these deals (which often lead to relatively minor market share gains) is the acquisition of e-commerce expertise and experience, the tangible tools and technologies that are required or the intangible understanding of the marketplace and its consumer behavior (or both).
But large companies also continue to acquire each other to stanch their shrinking market shares, and/or to expand their category focus to better address the evolving needs of today’s consumers. Those efforts continued up until the very end of 2018, when GlaxoSmithKline and Pfizer unveiled a plan to combine their consumer health businesses to create a $12.7 billion operation in which GSK will be majority owner with a 68% stake. (The new venture will be a top 50 company on the list.)
P&G took a slightly different tack in early 2019 by kicking off a licensing agreement with Clorox Co. to market toothpaste under the all-natural Burt’s Bees brand – which, by the way, has previously failed to make headway selling toothpaste on its own. P&G and Clorox are no strangers to collaboration, of course, having formed their first joint venture back in 2002 to market Glad trash bags.
Cooperation, collaboration and alignment are becoming an increasingly critical aspect of business performance lately. And we haven’t even mentioned what’s taking place on the retailer side of the industry, where Kroger’s merchandising tests with Walgreens might very well permanently change the concept of private label – just one example of the disruption taking place on a regular basis.
This trend hasn’t been lost on us here at EnsembleIQ, where we’ve been closely tracking – as well as endorsing – the need for companies to better align themselves both internally and externally to meet new consumer-driven business demands.
We’ll soon practice what we’ve been preaching by uniting some of our internal assets to better help companies achieve this critical alignment. Our goal will be to develop a true business intelligence tool that will help executives throughout the consumer goods organization gain the understanding they need to effectively respond to increasingly complex marketplace demands.
More details will be announced soon. In the meantime, try to hold onto your namesake business.