NEW YORK: Brand owners must nurture a distinctive set of "capabilities" to succeed during the "next wave" of consolidation in the fast moving consumer goods sector, a report has argued.
"For decades, CPG companies have made market participation decisions based on the assets that they have … or that they can acquire or build to serve big areas of demand," the Booz & Company report said.
"To a remarkable extent, however, their strategic thinking has ignored what they do better than anyone else - that allows them to execute better than the competition and deliver superior returns on those assets."
The current climate requires that firms identify an "essential advantage" drawing on how they alone create value, and then ensure portfolios and tactics are highly coherent with this vision.
Procter & Gamble divested non-core food products like Folgers and Sunny Delight, bought Wella, Gillette and Clairol, and doubled sales between 2000 and 2010, when its billion-dollar brands rose from ten to 22 in number.
Having adopted the mantra of "touching and improving" customers' lives, the owner of the Tide and Pampers brands is now combining the benefits of a worldwide reach, major brands and digital technology to foster an integrated model.
"When we operate as one company and take advantage of the full portfolio of brands that we have, it results in greater growth and it results in much better efficiency of our marketing spend," Bob McDonald, P&G's ceo, said last month.
Elsewhere, Unilever's previous "Path to Growth" and "One Unilever" initiatives saw the manufacturer of Knorr and Hellmann's undertake an internal restructure and streamline its stable.
The Anglo-Dutch group is embarking on another scheme, the "Compass", snapping up Alberto Culver and Sara Lee's personal care division, alongside detailing plans to enhance environmental metrics.
"Confidence is back. The mindset in Unilever is once again a winning one," Paul Polman, Unilever's ceo, said. "The consumer and customer are back at the heart of our business."
Booz also cited the example of Church & Dwight, which constantly innovates in segments where it leads, like Trojan condoms, and acts as a "fast-follower" with smaller ranges, including Arm & Hammer laundry.
In 2010, six of the organisation's eight "power brands" boosted their volume share, and its sales climbed 2.7%, hitting $2.6bn (€1.9bn; £1.6bn).
"This consumption performance reflects a steady increase in marketing spending," said ceo James R. Craigie.
"Product launches, such as Arm & Hammer Power Gel Laundry Detergent, Trojan Fire and Ice Condoms and Arm & Hammer Double Duty Cat Litter, have also been key contributors to our organic growth."
Based on an analysis of the 50 biggest deals in the consumer staples sector from 2002 onwards, Booz suggested a "coherence premium" yields more successful mergers and acquisitions.
Some 32 deals added scale and 18 augmented capabilities, with 67% of the latter selection enjoying returns beating the S&P500 index in the first year, falling to 44% of the former.
Kraft's 2010 takeover of Cadbury was named as a useful case study, providing chances for cross-selling in countries where either party lacked strong representation.
"It will have, and is already having, the transformational impact on our portfolio," ceo Irene Rosenfeld said last year, citing $750m in potential cost savings.
"But the top line benefit will come, at the very least, in late 2011 into 2012 and beyond. So it's going to take us a while to get some of those opportunities jump started."
By contrast, ConAgra Foods faced challenges absorbing 280 purchases between 1975 and 2000, and has sought to shed numerous offerings, including several meat products, in pursuit of a tighter focus.
"We look for acquisitions that drive growth in categories that align with our core competencies, help us leverage our existing infrastructure and therefore enhance our efforts to optimise our portfolio," said cfo John Gehring.
"For decades, CPG companies have made market participation decisions based on the assets that they have … or that they can acquire or build to serve big areas of demand," the Booz & Company report said.
"To a remarkable extent, however, their strategic thinking has ignored what they do better than anyone else - that allows them to execute better than the competition and deliver superior returns on those assets."
The current climate requires that firms identify an "essential advantage" drawing on how they alone create value, and then ensure portfolios and tactics are highly coherent with this vision.
Procter & Gamble divested non-core food products like Folgers and Sunny Delight, bought Wella, Gillette and Clairol, and doubled sales between 2000 and 2010, when its billion-dollar brands rose from ten to 22 in number.
Having adopted the mantra of "touching and improving" customers' lives, the owner of the Tide and Pampers brands is now combining the benefits of a worldwide reach, major brands and digital technology to foster an integrated model.
"When we operate as one company and take advantage of the full portfolio of brands that we have, it results in greater growth and it results in much better efficiency of our marketing spend," Bob McDonald, P&G's ceo, said last month.
Elsewhere, Unilever's previous "Path to Growth" and "One Unilever" initiatives saw the manufacturer of Knorr and Hellmann's undertake an internal restructure and streamline its stable.
The Anglo-Dutch group is embarking on another scheme, the "Compass", snapping up Alberto Culver and Sara Lee's personal care division, alongside detailing plans to enhance environmental metrics.
"Confidence is back. The mindset in Unilever is once again a winning one," Paul Polman, Unilever's ceo, said. "The consumer and customer are back at the heart of our business."
Booz also cited the example of Church & Dwight, which constantly innovates in segments where it leads, like Trojan condoms, and acts as a "fast-follower" with smaller ranges, including Arm & Hammer laundry.
In 2010, six of the organisation's eight "power brands" boosted their volume share, and its sales climbed 2.7%, hitting $2.6bn (€1.9bn; £1.6bn).
"This consumption performance reflects a steady increase in marketing spending," said ceo James R. Craigie.
"Product launches, such as Arm & Hammer Power Gel Laundry Detergent, Trojan Fire and Ice Condoms and Arm & Hammer Double Duty Cat Litter, have also been key contributors to our organic growth."
Based on an analysis of the 50 biggest deals in the consumer staples sector from 2002 onwards, Booz suggested a "coherence premium" yields more successful mergers and acquisitions.
Some 32 deals added scale and 18 augmented capabilities, with 67% of the latter selection enjoying returns beating the S&P500 index in the first year, falling to 44% of the former.
Kraft's 2010 takeover of Cadbury was named as a useful case study, providing chances for cross-selling in countries where either party lacked strong representation.
"It will have, and is already having, the transformational impact on our portfolio," ceo Irene Rosenfeld said last year, citing $750m in potential cost savings.
"But the top line benefit will come, at the very least, in late 2011 into 2012 and beyond. So it's going to take us a while to get some of those opportunities jump started."
By contrast, ConAgra Foods faced challenges absorbing 280 purchases between 1975 and 2000, and has sought to shed numerous offerings, including several meat products, in pursuit of a tighter focus.
"We look for acquisitions that drive growth in categories that align with our core competencies, help us leverage our existing infrastructure and therefore enhance our efforts to optimise our portfolio," said cfo John Gehring.
Data sourced from Booz & Co, Seeking Alpha; additional content by Warc staff
