CHICAGO — Buy or build? A 15-year high in mergers and acquisitions suggests that consumer packaged goods companies today are more likely to see financial deals as the best way to fill the innovation pipeline. Finding the just-right opportunity, though, is a daunting task — particularly in a market where speed is a key factor of success, according to a new report from IRI.
“Today’s M&A strategy is no longer about increasing efficiency and cutting costs but is instead used as a tool for getting the right product on the shelf quickly in order to meet consumer demand and create high-potential growth opportunities,” says Thomas Juetten, executive vice president of product innovation for IRI.
“In order to create those growth opportunities, CPGs need to keep an eye on consumer and business trends, but really home in on the benefits that are driving shopper loyalty, such as natural, organic and authentic,” Juetten says.
IRI’s report, titled “Bigger Can Be Better: Maximize Speed and Impact With Benefits-Based M&A,” asserts that CPG companies can increase the chance of M&A success by shifting away from strategies based on traditionally defined categories and adopting a benefits-based approach that bores down on how shoppers are satisfying their “amazingly personal and rapidly changing needs and wants.”
“Getting it right requires CPG companies to adopt a new lens: the lens of the shopper, a benefits-based lens,” IRI says.
The report says that by examining potential M&A opportunities through an unbiased shopper perspective based on real market views of what products are being purchased to satisfy the same need across a broad, cross-category landscape, CPG companies will quickly and accurately:
• Establish initial marketplace boundaries.
• Understand and size the shopper-defined marketplace.
• Pinpoint incremental long-term growth opportunities and build a fact-based business proposition.”
IRI cites a recent study by OC&C Strategy Consultants suggesting that CPG manufacturers increasingly are buying the ideas that “hit the mark” with attributes including artisanal, gluten free and all natural. The number of merger and acquisition deals among the top-50 CPG companies jumped by 45% in 2017 to a 15-year high.
“M&A for the sake of M&A, though, is not wise or fruitful,” IRI asserts. “To win, CPG companies must invest in companies and brands that bring sustainable incrementality to existing portfolios.”
In today’s marketplace, there’s no question that consumers are in control, IRI asserts. Consumers understand their nearly limitless options in what to buy, where to buy and from whom to buy.
“The fast and agile are winning the day,” IRI says. “Since 2013, in fact, more than $17 billion in industry sales have shifted from large companies to smaller players, and small and extra-small players are growing at an average annual rate of 4% to 5%, compared to 1.3% annual growth among large players,” according to the report.
To empower CPG companies to move with the speed and confidence required to catch powerful growth waves, IRI says it employs “the unique and powerful IRI Hendry Market Structure framework, powered by Hendry and augmented by artificial intelligence. Through this holistic, behavior-based lens, IRI’s unique tool clearly illuminates high-value, white-space opportunities based on a consumer view of the market — need state and benefits — which define the true competitive set in a way that is not limited by traditional category definitions.”