Bigger is not necessarily better anymore, at least when it comes to consumer packaged goods companies.
According to research from the Boston Consulting Group and IRI, scale is not the competitive advantage it once was for CPG companies. In fact, one of the study’s key findings was that smaller companies are outpacing their larger counterparts when it comes to growth. While revenues at large CPG companies were largely flat, with growth of just 0.2% year over year, the smaller firms grew by about 2.3% on average.
And over the past five years, the study estimates that the large companies have effectively given up about $15 billion in sales to their smaller counterparts. The study also found that overall CPG growth in measured channels continues to decline, while growth in unmeasured channels — including natural, e-commerce, meal kits and local market — saw substantial growth.
“We are facing an evolving retail landscape and changing consumer purchasing preferences, demanding CPG companies regularly revisit their strategies,” said Krishnakumar Davey, president of IRI Strategic Analytics. “Companies that use data-driven strategies to understand their consumers and what is driving their growth are best positioned to identify and take advantage of new opportunities whenever they arise.”
The findings are based on the sixth annual analysis by BCG and IRI of the growth performance of more than 400 public and private CPG companies with annual U.S. retail sales of more than $100 million in measured retail channels, including grocery, drug, mass merchandise and convenience stores. The study focused on what consumers actually buy in measured channels, as opposed to what factories ship.
The study also looked at three trends that drove performance in the CPG section, and suggested some strategies for boosting growth. Companies should differentiate their product offerings based on an understanding of who their core customers are and what they want. And while getting bigger is not an advantage in and of itself, the study suggests that companies can still benefit from acquisition if they acquire small, fast-growing brands. By doing so, companies can fill holes in their product portfolio and pick up new capabilities.