Herd, Ken Dickman, Joey Lantus and Natalie Francis Table of contents Introduction 3 Key Strengths of Consumer Goods and Services Leaders 4 Strategic Category Leadership 6 Consumer Focus 9 Flexible and Low-Cost Operations 12 Conclusion 14 2 | Using Mergers & Acquisitions to Achieve Strategic Objectives and High Performance in the Consumers Goods and Services Industry The consumer goods and services (CG&S) industry”whose primary product categories are household, personal care, and t nd beverage” constantly evolves to address market and customer trends while positioning itself for future growth and profitability.
Historically, it has been a rather fragmented industry, with only a few clear category leaders that dominate on a global scale. Furthermore, CG&S high performers have consistently focused on building number-one or number-two positions in a limited number of innovation-sensitive categories or niches. However, recent years have brought changes to the dynamics of this landscape. Most significantly, a US economic recession has strongly impacted all industries.
CG&S companies have been forced to reevaluate their product lines, operating models, and target markets, seeking to align their portfolios of businesses and products to recover from recent industry challenges and pursue high performance in the future. In this paper, Accenture explores how CG&S companies are turning to merger and acquisition strategies to address key industry challenges and market trends, and pursue market leadership in an increasingly competitive landscape through constant reevaluation and realignment of their product portfolios.
Specifically, we review three areas in which high-performance usinesses in the CG&S industry excel: strategic category leadership, consumer focus, and flexible, low-cost operations. We also discuss how CG&S companies are using buy-side and sell-side transactions to improve their performance in these areas and meet investors’ increasingly demanding expectations. Key Strengths of Consumer Goods and There are specific qualities that separate high-performance consumer goods and services companies trom others.
In fact, Accenture’s ongoing Highperformance Business research has identified four distinctive capabilities and one market focus and position in hich these industry leaders excel: High Performance Management, Market Focus and Position While all of these contribute to the pursuit of high performance among leading CG&S companies, the first three”strategic category leadership, consumer focus, and flexible and low-cost operations” are the ones that such organizations seek to achieve through mergers and acquisitions.
Strategic category leadership, which Accenture defines as the ability to ensure investments are focused on categories in which the company can win and, in the process, drive value creation. Distinctive Capabilities Consumer focus, also known as Solution Marketing,” which enables companies to respond to trends that could disrupt their product portfolio with appropriate and differentiated new offers that meet consumer needs.
Flexible and low-cost operations, which centers on achieving scale efficiencies in the company’s back office and supply chain while maintaining strong local commercial functions, such as sales and marketing, which are critical to gaining share in local markets. Customer ; Channel Management, which is a company’s ability to drive financial goals in performance measurement and to multiply talent to generate superior levels of effort. When pursuing excellence in these three areas, CG&S companies often find that internal efforts only take them so far and do not enable them to meet investor expectations.
That’s why M;A has become increasingly important to, and prevalent among, leading CG;S companies. For example, when valuing a consumer goods company, investors place at least as much importance on the company’s future value as on its current value. Inherent in that valuation is the expectation the company will continue to innovate and create more offerings that capture consumers’ attention and meet their needs. However, in most cases a CG;S company annot meet investors’ growth expectations by tweaking or organically innovating its existing business.
Even if management pulled all available levers to enhance the company’s return on invested capital (ROIC), the result may not be enough to close the gap between actual and expected performance. In other words, companies must do more than improve upon their existing business to satisfy investors. And that “more” is enabled by M;A: It allows companies to close the gap between their current financial performance and where investors expect them to be.
M;A can help consumer goods companies substantially improve in ocus, and flexible and low-cost operations, either by expanding upon existing capabilities or by acquiring entirely new capabilities that can help the company achieve its growth goals. which includes a laser focus on key customers, channels and optimal product availability in the marketplace. Using Mergers ; Acquisitions to Achieve Strategic Objectives and 5 Strategic Category Leadership The core of strategic category leadership is based on building a strong, dominant brand portfolio in specific categories.
It entails leveraging the scale of global brands, while introducing local items in high-potential merging markets to augment those brands. How does M;A help CG;S companies achieve these goals? In addition, companies should invest in selective M;A and in the rigorous disposal of non-core businesses, as well as establish a vision and strategy that focuses on the new business and target brands. For example, Kraft strives to hold a #1 or #2 market position in every category and, as a result, divested Post in 2007 because the brand did not consistently maintain a market position that met the company’s objectives.
Similarly, Procter & Gamble narrowed its focus as a category leader in household roducts by systematically divesting its food businesses such as JIF, Planters, and most recently, Pringles. Investment in strategic companies is one half of the equation, while investment in post-merger integration leadership, strategy, and execution When executed properly, acquisitions can empower a company to create a portfolio of is the other half. l brands that build off each other’s strengths Acquisitions also can enhance strategic without cannibalizing one another.
For category leadership by giving acquirers instance, Reckitt Benckiser, the world’s first-mover advantage in emerging markets, hird-largest home care company and as well as access to affordable real estate fifth-largest OTC drug company, continues and assets while prices are still low. In to add nome and personal care products some instances, M&A provides companies to its portfolio through acquisitions. It with access to pre-existing licensing deals has identified a group of 19 key products as “Powerbrands,” which range from dish held by the target companies.
For instance, soap to air freshener to cold medicine. when J. M. Smucker acquired Folgers, the Through this portfolio of acquired brands, latter brand’s licensing and distribution he company provides consumers with agreement with Dunkin’ Donuts gave Smucker multiple products that meet home and accelerated access to new points of personal care needs, without taking share distribution and partnership relationships. away from its other product categories.