Players in the Consumer Packaged Goods (CPG) industry have been challenged with finding new ways to keep up with today’s disruptive environment to meet the requirements of today’s informed and tech savvy consumers. Meeting these requirements will transform CPG business models and impact manufacturing processes across industries. Mergers and acquisitions (M&A) have demonstrated to be key in achieving the growth and gaining the competitive advantage that businesses are craving.
Evolving Consumer Requirements
It is clear that consumer requirements are constantly changing, and businesses are now listening. For example, there are consumers on the go who always look for the most convenient packaging solutions with specific offerings that cater to their mile-a-minute lifestyle. Along with convenience, consumers are demanding transparency. Where did these products come from, and what are they made of? A recent Deloitte Consumer Products and Retail update indicates that 75 percent of shoppers are more likely to switch to a brand that provides more in-depth information beyond what is shown on the label.
Manufacturers are challenged to not only produce more adaptable and accommodating packaging, but to also improve transparency of their operations and production processes. To keep up, businesses are turning to mergers and acquisitions. PepsiCo, for example, recently acquired Health Warrior, a company that offers products made of chia, pumpkin seeds and other superfoods—ingredients that consumers are interested in due to their numerous health benefits. Mergers and acquisitions offer established companies a shortcut to expanding their product base in order to meet changing tastes.
Digital transformation has also been a major disruptor across all industries. CPG companies, in particular, have been searching for new ways to take advantage of these emerging and evolving technologies. Such technologies, like augmented reality, will provide efficiencies that offer customizable user experiences. To adapt, companies have turned to mergers and acquisitions to integrate these digital-driven assets. M&A activity allows companies to strengthen their product offerings with innovative features and capabilities suited for the same informed, tech savvy consumers.
Targeted Company Acquisitions: A Trending Strategy
In order to evolve and match these product characteristics, one popular strategy that brands are focusing on is the targeted acquisition of smaller companies. These acquisitions are made with the intention to add another brand to a product umbrella or enter a new market. According to Steve Rosenstock, consumer products practice lead for Clarkston Consulting, the majority of today’s CPG industry growth is coming from smaller companies due to innovation and customer loyalty. This is the case because smaller companies are more willing to create unique products that may potentially fail, but also have the ability to result in success. Acquiring these smaller companies can help bigger companies to eventually expand their product base and gain the loyalty of their customers.
Associated M&A Challenges
Although mergers and acquisitions are proving to be essential in helping businesses develop these product specifications, there are certain integration risks that can be associated. A Harvard Business Review article indicates that approximately 70-90 percent of global acquisitions are “abysmal failures.” Many make the crucial mistake of believing that every kind of merger and acquisition can be integrated the same way. As a result, companies can lose sight of their culture when they acquire or merge, which takes away from the authenticity that gave them their recognition initially.
This can also happen the other way around, where the culture that led to the acquired brand’s prosperity simply gets lost in the integration process. As stated by Peter Horsley, in order to prevent these risks, each merger and acquisition should be assessed in terms of where to combine to gain scale efficiencies, where to keep functions separate and where to invest to strengthen core capabilities.
Despite the risks associated with M&A activity, it is still the preferred investment area for many brands. Research from Deloitte suggests that in the consumer products industry alone, the average M&A transaction value has doubled from 2015-2017 compared to 2010-2014, with no sign of it slowing down.
With M&A activity on the rise, CPG companies will continue to attract more consumers by adhering to their requirements and providing a more diverse product portfolio. Companies are already modifying business models, including the manufacturing processes, by producing convenient and traceable products, some with digital attributes, that will allow them to stay on top.
QAD understands that every company is unique and that consumer product manufacturing processes are changing— learn more about how QAD Adaptive ERP can help tackle these needs within the industry.