Large CPG companies are struggling to stay nimble in today's market, and are indeed steadily losing market share to smaller players that are more adept at identifying specific customer needs and pinpointing pockets of growth.
Some analysts believe that this is responsible for the growing trend of mergers and acquisitions in the industry. Food Dive reports that the number of CPG exits has more than tripled during the past few years. In 2011, there were less than 50 exits, while more than 165 were recorded in 2015. This was caused, in large part, by larger firms buying smaller brands that happened to cater to niche consumer groups and shopper cohorts.
An article on TechCrunch goes even further, arguing that the trend toward mergers and acquisitions is actually replacing research and development within larger firms. As many of these companies reach maturity stages and saturation levels for their products, they've found themselves in a position where there is less of an ability or desire to innovate in-house. One study by CircleUp found that the largest CPG companies spent less than 2 percent of their revenue on research and development, and almost 15 percent on marketing. In a slower growth market, there appear to be fewer opportunities to launch innovative new products, so instead companies focus on maximizing what they already have.
Of course, the desire to develop and sell new products hasn't completely evaporated – it's just been handed off. All innovations carry with them a certain risk, and these large companies have found more success acquiring smaller businesses that are experimenting with new things, rather than take on those tasks themselves. In some cases, they simply weren't fast enough to respond to the changing marketplace on their own, and had to rely on smaller players that were already in position.
"All innovations carry with them a certain risk, and these large companies have found more success acquiring smaller businesses."
For instance, Forbes reported that in recent years, large beverage manufacturers have opted to acquire makers of energy drinks, rather than develop the recipes for products themselves. Growth in consumer demand for these products was quick enough that it simply made more sense to make deals rather than try to compete with new, unproven offerings.
For those small businesses, there is a new incentive to create products that haven't been seen before. Either they strike gold and ride that growth to new heights – possibly competing with the large CPG companies that overshadow them – or they position themselves as attractive acquisition opportunities.
Current trends suggest that as large brands see sales slow down and even lose market share, new opportunities will open up and the buying spree will continue. Last year, PricewaterhouseCoopers estimated that mergers and acquisitions in the consumer and retail sectors were worth a total of $238 billion. This figure was 23 percent higher than the total recorded in 2014.
So how do smaller CPG companies get to the point where they can either compete with large businesses or position themselves for a favorable acquisitions deal? A large part of it has to do with how they make use of their data to communicate their sales results and value proposition to retail customers. Retailers usually have a good handle on what items rank high in sales velocity, but what they often need "education on" on is how a particular brand contributes to their overall category performance, drives foot traffic, and brings new shoppers into their stores. There is a wealth of sources that show which products offer the most value and are expected to drive the most demand – including store level and basket level data, household surveys, and loyalty programs. Companies need to develop key insights at the aggregate level, then drill them down to the market and store level in order to develop actionable recommendations and strategies.
Interactive Edge offers a number of creative ways to get the most out of your data and meet the many challenges that your business will face when it comes to commercializing insights across your customer base. Check out the rest of our website to learn more about the services we offer to our clients.