The OC&C FMCG Global 50

July 09, 2016 | REPORT

Consumer goods M&A quadrupled in 2015 with deal value topping $226bn

  • Mergers and acquisitions by the top 50 global consumer goods companies totalled $226bn in 2015, more than the previous four years combined
  • Revenue growth of the top 50 declined for the 5th year running as slowdowns in emerging markets, currency volatility and competition from agile local competitors put further pressure on the world’s consumer goods giants 
M&A has become the primary source of revenue growth among the top 50 global consumer goods companies as sales growth in the sector slumped to 3.4%, half what it was just five years ago in 2011 (6.7%).

This is according to OC&C Strategy Consultants’ 14th annual Global 50 report, in collaboration with the Grocer, which analyses the financial performance of the world’s largest consumer goods companies – the likes of Nestle, P&G and Pepsico.

The report reveals that M&A deal value quadrupled from $56bn in 2014 to $226bn in 2015, with a flurry of large deals making 2015 the biggest year of M&A in the sector since 2008. 

Two mega mergers - ABInbev-SABMiller and Kraft Heinz - accounted for $175bn or three quarters of the total, but the increase in M&A activity was also driven by: further consolidation in cash rich but low growth tobacco; Brazil’s JBS expanding into Europe with its acquisition of Moypark; and Heineken purchasing four mid-sized businesses in emerging markets. 

This comes in response to a further decline in underlying organic year-on-year sales growth of 0.4% for the top 50 – equating to $4bn in lost revenue.

The slowdown in BRIC markets, particularly China, has hit FMCG companies hard. The growth rate of China’s FMCG markets fell by more than half from 7.4% in 2013 to 3.5% in 2015 – a far steeper decline than the country’s GDP growth rate decline (7.7% in 2013 to 6.9% in 2015). 

But macroeconomic factors are only partly to blame for the growth problems faced by the Global 50.

Will Hayllar, Partner at OC&C Strategy Consultants said: 

“The Global 50 consumer goods giants are finding their very business model under siege from all sides. Smaller local competitors continue to gain share in not just BRIC but also Western markets, and private equity firms like 3G Capital have been demonstrating a different, more efficient way to run an FMCG giant. 

“3G Capital has increased the profit margins of ABInbev, Kraft and Heinz by between 8 and 10 percentage points. Shareholders are now challenging the cost structures of other Global 50 giants in search of similar boosts to profitability.”

“Meanwhile, nimble local players have been stealing share across the board. In Western markets, their success has been fuelled by exploiting fragmenting customer demand and savvy use of digital. Dollar Shave Club’s direct to customer business model, for example, has propelled the company to over $150m in sales and #2 market position in US shaving in just 5 years. In emerging markets, local players have been taking share through a combination of scale in local distribution networks, tailoring products to local trends and tastes, and agility.”

The research shows that the Global 50 are working hard to find a way out of these doldrums, however, with mergers and acquisitions just one of the levers being pulled to find growth. 

Marketing spend was up by 0.7% of sales, R&D by 0.1%, together contributing an $8bn boost in investment and leaders in the industry have been embracing digital across the value chain in a further bid to drive growth.
 
Will Hayllar continued:

“Greater investment in R&D and marketing, and the surge in M&A activity show that the Global 50 aren’t taking tough market conditions and aggressive competition lying down. But there’s an additional growth lever that certain FMCG businesses are embracing better than others, and that’s digital innovation.”

“Consumer goods companies need to be thinking about how digital can bring value across their whole business: from supply chain optimisation and digitally facilitated new product development, to marketing and direct to customer sales. The digital revolution has also heightened the war for talent, with FMCG businesses increasingly losing out to tech players in the race to attract the top graduates. Those who embrace digital ways of working and a more entrepreneurial culture will be better placed to attract and harness the talents of the digital native generation.”

-Ends-

OC&C and The Grocer’s Global 50 Top-10 2016
1. Nestle AG (1)
2. Procter & Gamble (2) 
3. Pepsico (3)
4. Unilever (4)
5. JBS (5)
6. Coca Cola Company (7)
7. AB Inbev (6) 
8. Tyson Foods (8)
9. Mondelez (9)
10. L’Oreal (11)

METHODOLOGY

Now in its 14th year, the OC&C Global 50 assesses the performance of the world’s 50 largest fast moving consumer goods businesses, ranked on their fast moving consumer goods revenues. Information is taken from the latest annual report of each business. Turnover is stated in US dollars but growth rates quoted are those in the local currency in which each company reports.