Eye on the markets25 March 2019
The following research, ‘FMCG Industry Business Outlook and Procurement Survey August 2018–January 2019’, is based on the surveyed opinions of leading executives in 73 FMCG companies globally, who are in turn part of the GlobalData panel of over two million industry executives.
Most respondents anticipate new product development and expansion in the current market to be the foremost priorities for the FMCG industry over the next six months.
The US is the leading developed market while China is the leading emerging market. Both are expected to offer significant growth prospects to the FMCG sector during the period August 2018–January 2019.
Overall, 58% of respondents anticipate an increase or significant increase in the number of mergers and acquisitions (M&A) activities within the global FMCG industry over the next six months. Rising competition and market uncertainty are identified as the leading concerns for the FMCG companies during. In total, 66% and 58% of respondents foresee an increase or significant increase in capital expenditure towards new product development and machinery and equipment purchases, respectively, over the next six months.
Globally, what are your company's top priorities over the next six months?
Among FMCG industry executives, 56% identify new product development as the main priority for FMCG enterprises over the next six months, while 52% pinpoint expand in the current market. Moreover, with increased consumer expenditure, rising competition, and improved downstream industry effectiveness, overall opportunities for the global FMCG market are increasing in number.
This allows companies to focus on new product development, business expansion, and improving operational efficiency.
For example, in September 2018, Lizi's, part of the GoodCarb Food Company based in the UK, launched a new on-the-go breakfast drink. The product is said to have no added sugar and to contain vitamin B6, which contributes to normal, energy-yielding metabolism. The on-the-go breakfast product category is gaining popularity within the FMCG market, and is expected to offer companies good profit margins as such products successfully meet many consumers’ daily breakfast needs.
A spokesperson at Lizi’s said: “Consumers’ interest in health and wellness is growing, with the rise of more fluid and convenient lifestyles. By offering a lower-in-sugar, higher-in-fibre, and protein on-the-go option, we are confident and are expecting high demand for our nutritious breakfast drink.”
What change do you expect to see in the number of M&As in your industry over the coming six months and why?
According to the survey, 58% of respondents anticipate an increase or significant increase in the total number of M&A activities within the global FMCG industry over the next six months. Due to an increase in competition, high pressure on profitability, new food habits, and a need for improved customer experience and loyalty for the brand owners, the FMCG industry is expected to see an increase in the number of consolidations in the next six months.
Additionally, factors such as improved global reach, consumer awareness regarding health and wellness, and increasing technological innovation are expected to encourage companies to get involved in mergers during August 2018–January 2019. For example, in September 2018, Nestlé announced that it was to complete the acquisition of majority stakes in Terrafertil, a natural foods company based in Ecuador. The investment will help Nestlé to bolster its healthy plant-based foods, beverages, and snacks market.
A C-level executive at Nestlé said: “Consumers these days are increasingly looking for organic and natural food with high nutrient content. We are delighted to have Terrafertil as part of the Nestlé family as we believe that they have built an exception foundation in providing consumers with a wide range of high-quality modern nutrition products.” However, 31% of global FMCG industry executives expect no change in M&A activities over the coming next six months.
Views and opinions on mergers and acquisitions activities: In their own words
What change do you expect to see in the number of mergers and acquisitions in your industry over the coming six months and why?
“There are lots of new players with innovative brands/products which, after the growth phase, create opportunities for global players to expand.” – C-Level Executive, Branded Cosmetics and Toiletries Producer/Manufacturer, India
“Many producers are too small to be able to service their markets, maintain customers, or do efficient acquisition.” – C-Level Executive, Branded Alcoholic Beverage Producer/Manufacturer, Spain
“Diageo, Pernord, and Bardinet are starting to acquire other, smaller companies more frequently.” – Head of Department, Branded Alcoholic Beverage Producer/Manufacturer, Spain
“Find area where investment has most impact. Frequently this is chatbots for customer self-service and churn reduction.” – C-level Executives, Technology consultancy, the US
“A few M&As have happened recently, so we are not expecting any more within the next six months.” – Manager, Branded Food Producer/Manufacturer, the UK
“Smaller companies get acquired by big companies as they cannot compete on logistics. This increases immediate profitability and distribution even if these small companies are get purchased above their intrinsic value.” – C-Level Executive, Packaged Food Wholesaler/Distributor, South Africa
“It is a very stable situation with the producers in the industry. I do not have any information about possible acquisitions.” – Director, Branded Food Producer/Manufacturer, Serbia
Rising competition and market uncertainty were identified as the chief concerns for FMCG companies over the next six months
The highest percentage of respondents (51%) state that rising competition is the biggest concern for FMCG companies during August 2018–January 2018. Meanwhile, 47% of executives predict market uncertainty to be the main concern, and 38% pinpointed responding to pricing pressure. Executives stated regulatory changes, cost containment, political interference, and falling demand as other important concerns for the FMCG enterprises during the next six months. These are as a result of varying business needs, price competition, government regulation, and political interference. By overcoming these challenges and seizing new opportunities, companies are expecting to enhance their growth and revenue across various markets during August 2018–January 2019.
Procurement activities outlook
The highest percentage of executives state that organisations will focus on locating lower-cost sources of supply and pursue joint cost-reduction efforts with selected suppliers. Among surveyed FMCG industry executives, 51% expect a significant increase in procurement activity towards capital equipment purchases and IT services, while 49% predict a moderate increase. Globally, 36% of respondents foresee their companies' global procurement budget to exceed US$1 million during August 2018–January 2019. On average, FMCG organisations’ procurement expenditure is expected to increase by 6.4% over the next six months. Worldwide, 66% of FMCG industry executives project a significant or moderate increase in supplier prices over the next six months
Overall, 40% of respondents anticipate locating lower-cost sources of supply to be the leading procurement resources and objectives of their company over the next six months, while 39% said the same about pursuing joint-cost reduction efforts with selected suppliers. With the increase in the number of competitors and uncertainty within the FMCG market, companies are facing challenges in their bid to gain profit margins, and reduce their operational and raw material furnishing costs. Organisations are also looking to gain technological advantages to drive overall growth and expansion within the global FMCG market. Respondents showed the least optimism in closer monitoring of the financial viability of suppliers and in improving the security of supply.
Views on changes in organisations’ procurement expenditure: In their own words
“Procurement expenditure is expected to increase due to inflation and increased prices for some strategic materials.” – Manager, Branded food producer/manufacturer, the UK
“The CSP has to understand the positive affect of AI and decide to investment in this technology. It's not a question of economic effects, it's a must!” – Regulatory Body, Head of Department, Hungary
“Increase in VAT by 1% and increase in petrol, diesel, and aviation fuel prices causing increase in spending.” – C-level executive, Packaged food wholesaler or distributor, South Africa
“Market uncertainty, Brexit effect, force major effect, fragrance prices increasing.” – Head of Department, Contract or Private Label Cosmetics and Toiletries, England
“Overall expenditure will remain unchanged, while some countries/markets invest in equipment, others remain unchanged, additionally, everybody is working on savings/ reduction.” – Director, Branded non-alcoholic beverage producer/manufacturer, Russia
Reasons for increase in procurement expense:
• Increase in sales driving procurement spend
• Market growth
• Cost containment
• To keeps pace with sales growth
Reasons for increase in procurement expense:
• Support business expansion
• Expanding portfolio
• Increased budget, New clients, and increasing pressure
Reasons for decrease in procurement expense:
• Raw materials cost reductions
• No new assets
• Business fall off
• Sales slump and economic instability
Reasons for no change in procurement expense:
• Cost increase to offset by more efficient buying
• Cost containment, fixed budget and supplier negotiation
Digital transformation and emerging technology
Globally, 43% of FMCG industry executives state that their organisation has a digital transformation strategy that is either enterprise wide or within the business lines of their organisation. The highest percentage of respondents state that customer engagement has the most scope of digital transformation within FMCG organisations.
Overall, 45% of executives identify lack of specific skills and talents as the most critical barrier that hinders digital transformation within enterprises, while 36% pinpoint organisation silos. According to the survey, 55% of executives point to strong leadership as a prominent factor in successful digital transformation. Adequate collaboration between IT and business lines was mentioned by 53%. APIs & digital platforms and the internet of things (IoT) are identified as key emerging technologies expected to gain investment within the FMCG industry over the next two years