The pace of market polarization in the consumer and retail sector is accelerating. And the implications for companies and brands are real. Expect to see increased divestment and acquisition activity over the next few years.聽
The disappearance of the middle class
Globalization may have lifted tens of millions out of poverty. Yet it has done little to slow the rising inequality between the top 10 percent of earners and the bottom 50 percent.聽
Even before the global pandemic, inequality was rising sharply in some markets. Since the mid-1990s 鈥� when comparable data started being collected 鈥� the gap between the low- and high-income classes has widened, with wealth becoming increasingly concentrated.
The disappearance of the mass market
As this gap in income equality widens, markets are seeing the emergence of new customer segments with significantly different purchasing behaviors that gravitate around two polarized segments: 鈥楶remium鈥� and 鈥榁alue鈥�.聽
For FMCG companies, the main challenge lies in the fact that these segments have significantly different business and operating models. While Premium brands usually require sophisticated distribution channels and complex marketing strategies, Value products are mainly driven by cost discipline and economies of scale.聽
How to grow in a polarized environment
Premium products generally deliver higher margins when compared to their value equivalents. At the same time, the value segment often enjoys a much larger addressable market. A quick look at a 鈥榖asket鈥� containing different food items clearly shows how premium products deliver higher margins when compared to their value equivalents. Products classified as 鈥榦rganic鈥�, for example, tend to deliver higher growth rates than non-organic.
Download the聽聽to see how each of these segments breaks down in terms of consumer preferences and purchasing behavior.聽
Market polarization: The implications for FMCG companies
Fast Moving Consumer Goods (FMCG) markets have been through a category polarization process for years, increasing the distance between premium and value extremes.
This dichotomy has led many consumer goods leaders to strive to create product portfolios that contain some combination of both premium and value segments. The premium segment represents an opportunity to penetrate fast-growing markets with higher levels of profitability, and value products are key to increasing the existing customer base and enabling economies of scale.
Investors want to go premium
The 乐鱼（Leyu）体育官网 analysis suggests that companies with higher shares of premium products among their product portfolios performed better in the capital markets. Indeed, between 2018 and 2022, those 鈥榩remium-oriented鈥� FMCG companies saw their share prices rise by an average of 89 percent, while those more focused on value products enjoyed an average rise of 4 percent for the same period.
Taking a closer look at the financial data, what investors really seem to be looking for are sustainable growth rates of more than 3 percent per annum and EBIT margins above 15 percent. Miss those targets and 鈥� based on the historical data 鈥� investors will punish you.
Refining the portfolio
Expect the years to come to bring increased activity in the deal space, with many companies divesting their non-strategic and underperforming assets while looking to acquire attractive brands in promising, fast-growing segments.聽
Where are the opportunities? Check out the聽聽to find out where the greatest volume of divestments will likely occur, and which subsectors are ripe for M&A activity.聽
You can read more insights by downloading the full聽.
Consumer goods companies
- Shape the portfolio:聽Thoroughly analyze your current business and brand portfolio in terms of each business鈥檚 stand-alone attractiveness, fit to group鈥檚 strategy and synergy possibilities.
- Dress the assets:聽For assets being divested, take time to prepare them for market sounding.
- Set the sail for growth:聽Organic growth will probably not be sufficient to offset lost revenues amid divestments and you may need to actively search for promising add-on acquisitions.
- Integrate smart and capture value:聽Having a deal playbook with enough flexibility will likely be key to helping ensure value is captured, particularly in the integration phase.聽
Private equity funds
- Apply advanced analytics:聽Anticipate developments early with a forward-looking, data-driven analytical approach to predicting activity on the corporate sell-side.
- Have a vision:聽Develop a clear roadmap to transform the business over the investment cycle and provide the 鈥榬ight鈥� resources in terms of funding and professional operational support.
Our People
