Self-disrupt or self-destruct
Future of consumer business
CEOs of all major consumer product companies face the twin challenges of responding to the disruptive innovation threat in their traditional businesses, while simultaneously harnessing these same forces to create the businesses of tomorrow. The magnitude of the challenge means CEOs need to consider M&A as a strategic enabler to capture innovation-led growth. In our point of view, we take a deeper look at some of the challenges and examine how companies are using M&A strategically to win the battle for the consumer;
- From “owning the aisle” to “owning the consumer” - In the past, the growth strategy for consumer product companies was defined by a philosophy of “owing the aisle”, so that whenever a product or geographic gap was identified, a new brand would be launched or challenger brand acquired to fill in the gap. In recent years, the digital revolution has transformed the world and data is the new battleground. This paradigm gives a significant advantage to asset-light, digitally native start-up brands that are using consumer data as the basis of competition and bypassing the traditional advantages of scale and scope. As a result, well-established companies now face the risk of decreasing customer loyalty, shortened product life-cycles and erosion of market share.
- Unbundling the business model - Recent technological advances are providing breakthroughs in emerging technologies such as Cognitive analytics, Artificial Intelligence, Robotics and others. The disruptive potential of these new technologies are further amplified by shifts in consumer behaviour. This means challenger start-ups can build profitable businesses that were simply not possible a few years ago and this is eating into the core markets of established consumer product companies. Disruption is also coming from the larger players who are using M&A to consolidate at pace and build deep horizontal integration along speciality lines such as supply chain, product marketing and others. Combined, these disruptive shifts are lowering the barriers to entry for product development, cutting the cost of demand fulfilment and allowing the proliferation of direct-to-consumer product channels.
- The promise of cross sector convergence - The advances in digital and analytics technologies are reshaping how products and services are developed, delivered and consumed. Traditional sector boundaries are being blurred, leading to convergence of business models across disparate sectors such as consumer products, health, finance, media and technology. Consumer product companies are now facing non-traditional competitors who strategically acquire technologies to create new consumer product offerings and in the process are reshaping the competition.
- M&A is leading the corporate fightback - Consumer product companies are increasingly started using M&A and corporate venturing as a strategic expedient to capture innovation-led growth opportunities. By our estimate, consumer product companies invested around $46 billion acquiring or investing in disruptive innovation assets over the last three years. These companies have also committed $900 million of corporate venture funds to invest in start-ups. Consumer product companies are also increasingly outside of their comfort zones and investing in convergence inspired opportunities such as in Nutrition, Fitness, Retail payments and many others.
- Using M&A to own the consumer experience - Data is the new battleground for owing the consumer experience. Disruptive M&A is not just about acquiring a brand or product category, but instead is about orchestrating a series of deals all driving towards a strategic goal of having a significant stake in every experience a consumer has with your product. This demands a rethink of the M&A strategy and the capabilities required to harness these new market opportunities.
Source: Deloitte Analysis