Inside FMCG January 2022 | Page 15

Insights
PepsiCo executive , talks about how many large portfolios within the major FMCG companies become too big to benefit from being under the umbrella company .
“ The synergies you see from being part of the group – procurement , marketing capability , sales leverage – erode at a certain scale . So you reach a point at which you can perform these better separately ,” he says . Similarly , KKR ’ s Pedler describes this as the “ efficiency dividend ”.
“ There is value in the flexibility and focus that comes from being a separate pure-play ,” Pedler states . “ We see investing in these carve-outs as an opportunity to unleash management , with the backing of fresh capital , to pursue strategies that perhaps they weren ’ t able to as part of the broader group .”
Conversely , many new brands struggle to scale , so in the early days of category evolution , there is a benefit to consolidating a portfolio focused on a consumer theme . We ’ ve seen this recently in categories like snacking , cereals , and craft beer – instances where the consolidating owners provide access to scaled manufacturing , better logistics and more favourable terms with retailers .
Over the next few years , these factors will create a period of both divestment and consolidation with significantly more portfolio activity than in the years before .
Where are the opportunities and what will differentiate the winners from the losers in this market ?
If we take the last six years of category growth and look at who has captured the new market value , it has been the smaller brand owners across a lot of packaged food categories , thus creating a market where portfolio owners are actively considering the right opportunities to exit and hunt for consolidation .
As new portfolios are established and grow , it is not quite as simple as picking the right categories ; I believe four key capabilities will determine those who ultimately capitalise on the opportunities in this market :
Brand strategy : building a cohesive brand narrative across the portfolio . Interbrand ’ s Birch describes this as a process of aligning master and subbrands to target consumers .
“ Each brand needs a clear audience to create affinity . If the current brand cannot stretch to reach a new segment or purpose , then either starting or acquiring a new brand that resonates will be critical ,” Birch explains . But , equally , he argues there must be a common thread across the portfolio and a clear purpose behind the master brand ; otherwise , brands will clash , and consumers will see through the veil of marketing .
Flexible innovation platforms : creating manufacturing platforms and having access to flexible equipment to innovate . Arnott ’ s Lowden describes overcoming the current supply-chain challenges in forming , cooking , and packaging equipment as a critical differentiating factor between those that will be able to innovate effectively while the market opportunity still exists and those that will have to sweat assets and try to cope .
“ The lead time on capital equipment is ever-extending . So it becomes critical to design manufacturing around flexibility to remain agile ; otherwise , companies will risk missing key market opportunities ,” he says .
Programmatic acquisition : a data-driven , programmatic approach to acquisitions , leveraging the wealth of data in the market to quickly identify when new brands are on-trend and establish sticky consumer bases , ready to scale . This centres on taking a three- to five-year view on acquisition capital , proactively monitoring the market and approaching targets , and a methodical approach to integration .
Wiring for growth : The key to sustaining the performance is wiring the business for growth . Just as we measure operational performance , there is a need to manage the portfolio performance . We need to ensure transparency on critical metrics and that growth initiatives are aligned with the real-time market opportunities and are moving at the pace to capture them .
One thing is for sure – it will be an exciting year ahead . Will the elephants dance ? Or will the mice get the cheese ?
ADRIAN JAMES is a partner and consumer markets leader at consultancy Partners in Performance .
JAN2022 - insidefmcg . com . au 15