Nestlé, Procter & Gamble and PepsiCo are the world’s largest FMCG companies, reveals market analysis by OC&C Strategy Consultants. The top five is completed by Netherlands-based Unilever and Brazilian giant JBS. Combined the globe’s top 50 Consumer Goods suppliers earned a staggering $1,177 billion in income in 2014, up 1.7% vis a vis the previous year, yet beneath the surface lie a number of fundamental challenges for the years ahead.
Every year OC&C Strategy Consultants, a management consultancy with a focus on amongst others the FMCG / Consumer Goods sector, conducts research into the key developments of the top 50 players in the industry. The ranking, titled ‘Global 50 FMCG Giants’, looks into financials such as sales, revenue growth and EBIT margins, as well as underlying fundamentals and metrics.
The 2015-edition of the ranking shows that once again Nestlé can call itself the undisputed number one in the FMCG marketplace, bagging in $100.2 billion in sales, on the back of 0.8% growth. Despite the flattering impact of a strengthening Swiss franc and other currency headwinds, the Switzerland-based firm made impressive gains, booking organic growth (and volumes generally), particularly in China. US giants Procter & Gamble and PepsiCo complete the top three, the latter leading Unilever – which faced a 2.7% decline in its sales – with a small margin.
The top 10 includes three fast growing FMCG companies – Brazilian JBS (+18%), AB InBev and Tyson Foods, the latter two both just missing out on double-digit growth. Coca-Cola Company drops two places to #7 globally, while US-based Mondelez and Archer Daniels Midland complete the top 10.
The first non-Western conglomerate on the list is the Chinese WH Group, which entered the ranking for the first time at #17, thrusted by a staggering 98% growth rate. The positions between 11 and 20 show relatively little variance, with French-origin L’Oréal moving one spot up to11th , displacing Phillip Morris International, the new number #12. Danone, Heineken, British American Tobacco, Japan Tobacco and Kraft all maintain their positions in comparison to the previous year, while General Mills (#19) and Altria Group (#20) managed to move up one and two spots respectively.
Growth under pressure
Overall, the 50 largest FMCG companies of the globe booked growth of 1.7% to a revenue of $1,177 billion. Despite the expansion, the study reveals global growth for these giants has seldom been so anaemic. In 2013 revenue growth was 2.9% (excluding M&A activity), making 2014’s 1.7% the second-weakest growth in a decade – only beaten at the height of the recession in 2008/9 (0.6% growth) – and a fraction of the 10-year average sales increase of 6%. While volume growth (based on 16 of the Global 50) fell to 1.1% from 2.2% last year; the lowest rate for four years.
According to Will Hayllar, Head of Consumer Goods at OC&C Strategy Consultants, the lacklustre growth in revenues and margins suggests issues deeper and more fundamental than a cyclical dip, stating that the “classic Western-style corporate with a big matrix structure is coming under pressure from all sides.”
Growing fragmentation of consumer demand across markets is one of the key areas impacting business models. In Western markets, consumers are demanding products tailored to increasingly specific and fragmented needs – whether that be free-from products, non-traditional flavours or new formats. As a result, the advantages of scale afforded to the multinationals have eroded as smaller players adapt to changing tastes faster than the giants. This “institutional sluggishness” as Hayllar calls it, is most apparent in the US, with market share for the Global 50 falling 1.6% against a 1.9% rise for smaller players.
In developing markets fragmentation is more about regional dynamics. Much of the growth is taking place outside big cities, signals Hayllar, to the benefit of flourishing local players, as Western giants are structurally suited to hitting big cities with volume.
Another factor impacting the Global 50 is deflation. Supermarket price wars and the growth of discounters, particularly in large Western markets, is eroding both share and margins from FMCG giants. The growth of online adds to the mix, generally putting pressure on players which have not adequately managed to transition their business models and distribution channels to the digital realms. Economic factors naturally played a role too, with economic recession in the likes of Brazil, Argentina, Russia and a marked slowdown in China lading to a (marked) decline in sales.
The impact of currency volatility is another area affecting the performance of FMCG’s top 50 players. Most of the largest Global 50 firms are dollar, euro or pound denominated, so volatility – which has grown to heights seldom seen in the past years – has hit them hard. In addition, a bundle of weak emerging market currencies, typically the fastest growing markets, has deflated growth in terms of baseline currencies.
Agility and innovation
Looking forward, FMCG giants still find themselves in a luxury position, and the key to future success lies in anticipating on the changing market landscape. Organisational agility is regarded as one of the key success factors, enabling corporations to constantly adapt to changing consumer, shopper and customer needs through speed to market. Other factors seen as key by FMCG executives include a clear-cut strategy (“winning the right battles”), a strong external focus and investing sufficiently in marketing and innovation.