Welcome back to Omnikarma. Thank you for the amazing number of reads and the responses via personal e-mails to my previous post on The Big 5*5. And please continue to share your feedback and critiques on the topics being discussed here.
Today, I wanted to provide a quick update on a post that I published about two years ago (in case you missed it, you can read the original blog at the very end). In short the key message in that blog was that there were would be a rapid(and further) consolidation within the FMCG space - across retailers, suppliers and the branded players - and until then we would see a significant amount of turmoil in the industry in terms of profit reductions, job cuts and disappearance of incumbent firms. Two big pieces of M&A activity in the last 30 days confirm my prediction - first the acquisition of SAB Miller by AB InBev and second is the news yesterday indicating the move by Walgreens Boots to swallow Rite Aid.
First, some context on the global beer industry consolidation. In 2003, Anheuser Busch had a 8.5% market share of the global beer market and the HHI of the industry was about 276 (Source: Euromonitor and Goldman Sachs, HHI standing for 'Herfindahl-Hirschman Index - HHI'
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000, higher the number indicating more concentration of the market). By 2013, AB already had a market share of 21% and the HHI of the Beer industry had increased to 725. Now with the AB Inbev acquisition of SAB Miller (the latter having a 8-9% share), one can easily predict that the HHI has increased above 1200. I predict that there is further consolidation in the offing before the industry reaches equilibrium. Next to be gobbled up - Carlsberg maybe ?
As the companies consolidate, I also predicted consolidation in the retail space. Needless to say, we had the 2nd and 3rd biggest pharmacy retailers - Walgreens Boots and Rite-Aid coming together to create further consolidation in the retail space. As per my calculations, in 2014 Walgreens had a 27% market share (considering only the Top 10 chains) of the RX pharmacy retail space in the U.S and Rite-Aid had roughly a 10% market share with the total HHI of the market at about 1800. After this combination, the HHI would go upto about 2300. The U.S competition commission considers a HHI of roughly 2500 to be the ideal number above which the market starts to become highly consolidated.
And I could give you even more examples from the packaged and branded coffee and food markets to highlight the consolidation trend.
What does this mean ? Expect further consolidation especially in the Supplier and Retailer space. The Media buying and Ad agency industry is ripe for further consolidation while the amazing growth of Amazon, Alibaba and other e-commerce sites has set the perfect background for a Tesco-Walmart or a Carrefour-Walmart combine. A Reckitt-Henkel or Colgate-SCJ consolidation maybe ?
Exciting times ahead !!
MY POST FROM JULY 30, 2013
About 6 years ago, I was having a heated debate with a group of colleagues from my former employer - Reckitt Benckiser. We were reacting to a report in the press that day concerning the possibility of Reckitt-Colgate Palmolive merger. My view on the FMCG landscape was the rule of 4. In the end (I mean as our lives approach infinity if ever there was a phrase like that !) every FMCG category would have the space for only 3 or 4 big players, 3 or 4 big suppliers and 3 or 4 big retailers. The Omnicom-Publicis merger is another example of this long term trend. So my prediction is that the end state would look like:
FMCG branded players
Food - Nestle, Unilever & Mondelez/Pepsi snacks combined (and 1 player from emerging markets), Danone/Kelloggs/General Mills combine maybe ?
Beverages - Pepsi, Coke and Nestle
Beer: SAB Miller, AB Inbev, Heineken and Tsingtao
Household products: P&G, Unilever, Colgate Palmolive-Reckitt combine, SCJ (possibly folding into Unilever)
Retailers - Amazon, E-Bay, Walmart and Carrefour
Agency Suppliers - WPP, OmnicomPublicis, IPG/Dentsu
Why do I say this ?
The FMCG industry is increasingly finding it difficult to sustain innovation (and will continue to do so) as technology improves the speed with which Private Label brands will copy innovation and bring down prices and margins. Further, retailers will continue to press smaller FMCG players to cut their margins and increase payment terms thus weeding out the smaller players from the market. This will in turn further increase the power of the retailers. Moreover the rapid rise of Amazon will force out many of the smaller retailers from the market.
The FMCG players will retaliate and to balance this power of the retailer, we will see more and more M&A as smaller and mid sized players will merge with each other or be taken over by the biggest players. Gillette being purchased by P&G and Mondelez acquiring Cadburys - all in the last 10 years bear testimony to my predictions.
Finally as FMCG players get bigger - they will demand better and cheaper services from their agencies. And hence to complete my theory - smaller agencies will no longer be able to deal financially with these requests and eventually fold up or seek to merge.
And as power shifts to agencies and FMCG players...what do you get - more consolidation within the retailer space and the merry go round goes on and on and on...
Simple theory or conspiracy theory....you decide.
Today, I wanted to provide a quick update on a post that I published about two years ago (in case you missed it, you can read the original blog at the very end). In short the key message in that blog was that there were would be a rapid(and further) consolidation within the FMCG space - across retailers, suppliers and the branded players - and until then we would see a significant amount of turmoil in the industry in terms of profit reductions, job cuts and disappearance of incumbent firms. Two big pieces of M&A activity in the last 30 days confirm my prediction - first the acquisition of SAB Miller by AB InBev and second is the news yesterday indicating the move by Walgreens Boots to swallow Rite Aid.
First, some context on the global beer industry consolidation. In 2003, Anheuser Busch had a 8.5% market share of the global beer market and the HHI of the industry was about 276 (Source: Euromonitor and Goldman Sachs, HHI standing for 'Herfindahl-Hirschman Index - HHI'
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000, higher the number indicating more concentration of the market). By 2013, AB already had a market share of 21% and the HHI of the Beer industry had increased to 725. Now with the AB Inbev acquisition of SAB Miller (the latter having a 8-9% share), one can easily predict that the HHI has increased above 1200. I predict that there is further consolidation in the offing before the industry reaches equilibrium. Next to be gobbled up - Carlsberg maybe ?
As the companies consolidate, I also predicted consolidation in the retail space. Needless to say, we had the 2nd and 3rd biggest pharmacy retailers - Walgreens Boots and Rite-Aid coming together to create further consolidation in the retail space. As per my calculations, in 2014 Walgreens had a 27% market share (considering only the Top 10 chains) of the RX pharmacy retail space in the U.S and Rite-Aid had roughly a 10% market share with the total HHI of the market at about 1800. After this combination, the HHI would go upto about 2300. The U.S competition commission considers a HHI of roughly 2500 to be the ideal number above which the market starts to become highly consolidated.
And I could give you even more examples from the packaged and branded coffee and food markets to highlight the consolidation trend.
What does this mean ? Expect further consolidation especially in the Supplier and Retailer space. The Media buying and Ad agency industry is ripe for further consolidation while the amazing growth of Amazon, Alibaba and other e-commerce sites has set the perfect background for a Tesco-Walmart or a Carrefour-Walmart combine. A Reckitt-Henkel or Colgate-SCJ consolidation maybe ?
Exciting times ahead !!
MY POST FROM JULY 30, 2013
About 6 years ago, I was having a heated debate with a group of colleagues from my former employer - Reckitt Benckiser. We were reacting to a report in the press that day concerning the possibility of Reckitt-Colgate Palmolive merger. My view on the FMCG landscape was the rule of 4. In the end (I mean as our lives approach infinity if ever there was a phrase like that !) every FMCG category would have the space for only 3 or 4 big players, 3 or 4 big suppliers and 3 or 4 big retailers. The Omnicom-Publicis merger is another example of this long term trend. So my prediction is that the end state would look like:
FMCG branded players
Food - Nestle, Unilever & Mondelez/Pepsi snacks combined (and 1 player from emerging markets), Danone/Kelloggs/General Mills combine maybe ?
Beverages - Pepsi, Coke and Nestle
Beer: SAB Miller, AB Inbev, Heineken and Tsingtao
Household products: P&G, Unilever, Colgate Palmolive-Reckitt combine, SCJ (possibly folding into Unilever)
Retailers - Amazon, E-Bay, Walmart and Carrefour
Agency Suppliers - WPP, OmnicomPublicis, IPG/Dentsu
Why do I say this ?
The FMCG industry is increasingly finding it difficult to sustain innovation (and will continue to do so) as technology improves the speed with which Private Label brands will copy innovation and bring down prices and margins. Further, retailers will continue to press smaller FMCG players to cut their margins and increase payment terms thus weeding out the smaller players from the market. This will in turn further increase the power of the retailers. Moreover the rapid rise of Amazon will force out many of the smaller retailers from the market.
The FMCG players will retaliate and to balance this power of the retailer, we will see more and more M&A as smaller and mid sized players will merge with each other or be taken over by the biggest players. Gillette being purchased by P&G and Mondelez acquiring Cadburys - all in the last 10 years bear testimony to my predictions.
Finally as FMCG players get bigger - they will demand better and cheaper services from their agencies. And hence to complete my theory - smaller agencies will no longer be able to deal financially with these requests and eventually fold up or seek to merge.
And as power shifts to agencies and FMCG players...what do you get - more consolidation within the retailer space and the merry go round goes on and on and on...
Simple theory or conspiracy theory....you decide.
6 comments:
Smaller players are many times successful in catering to a specific /niche consumer need and with M&A with larger entities the brand vision does get blurred.
However if this does happen (i.e. top 4) I feel there will be emergence of strong 5th front which would stronger presence of instore brands.
even the niche segments will not last long. I guess the smaller players will serve as a tool for the giants to identify the niches for entry. Very strong theory indeed! if the smaller players find ways of scaling up those specific ideas that they come up with we can see an anti thesis to your argument o/w this is indeed a vicious cycle, starting from FMCG players to the retailers. You have made me think! good piece!
Thanks Sohaib, very well said. Unfortunately the rule of most industries is that the big get bigger but yes the smaller niche players will indicate pockets of opportunity.
Great post....Thank you for posting the great content……I found it quiet interesting, hopefully you will keep posting such blogs…
If you Want more details kindly Visit us
Hey I’m Martin Reed,if you are ready to get a loan contact.Mr Benjamin via email: 247officedept@gmail.com ,WhatsApp:+1 989-394-3740 I’m giving credit to his Service .They grant me the sum 2,000,000.00 Euro. within 5 working days.Mr Benjamin work with group investors into pure loan and debt financing at the low ROI to pay off your bills or buy a home Or Increase your Business. please I advise everyone out there who are in need of loan and can be reliable, trusted and capable of repaying back at the due time of funds.
Post a Comment