As shared in our Consumer & Retail M&A Outlook 2021: Revival beyond the precipice, we expect Consumer & Retail players to keep adjusting to changing consumer behavior while keeping an eye on long-term growth. Here, we dig deeper into a key theme...
Capability expansion - "speed to door" is on the wish list for 2021
Key learnings from the pandemic include the importance of agility, the advantages of a strong-and-short supply chain and the need for direct customer engagement. The use of digital channels has accelerated rapidly and is expected to continue. From our survey report (PDF 2.3 MB), of 43 percent of consumers using in-person channels to contact brands for support, 33 percent have now switched to digital. Most sector players who lacked an online presence faced supply and distribution challenges. Companies pursued two solutions amid several government-imposed restrictions: Inorganic – partnerships with players such as food-delivery operators offering last-mile connectivity and distribution; Organic – through innovation, such as PepsiCo launching Pantrystock.com and Snacks.com, direct-to-consumer websites for personalized orders at home.
Most large, fast-moving consumer goods (FMCG) players seem determined to strengthen their D2C channels and exert more control over their digital presence, while investing in capabilities to converge supply chains for online and offline channels, along with the consumer buying journey and product return journey. This is expected to reduce costs while better meeting consumers’ online preferences and enhancing consumer-data use amid evolving consumer behavior. Nestlé made two such investments in its DTC capabilities in Q4 2020, fresh-meal delivery service Freshly in the US, and UK meal-kit service Mindful Chef.
The new reality is pushing consumer companies to fully digitalize, to have agile supply chains, to leverage consumer data and to use technology and social media to keep the consumer engaged at all times. We expect the consumer companies who keep up with these aspects to come out stronger from the uncertainty.
Another trend worth watching in 2021 is fintech expansion, as online and non-store purchases are projected to grow from 14.4 percent to 19.2 percent by 2024 in the US2 alone. Meanwhile, the digital- payments market is projected to grow at a CAGR of 13.5 percent over 2020-253. This is expected to propel M&A deal making among consumer players looking to strengthen financial technology capabilities. In another example, Walmart is turning four of its stores into laboratories that will test ways to turn the company’s huge physical footprint into a more-powerful force for e-commerce4.
Global US food giant Mondelez International5, for example, has noted its intent to increase investments in social media, data-driven engagement and online shopping innovations to strengthen DTC engagement. General Mills6 also intends to invest in similar capabilities, particularly data and analytics. We expect consumer players to keep investing in assets inorganically, especially looking for assets that enhance capabilities across both the back end (supply chain) and front end (marketing and distribution).
1 Thomson Deals, accessed on 5 Jan 2021
4 CNBC, News Report: Walmart turns four stores into e-commerce laboratories as online sales surge, https://www.cnbc.com
5 Mondelez Inc, Investor call notes, Thomson Investext
6 General Mills, Investor call notes, Thomson Investext
What are the other major trends are expected for Consumer and Retail M&A in 2021?
In pursuit of the right owner
Assets coming out of such strategic reviews are expected to produce a mega deal in 2021.
In 2020, large players underwent strategic reviews and disposed of assets that were not core to the business or a poor portfolio fit.
Players are also exiting geographies where they do not have a strategic intent to grow, in order to redeploy capital in markets considered strategic in the long term.
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