Trends

Sales

Manufacturing

$14trillion

2025

$8trillion

2014

Key M&A Deals2016 - 2018

Key motivations for M&A u CPG giants losing shelf space and market share due to increasing consumer preference for healthy, natural,

environment-friendly and more authentic products

u With Amazon setting the bar for consumers' online shopping expectations, CPG companies have started buying or investing in ‘non-core’ targets to improve logistics and delivery platforms

u Large CPG firms are also focusing on data analytics firms to understand and speak to shoppers better

+57.1%+7.1%+2.5%

+1.3%-0.5%-0.7%

The CPG sector is increasingly focusing on personalisation and providing convenience to customers. The sector is being driven by shifting consumer preferences toward healthier and sustainable options, emerging distribution channels and agile small brands

Sector size

Business models

Key growth categories � Beverages � Alcohol � Food

Historic

Brand presence

Distributionchannels

Pricepoint

Approach

Current

Big brands dominated retail shelves

Smaller brands with greater control over their supply chain gain market share

Big brands offered better pricepoints with high volumes andeconomies of scale

Agile brands offer better price points due to operational

efficiencies

New/small players hadlimited access todistribution channels

The internet has allowed small players greater access to

distribution channels

Universal approach to build mass-appeal and generate efficiencies

During 2010–2016, Gillette’s share of the US men’s razor marketfell from 70% to 54%, while the combined market share of start-up low cost competitors such as Dollar Shave Club and Harry’s rose from 7.2% in 2015 to 12.2% in 2016

Legacy brands can witness a sudden fall in sales if they fail to adapt to a rapidly evolving market and new agile competitors

Brands use tailored approaches to target different consumer

segments

5,150

2,766

2,486

2,379

1,732

55548690217

1. Data based on patents filed during Jan 2014 – Jan 2019. Data is not exhaustive, as patents filed from July 2017 may not have been published yet. Only 1 patent per invention has been considered, as there may be multiple patents filed in different countries to protect the same invention

InnovationCPG companies are moving towards natural and sustainable products

Buzz words for 2019

Total number of patents filed1

(Jan 2014 - Jan 2019) 2019 trendsIncreasing focus on building clean-label F&B offerings – made with pure and natural ingredients – to boost sales

Optimising e-commerce offerings

Rising adoption of green packaging and bio-based plastics

Growing utilisation of smart packaging – by integrating mobile and IoT – to strengthen brand-to-consumer relationships

SMART PACKAGING

SUPPLY CHAIN OPTIMISATION

AI-basedInteractivePlatformsMeat Analogues

Clean-labelIngredients

Supply Chain

Distribution

IoTAutomated replenishment of raw material

inventory

AI/MLImproved raw material consumption

forecasting

RoboticsAutomated manufacturing using industrial

robots

Digital traceabilityAccurate raw material source tracking

AR/VRImproved product design and development

IoTEnhanced visibility of goods across different channels

AI/MLPredictive staging

RoboticsAutomated warehouse management systems

Digital traceabilityAccurate product tracking to source

IoTPre-programmed ordering via connected devices

AI/MLDemand forecasting

RoboticsAutomated bots to assist customers in-store

Digital traceabilityProduct tracking and ensuring product authenticity

AR/VRVirtual retail store and VR demo stations in physical retail outlets

AI/MLAutomated aftersales service

RoboticsAutomated customer support

Digital traceabilityBetter monitoring of supplier quality for

warranty cases

AR/VRCustomer engagement through AR/VR

TECHNOLOGIES expected to disrupt CPG supply chain

Competitive landscape

$29.6billion

$30.4 billion

$31.9 billion

$40 billion

$47.8 billion

$54.9 billion

$57.6 billion

$64.6 billion

$66.9 billion

$90.9 billion

2.1% GrowthHQ-Switzerland

1.8% GrowthHQ-US

1.8% GrowthHQ-US

-5.1% GrowthHQ-UK/Netherlands

-1.9% GrowthHQ-Belgium

9.3% GrowthHQ-Brazil

1.8% GrowthHQ-US

-10% GrowthHQ-US

3.5% GrowthHQ-France

3.1% GrowthHQ-US

Top 10

Global CPG Companies -by sales (2018)1

Nestle P&G PepsiCo Unilever ABInBev1 JBS1 Tyson Foods

The Coca-Cola Company L'Oréal Philip Morris

International

Net Margin(%, 2014)

15.8 13.9 9.8 10.7 24.0 1.7 2.3 15.4 12.3 25.2

Net Margin(%, 2018)

11.0 16.2 19.4 18.4 12.6 0.6 4.9 20.2 14.5 26.7

Coca-Cola Colgate Maggi Lifebuoy Lay's Pepsi Nescafé Indomie Sunsilk Knorr

Market penetration (%, 2017)

41.3 61.6 30.4 27.5 29.1 22.7 22.3 4.7 23.8 27.1

YoY CRP* growth (2017)

-4 0 14 -7 6 -5 -8 -1 1 -2

R

5,817

3,886

2,489

2,375

2,0731,9711,9551,817

1,7991,748

*Consumer Reach Points (million) - measures how many households around the world are buying a brand

Revenue growth of 400 US-based leading CPG firms (July 2017–June 2018)

The number of deals for the global top 50 CPG firms jumped to a 15-year high in 2017Number of deals involving the global top 50¹, 2003-17²

Growth leaders are substantially outperforming their peers

YoY growth in USD sales

Top ten companies

All others

Large Midsized Small

Source: RI ILD POS database, 2011-2017, MULOC; IRI and BCG analysis

Note: Large is more than $5.5 billion, midsized is $1 billion to $5.5 billion and small is less than $1 billion in sales

Although small companies, on average, outperformed their larger counterparts, top- performing midsized and large companies also experienced growth

Key strategies

Key strategies followed by successful companies to distinguish themselves and drive sales growth

Differentiated product offerings

Target consumers with greater precision

Complement organic growth with M&As

Size used to be one of the most important factors of success, but e-commerce has leveled the playing field, subsequently allowing smaller brands to reach consumers in unprecedented ways.

– IRI (October 2018)

M&As

3641 41

53 5145

49 4956

51

41

60

48

3237

33 21 96 55 144 233 59 60 38 79 70 54 226 50 1453,4

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Value USD bn

1. Undisclosed value deals are not considered2. Dates refer to the deal announcement date. Deals that have been announced in 2017 are considered

for analysis.3. 65 transactions in total by global top 50 players (41 acquisitions and 24 divestments), but 5 of these

included a global top 50 player on both sides of the deal.4. Excluded 4 deals with non-CPG purposes or deals within the same group of companies, including

Johnson & Johnson’s acquisition of biopharmaceutical company, Actelion Pharmaceuticals Ltd. LVMH’s acquisition of Christian Dior Couture S.A., Henkȩl (Adhesive Technologies)’s acquisition of (International Breweries, Intafact Beverages and Pabod Breweries).

Source: Mergermarket, Trade press, OC&C analysis.

$145 billion

Global M&A activity among the world’s top 50 CPG firms from P&G and L’Oréal to Unilever – jumped ~46%

YoY to a 15-year high of 60 deals in 2017, with total value of those deals increasing almost 3x YoY to $145 billion. This trend continued in 2018 as well and is not expected to slow down

Global M&A trends

46%YoY growth

Mead Johnson Nutrition CompanyFeb, 2017

VCAJan, 2017

Beer business (Centraland Eastern Europe)Dec, 2016

Reynolds AmericanOct, 2016The WhiteWave

Foods CompanyJuly, 2016

Pinnacle FoodsJune, 2018

Retail operations of various Starbucks' brandsMay, 2018

Blue Buffalo Pet ProductsFeb, 2018

Snyder's-LanceDec, 2017

Spreads division of UnileverDec, 2017

$17.9 billion

$8.0 billion

$6.1 billion

$8.0 billion

$7.2 billion

$10.9 billion

$12.5 billion$49.4 billion

$7.8 billion

$9.1 billion

Strategic investmentsCPG giants are increasingly investing in small–midsized specialised companies to collaboratively develop eco-friendly and healthy products, sustainable packaging and innovative marketing and supply chain solutions

Strategic investment examples by large CPG players (2017–2018)

Date Investor Target Investmentobjective

Focus product/service

Dec-18 Walker & Company

Enhance development of new products for people of colour

Health and beauty products customised for different ethnicities

Dec-18 Primal NutritionInnovation and development of healthy and environment-friendly products

Snack bars and paleo-focused food products

Oct-18 Ethical BeanInnovation and development of healthy and environment-friendly products

Environment-friendly packaged coffee

Jun-18 Bare SnacksInnovation and development of healthy and environment-friendly products

Non-GMO baked fruit and vegetable snacks

May-18 LePurInnovation and development of healthy and environment-friendly products

Premium additive-free Greek yoghurt

Dec-17 Beyond MeatInnovation and development of healthy and environment-friendly products

Plant-based meat substitute

Nov-17 NativeInnovation and development of healthy and environment-friendly products

Natural paraben-free and aluminum-free premium deodorants

Jun-17 CeltraLeverage data analytics to better understand demand and improve digital marketing content

Mobile creative management platform

May-17 Sun Basket Enhance direct-to-consumer and subscription distribution channels

Healthy, organic meals service platform

Mar-17 Bringg Leverage tech-based solutions to improve distribution supply chain

Last-mile logistics and on-demand delivery platform

To learn how our advanced analytics solutions, proactive category and procurement intelligence, and regular patent and innovation updates could help your business better understand and adapt to consumer preferences, please contact us at info@thesmartcube.com.

Intelligence. Accelerated

thesmartcube.com

2014 2025ForecastCAGR

5.2%

Margins declined owing to declining global sales volume and charges related to exiting the

manufacturing and distribution business

Margins fell following poor performance in the US and Brazil, and rising commodity prices

Registered increase in margins by increasing product prices, especially in developing markets

Consumers are increasingly switching to fresh foods as prepared and prepacked products are viewed as unhealthy, leading to declining CPG sales

Booming gender-neutral beauty and male personal care products driven by consumers moving away from traditional gender stereotypes

BUDGET- CONSCIOUS

MILLENNIALS

D I G I TA L T EC H N O LO GY I N F LU E N C I N G CUSTOM E RS

S H I F T TO O N L I N E C H A N N E LS

D I F F I CU LT TO CO N N ECT W I T H

CO N S U M E RS

B O OM I N G G E N D E R-N E U T R A L

B E AU T YR I S E O F

F R ES H FO O D S

Global CPG sector outlook

4 key applications of technology that will disrupt supply chainsThese are anticipated to reach maturity during the next 2–5 years and increase value add for consumers. Organisations that make these technologies an integral part of their overall business and financial strategy will be able to reap the highest gains

Aftersales

Case example

Digital technology is increasingly shaping and influencing buyer behaviours, and allowing CPG companies

to engage with customers on a personal level

Budget-conscious millennials are increasinglypurchasing cheaper own-label products

As

consumers shift to online

channels, and small and midsized brands come to the fore, large CPG

brands are losing the ability to dominate shelf space and influence purchasing decisions

Large brands are

finding it difficult to connect with consumers

who increasingly associate positive attributes such as localness, honesty, trustworthiness and sustainability with ‘small brands’

1. ABInBev and JBS sales figures are for financial year ending Sep 2018

TOP 10 GLOBAL CPG BRANDS

2018*

Forecast