Two instances do not make a trend, but Unilever’s ice cream spinoff on the heels of Kellogg’s cereal spinoff has me wondering if we will see more shrink-to-grow portfolio shaping in CPG. This industry has seen M&A waves in the past, often triggered by broad-based doubts about growth prospects. These past M&A activity surges have been primarily about buying into growth opportunities, e.g., faster growing categories, geographies, and channels. But most high growth companies in CPG today are small. And most slow-growth, potential acquirers are big. If you are big and need another 100bp of topline (a very typical problem), you either need one big deal (generally not available) or many small deals (impractical and time consuming) to make the math work. Even a $100M company growing at 20 or 30% is not going to move the needle much on a $20B revenue base. So, they are stuck. Or maybe not. Big company CPG portfolios have many brands and often many categories. These brands and categories have different growth rates – and some are quite slow or even negative. Some also have meaningful scale. Like ice cream. Or cereal. Shedding big slow-growers is another way to make the math work – accretion by subtraction. This is not a strategically complicated industry. The big incumbents have been running the same basic model for many decades. They are served by the same bankers and the same consultants, often hired to address the same cyclical challenges. It isn’t surprising that they can become occasionally imitative. Beyond my certainty that this option is being discussed in boardrooms across the industry, I am not making predictions, but it is worth watching to see if two instances do indeed become a trend. https://lnkd.in/ggjVERA8
Bryan Gildenberg
8mo
This is a multi year journey for Unilever - having sold off a number of their food businesses. Nestle selling its candy business is another. Businesses that primarily generate cash and businesses that need cash to grow seem like they'd compliment each other in a portfolio but the capital markets have changed...investors want a more singular focus in that respect from their investment because investors don't need boards to build a portfolio for them anymore. It's the same reason no one needs a department store anymore but in the B2B world...conglomerates are the department stores of business.
David Clark
9mo
I think you’re right Peter. With interest rates set to fall and the pressure to show topline improvement, the economics supporting “demergers” are likely to become more attractive. It’s not hard to scroll through the portfolio of CPG companies and see businesses with slow growth and structural disadvantages (like a low margin dairy business competing internally for resources with a high margin snacks business) where more value could be created by separating, assuming like Unilever and Kellogg that they can cover the stranded costs with productivity. No doubt the consultants and activists will be shopping this space.
Laurent Burman
8mo
+1 with the growth of Ecommerce being a major driver of some of those divestitures. Businesses that don’t lend themselves as easily to a higher growth, Ecommerce playbook (fresh/frozen, confection, low price commodities) may still be very successful, but are less attractive to big CPGs. Also businesses that have tended to be trade focused vs. brand/consumer focused are less attractive given the private label environment.
Lee Jeyes
8mo
The spin-off could signify a deeper insight than first thought. Insights from a Morgan Stanley study reveal ice cream is commonly the initial indulgence eliminated by individuals on GLP-1 weight loss medication. Might this move hint at a larger, expected shift in consumer behaviors driven by the widespread use of GLP-1 drugs?
Mike B.
8mo
I'll add one more ingredient that is hard if a CPG / FMCG isn't resourced properly - execution, particularly at retail. There's not a retailer that can't deliver 10% unit growth just improving the in-store fundamentals of execution. Its not sexy, glamorous and less scalable than most other actions that are taken. Execution needs differ from category to category, retailer to retailer - but somehow these mechanics never get meaningful airtime or resources internally.
Andrea Pellicani
8mo
UL is clearly trying to reinvent itself under the new leadership: - Focus on portfolio of power brands: these brands account for 75% of total sales and 90% of total growth - Higher margin: ice cream was dilutive, standalone and management complains about its seasonality (no, we dont eat ice cream in winter) - "Leaner": 7800 jobs, mostly backoffice, are not justified by the spin-off of ice cream only. Ai might take part of the blame Let's see if it's PE or a newly listed company eating the next Magnum..
Maurice Moragne
8mo
Agree Peter. The "1 +1=3" as the desired stock value outcome has been done, but the latest example benefit will remain to be seen. At some point companies focusing on the quality of their revenue /margin/ebitda will have to come to the forefront. Interestingly, when you look at all of the food industry desired growth, the SOS (share of stomach) is not sustainable nor humanly healthy.
Thought provoking post Peter, thanks for sharing. Having worked in and with some global FMCG companies, it is easier to hive off slower growth areas which by default makes your new co. growth look faster as a whole (without changing much). Strategically and for shareholder confidence and return I get it. An alternative is to introduce new and faster growth 'ways of working' to the existing business, concentrating on areas still with more potential and milking the rest. This is in both Brand Equity and commercial terms areas. Use the advancements in AI and advanced analytics to find those areas/categories/products and optimise them. You can still always then 'hive off' parts of the business after optimising but at least you'll get top dollar for them and kept the cream... although in this case not the ice-cream.
Peter Damen ⬆️
8mo
They cut themselves piece at a time, to please the shareholders. Seen that with Philips, they sold division after division and hardly anything is left now. Just Health. That one is suffering because of faulty apnea equipment. All for the profit of some.
Sales & Business Development
8mo“Investors cheered the plan…”, shares up nearly 6%… pretty much when I stopped reading. Turned to the comments and still not one mention of the 7500 people and their families who are left wondering what they will do next. Sad.