- FSV News
As every year, the Five Seasons Ventures team attended the Consumer Analyst Group of New York (CAGNY), to hear Big FMCG companies’ view of the industry and future prospects.
Our key-take-aways from CAGNY 2023
1. Portfolio rationalization: focus on the winners
2. Inflation: how to make the consumer pay for the costs of inflation
3. Selective M&A: smaller and easier to integrate
Big Food’s Portfolios: Less is More
Virtually all corporates talked about ‘focus’, about having fewer brands with a ‘winner’ position in the market (read: a #1 or #2 Brand in terms of market share their segment), which has clear preference over having a broad portfolio. Ideally the core business consists of a few >$250m+ revenues Iconic Brands, because of the reduction in organizational and supply chain complexity and better return on marketing spent. Nomad Foods even called this category-winner strategy: ‘Our Must Win Battles’. In short, we expect to see a shift towards less SKUs, with a focus on generating more revenue per SKU. These Iconic Brands need to play in fast-growing categories, or in segments with a big TAM.
‘More’ is for the Consumer: Paying the Cost of Inflation
As a reaction to the difficult economic environment due to inflationary pressures, topic du jour was how to push price increases to the consumer where possible. Premiumization, shifts to products with high margins, and prioritizing Value over Volume were the most talked about tactics. Strong brands with emotional consumption moments showed the best price elasticity (think pet food, snacks, coffee) and the easiest opportunity to premiumize. Low-margin volume segments like bottled water and cereals, seemed to lose popularity because companies struggle to make consumers pay more for what they see as a commodity.
M&A: More Selective, Less Numerous?
On M&A, most corporates hold their cards close to their chests. Some talked about divesting non-core assets to free up cash for strategic bolt-ons (which ties into the first take-away in our analysis). Balance sheet discipline over the last years led to sufficient free cash flows, but increased interest rates call for disciplined investments because the cost of capital has increased. For example, through smaller deals that are easy to integrate for ‘platform synergies. We expect to see more selective acquisitions, either for adjecent catagories where a company wants to expend into, or M&A to strengthen core portfolios in fast-growing catagories.
Other — More or Less the same as every year:
- – Marketing moves online- shift towards digital marketing — platforms like youtube and tiktok are no longer just startup territory (see chart below) as Big Food is discovering them for more personalized and targeted marketing.
- – In case you hadn’t realized yet, big food is after your cats & dogs big time, because this is just the perfect category for premium products, with good margins, and low price elasticity. The global pet food category is growing at a 7% CAGR since 2017 to reach a market size of 119Bn$ in 2022 according to General Mills. So, pets remain a key topic at CAGNY.
- – Trends that everyone expects to continue: snacking, weight management, health, convenience (this can also mean same SKUs in easier formats). However, Oreo cookies is still by far the world’s best-selling biscuit with 4.2B$ net revenue for the Oreo brand and +5PP vs. the average biscuit margin.
- – Sustainability and Diversity. Our read: ‘I got 99 problems so let’s not add another one’. This topic is of big important to all corporates, but after shareholder returns, supply chain improvements, cash management, portfolio optimisation, marketing effectiveness, combatting inflationary pressure, continuing topline growth, targeting Gen Z audiences, white label competition, etc…