2016-07-08-OC_C-New_balls_please_9页_3mb

Summary of Document Content

Core Content

The document discusses the challenges faced by the global FMCG (Fast-Moving Consumer Goods) industry in the wake of Brexit and other global economic and political factors. It highlights how the industry is struggling with weak growth, currency volatility, and shifting consumer preferences, while also examining key mergers and acquisitions that have shaped the landscape.

Main Points

• Brexit Impact:
  Brexit has caused significant uncertainty and economic disruption, particularly for the UK and global markets. The pound has weakened by 12% against the dollar, creating challenges for companies with operations in the UK and EU.

  • Currency Headwinds: Companies sourcing in dollars and selling in sterling or euros face increased costs, while exporters like Diageo and British American Tobacco benefit from translational gains.
  • Global Uncertainty: The potential for more EU countries to leave the EU and the rise of anti-establishment politics threaten global GDP and consumer spending.

• Weak Growth Trends:
  The global FMCG industry has seen a decline in growth, with the weakest post-recession growth in 2015. Organic revenue growth has dropped from 4% in 2013 to 3.4% in 2015.

  • Volume Decline: Weakening volume growth is a key factor, with some companies like Kraft Heinz, Carlsberg, and Mondelez reporting significant drops.
  • Consumer Shifts: The global consumer base is growing, but global FMCG companies are losing market share, especially in premium markets.

• Currency Volatility:
  Currency fluctuations have had a major impact on reported sales and margins.

  • Exchange Rate Effects: The strength of the US dollar has worsened the performance of European and other currencies, while the Japanese yen has appreciated.
  • Margin Impact: Companies with dollar-denominated costs and devalued currencies face margin pressures, although some, like AB InBev, have benefited from favorable exchange rates.

• Mergers & Acquisitions:
  M&A activity has been a key strategy for growth and consolidation.

  • AB InBev/3G Capital: Acquired SAB Miller, creating a major player in beer, and also merged with Kraft to form Kraft Heinz.
  • JBS: Acquired Moy Park and Cargill Pork to expand its presence in the UK and US.
  • Suntory: Expanded through acquisitions like Beam Inc, becoming a major player in spirits and soft drinks.
  • Reynolds American: Acquired Lorillard, gaining a larger share of the US tobacco market.
  • Campbell Soup: Entered the Global 50 through the acquisition of Garden Fresh, expanding into fresh foods.

• Commodity Deflation:
  Falling commodity prices, especially food and dairy, have impacted revenue growth.

  • Oil Price Collapse: The drop in Brent crude oil prices led to a 19% decline in food commodity prices.
  • Dairy Prices: Suffered a 28% drop, affecting global dairy firms like Dean Foods and Arla Foods, though companies like Danone have been less impacted due to a focus on premium products.

• Shift in Consumer Preferences:
  Global brands face challenges from local competitors and changing consumer behavior.

  • Local Brands: Outperforming global brands in some markets, particularly in China.
  • Millennials: Preference for healthier and less processed foods is challenging established brands.
  • Digital Marketing: Reduces the scale advantage of global brands, making the market more competitive.

• Efficiency Drives Margins:
  Companies are focusing on cost-cutting and efficiency to improve margins.

  • 3G Capital's Strategy: Implemented zero-based budgeting, leading to significant cost reductions and margin improvements.
  • Margin Growth: Average gross margins increased from 44.4% in 2014 to 45.1% in 2015, though profit margins declined slightly.
  • Investment in Growth: Companies are increasing marketing and R&D spend to drive growth, despite margin pressures.

• Future Outlook:
  The industry is under pressure to adapt to a more volatile and uncertain environment.

  • Global Consolidation: Expected to continue, especially in sectors with high potential for synergy.
  • Isolationism: Threatens free trade and may further impact growth.
  • Uncertainty: The long-term effects of Brexit and other global shifts remain unclear, with currencies likely to remain volatile.

Key Information

• Growth Decline: The Global 50 FMCG companies experienced a 2.3% growth in 2015, down from 3.5% in 2014.
• Currency Effects: The pound weakened by 12% against the dollar, while the euro also fell.
• M&A Activity: Total deal value reached $226bn, with the AB InBev/SAB Miller merger being the largest.
• Commodity Prices: Food commodity prices fell 19% in 2015, with dairy prices dropping 28%.
• Marketing & R&D Spend: Increased to 6.9% of revenue in 2015, up from 6.2% in 2014.
• Global Brands vs Local Brands: Local brands are outperforming global ones in certain markets, particularly in China.

Conclusion

The global FMCG industry is navigating a complex landscape marked by economic uncertainty, currency volatility, and shifting consumer trends. While M&A and efficiency programs have helped some companies improve margins, the overall growth environment remains challenging. Companies must find new ways to drive volume growth and remain relevant to evolving consumer preferences to sustain long-term success.