Home » Latest News » Dealing With the Diverging Consumer Landscape

Dealing With the Diverging Consumer Landscape


Income inequality, according to the United Nations1, is growing for more than 70 percent of the global population, especially among the most-developed countries and some middle-income countries. When observing consumer buying patterns, this inequality becomes more evident – and more polarizing.

On one hand, there is a spike in demand for premium products offering specific sought-after benefits and offer a distinct value proposition. On the other, demand for value products where customers are price sensitive and focus on product functionality, is also rising sharply. Discounters have been performing strongly since the 2008 financial crisis and value brands generate high sales volumes, contributing significantly to fast-moving consumer goods (FMCG) companies’ profits. Given current economic conditions, both ends of the FMCG spectrum are expected to do well going forward.

With the deepening divide in the consumer landscape between premium and value segments, a single mass-market approach is no longer sufficient. Sales channels, for example, are inherently different based on diverging purchasing patterns between these segments: direct-to-customer models are popular in the premium segment, while discounters and cash-and-carry dominate the value segment. While the pandemic spurred some shifts in this pattern, especially in the direct-to-consumer space, we anticipate current inflationary trends will drive deeper divergence in purchasing patterns.

Ultimately, consumer goods companies need to holistically rethink their business and operating models to adopt a tailored approach for each consumer segment. FMCGs must actively manage their portfolios and define their strategic direction to meet objectives in a highly competitive space with mixed growth prospects in developed markets. Some players may be undecided on whether to achieve this organically or inorganically.

Growing inequalities are exacerbating a purchasing power gap

Globalization has significantly influenced the living standards of millions of people in developing countries in recent decades. The economic catch-up by developing nations is helping to narrow the overall income gap between rich and poor countries.

While not yet reaching the income levels of developed countries, a large portion of populations in developing nations can now afford comfortable living conditions and have access to mobility and adequate health care. However, looking at nations individually, we observe a different pattern: inequalities in wealth and income in most geographies have been increasing, irrespective of development level.

Rising income inequality translates directly into an inequal distribution of wealth among rich and poor households, which in turn leads to a growing purchasing-power gap, which fosters polarization in the consumer landscape. The traditional mass-market segment increasingly loses importance relative to the fast-growing extremes in the customer landscape: the premium and value segments.

FMCG face a parallel dichotomy

The capital market sets clear performance expectations for FMCG players. Analyzing the share price development of leading listed manufacturers over the last years, it is observed that companies achieving sustainable and profitable sales growth of >2 percent per annum and healthy EBIT margin levels of >15 percent, have been well perceived by investors and have increased their market capitalization.

Organic growth may not be sufficient to offset lost revenue amid divestments, but FMCG players are asked to actively search for promising add-on acquisitions. This leads FMCG players to reshape their portfolios into 2 major areas: divesting “value” while investing in high-growth premium areas.

In terms of divesting, analysis shows top categories are commonly categorized as “value.” This includes packaged foods, which predominately comprise brands associated as less healthy options: fried or sugar-based snacks and low-nutrient, wheat-based offerings. Soft drinks largely relate to sugar-based beverage brands that are increasingly incompatible with consumer preferences for healthy, sugar-free/sugar-reduced drinks2.

FMCG companies are responding to modern trends and changing consumer habits by adjusting their product portfolios with investments. For example:

  • FMCG companies active in the Beauty segment have strengthened their skincare business through acquisitions, especially on the high-end of the product spectrum.
  • Reflect changing sociodemographic factors by expanding portfolios to include retail adult incontinence products, a fast-growing product that meets the needs of an ageing society.
  • Develop healthier and less harmful alternatives by creating new products or by substituting healthier ingredients and elements to established products.

Getting ready to win

As FMCG companies look to shape a new era of growth, they need to develop a robust, implementable roadmap on how to grow sales and improve margins for maximum deal value.

The first 2 years of the pandemic and the current economic conditions have slowed the trend toward premiumization. Nonetheless, we expect the value-versus-premium polarization trend to gain momentum over the mid-term as inflationary pressure might accelerate the trend on income inequality. This will lead to a continuing hallowing out of the middle, where we are unlikely to see the return of traditional mass market retailing.

During this time, we expect growing deal activity in the coming three years as consumer goods companies actively shape portfolios and divest of non-core, lower-growth and lower-margin businesses, especially in the value segment as pressures from active investors increase.

To be well-positioned and to exploit emerging market opportunities during these times, both consumer goods companies and private equity investors need to be prepared.

Consumer Goods companies

In light of market developments outlined above, it is advisable for Consumer Goods companies to follow a structured, four-phase approach:

  1. Shape the portfolio: Based on the overall group strategy, thoroughly analyze your current business and brand portfolio across regions, in terms of each business’ stand-alone attractiveness, fit to group strategy and synergy potential. Identify potential adjustments, analyze their feasibility, quantify their impact and prioritize for a final decision.
  2. Dress the assets: For assets being divested, take time to prepare them for market sounding. The objective should be to divest at maximal deal value, thereby obtaining the required financial leeway for growth investments. Assets should therefore be standalone operable to ensure deal security and attract financial investors, and designed to have an optimized, lean and — especially during the due-diligence process — defendable organizational cost position. In addition, the transformation journey should be underpinned by a robust, implementable roadmap on how to grow sales and improve margins for maximum deal value.
  3. Set the sail for growth: Organic growth may not be sufficient to offset lost revenues amid divestments, but you need to actively search for promising add-on acquisitions. However, the target landscape is more fragmented amid numerous local and premium niche players emerging over the last 10 years. Therefore, it will likely be increasingly important to excel in target identification and prioritization to choose the ‘right’ assets.
  4. Integrate smart and capture value: With an increasing number of smaller acquisitions, having a deal playbook with enough flexibility is key to ensuring value is captured. This can be especially important in the integration phase where value deterioration is often experienced. New brands need enough space to develop and flourish, without compromising on synergies arising as part of a professional and scalable operating platform that the group provides.

Private equity funds

Non-core disposal activity will likely create exciting opportunities for private equity funds, especially those with experience in driving value from complex carve-outs and low-growth businesses. Going forward, we see two major success factors for private equity firms actively seeking to engage in the Consumer Goods sector:

  1. Apply advanced analytics: Preparing for a deal once rumors of an asset sale are spreading in the market often proves too late. Anticipate developments early and be in contact with the M&A departments of major Consumer Goods players to place yourself in a leading and advantageous position before the deal process starts. In this context, a forward-looking, data-driven analytical approach to predicting activity on the corporate sell-side is becoming more prominent.
  2. Have a vision: Gain a deep understanding of underlying trends governing an asset’s specific market segment. Develop a clear roadmap to transform the business over the investment cycle, and provide the ‘right’ resources in terms of funding and professional operational support to help the business achieve mutually defined objectives.

For more information on how firms are dealing with the diverging FMCG landscape, please contact Javier Rodriguez Gonzalez, or one of the key contributors, Marcel Hagemeister or Jan Rüther.


1 Source: World inequality database, Euromonitor
2 Source: KPMG analysis, Euromonitor

Source from KPMG

The information set forth above is provided by KPMG independently of Alibaba.com. Alibaba.com makes no representation and warranties as to the quality and reliability of the seller and products. 

Was this article helpful?

About The Author

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top