US research firm Sanford C. Bernstein, which issued the report, identifies a ‘sustainable top-line growth’ pillar, made up of four drivers of growth: categories, markets, category dominance and execution.
The current report drills down into which food firms dominate in various product categories, which particular focus on the industry’s three big players - Nestle, Unilever and Danone.
“We consider that category dominance is important for top-line growth and margin growth. We believe that dominance allows a company to grow faster and be more profitable than smaller, less dominant players in a category’” write the report authors.
Holding the top position in a category is considered a major business advantage, not only because of higher sales volumes but also because it allows for improved negotiations with retailers and better pricing power, according to the report.
“Being number one or number two in a category “frequently enables ‘Category Captain’ status, which allows the company to work hand-in-hand with retailers on consumer insight and shelf space/positioning.”
“It also protects against a growing trend by retailers to reduce SKUs and have a more focused offering of ‘Top 2’ and value/private label products.”
Danone dominates
Bernstein judged category dominance on a category/country level, using 100 food categories in 80 countries.
It found that Danone takes the top slot in category dominance, prompted by the fact that it is a very focused company that only largely operates in four businesses.
“Danone is the number one player in categories/markets representing 71 per cent of sales, and is Top 2 in 91 per cent. More specifically, in yoghurts it is number one in categories/markets representing 84 per cent of sales, and is Top 2 in an exceptional 96 per cent,” writes Bernstein.
Unilever came in “a strong second place”. The report estimates it coming in at number one in 63 per cent of sales and Top 2 in 85 per cent. In certain categories, such as ice cream, Unilever was found to be dominant in many of the European markets in which it operates.
Nestle came in at third place, being number one in markets representing 59 per cent of sales and Top 2 in 82 per cent. “It is interesting to note that one of the categories that drags down its dominance measure is chocolate confectionery, even when calculated on a country by country basis,” said Bernstein.
The research firm notes noted that despite being behind its other two competitors in measurements of category dominance, Nestle is “certainly still strong”.