World’s biggest food companies suffer 'institutional sluggishness'

OC&C’s Global 50 Index analyses the financial statements of the top 50 consumer packaged goods firms worldwide by revenue in conjunction with The Grocer.

This year’s index pointed to unstable exchange rates and competition from smaller local firms as the main factors behind declining sales growth among the industry’s big players, which fell from an average of 2.9% in 2013 to 1.7% last year.

Partner at the research firm, Will Hayllar, said in a statement: “This year’s research has shown that in the FMCG sector bigger isn’t always better – with scale no longer giving companies the edge it once did. Many of the ‘Goliaths’ in our Global 50 ranking are encumbered by their heavy institutional structures, leading to sluggish decision-making and slower innovation. This has given smaller local players – the ‘Davids’ – the opportunity to seize market share across the board.”

Small-scale success

Smaller firms that have tapped into fragmenting consumer demand include Cristaline bottled water, which capitalised on the weakness of other bottled water brands’ single-source policies, allowing it to gain an economic advantage on its competitors by using multiple sources; and Innocent, which OC&C says has managed to retain its brand identity since being acquired by Coca-Cola, while taking advantage of its parent brand’s scale and resources when appropriate.

The market share of multinationals remained flat in the UK last year, the market research found, and lost 1% in the United States. In BRIC countries too, global companies in the sector lost 0.6% of the market in Brazil and Russia to local firms, 0.3% in India and 1.3% in China.

“In previous years, the success of the local competition was most evident in developing BRIC countries, where smaller local companies have been able to quickly modify their proposition to ensure local relevance,” Hayllar said. “But the trend is now spreading across developed markets in the US and UK, where fragmenting consumer demand and the need for quick innovation has enabled smaller players to outcompete traditional market leaders.”

Exchange rate impacts

The report found that many large firms were achieving organic growth – but exchange rate fluctuations often cancelled it out, as the Russian rouble’s value fell 17.2% in 2014 and the Argentine peso fell 32.8%, while the US dollar appreciated.

To reverse the trend, OC&C said international companies should examine their own business structures to ensure faster innovation cycles, and identify where consumers’ needs are fragmenting.

“Once these issues are addressed, bigger FMCG companies stand a much better chance of accelerating their growth and competing more successfully against small, nimble players,” said Hayllar.