Fast-moving consumer goods brands post record profitability in 2018
Profitability of the top Global 50 FMCG companies reached 18.2% in 2018 – the highest point since OC&C Strategy Consultants started their annual Global 50 report in 2002. The management consultancy’s report also found that organic growth increased by 3.2% year-on-year.
Nestlé maintained its place atop the ranking with $93.4 billion in revenues, while Procter & Gamble, PepsiCo, Unilever, and AB Inbev rounded out the top five.
Overall organic growth climbed 0.6% over 2017’s 2.6% growth to reach 3.2%, demonstrating the rebounding strength of top FMCG brands since the financial crisis. Volume growth accounted for 1.8% points (up from only 0.6% in 2017) while price/mix accounted for 1.4%.
M&A deal value in the industry fell 48% from 2017, decreasing by $70 billion. 2017’s numbers were heavily skewed by the $49.4-billion dollar takeover of Reynolds American by British American Tobacco.
Deal volume, however, remained high at 55 deals, versus the record high of 60 in 2017.
"Despite the lack of blockbuster acquisitions in 2018, it was a very strong year for the Global 50 as prior M&A activity began to bear fruit,” Will Hayllar, UK managing partner at OC&C Strategy Consultants, said. “In the years before, the Global 50 were snapping up companies that cater to new and fast-growing consumer trends, such as the shift towards wellness, and consumers' seemingly never-ending love affair with coffee. These acquisitions are beginning to pay off, resulting in a return to organic volume growth and record profit margins."
The record profitability of 18.2% in 2018 was driven by premiumization and efficient management of operating costs, according to the report. Companies have been responding to increasing consumer demand for all things luxury, with coffee serving as one example. Modest instant coffee, which got its start in the ration kits of WWII soldiers, has been usurped by the “single origin” expresso popularized by Keurig. Now, companies can charge a significant mark-up for single-serving coffee capsules, driving up profits.
Total operating costs decreased 0.2% points in 2018, driven by realized synergies from M&A consolidations and ongoing efficiency initiatives (potentially aided by operational consultancies).
"For FMCG brands to continue to drive growth, staying one step ahead of consumer trends is vital,” Hayllar added. “Adapting brand strategy to meet the ever-changing consumer needs and investing early in emerging sectors will continue to drive organic growth and profit in the market.”
Chinese spirits producer Kweichow Moutai entered the Global 50 ranking for the first time at number 46, on the back of 25.4% sales growth, knocking out Brazil Foods Nestlé. British American Tobacco had the second highest sales growth at 25.2% – buoyed by its megadeal for Reynolds – allowing it to rise six spots to eighth place.
The report also identified Coca Cola, Estée Lauder, Yili, Kweichow Moutai, and Shiseido as the five stand-out FMCG companies that were able to outperform their peers in 2018.
“All five are united in having identified fast growing consumer markets and acted to serve them,” Hayllar said. “Cola Cola and Yili won the health-conscious crowds, Estée Lauder and Shiseido won over online millennials, and Kweichow Moutai quenched the Chinese thirst for premium spirits."
