Food, Grocery and CPG Blog

The US food and beverage CPG category has witnessed over 100 M&A deals over the past four years, according to data from S&P Capital IQ, a capital markets platform (Figure 1).

Figure 1: US: Closed M&A Deals in the Food and Beverage CPG Space* (Left; Number of Deals) and Total Transaction Value of Disclosed Deals** (Right; USD Bil.)

*Industry classification for the Food and Beverage CPG Space: soft drinks and non-alcoholic beverages, packaged foods and meats and fresh produce under agricultural products and services
**Total Transaction Value includes only those M&A for which the deal value is disclosed. This number is just seven for 2023 YTD.
***Number of deals as of July 11, 2023
Source: S&P Capital IQ

Coresight Research Analysis

Category Expansion

• CPG companies increasingly look at categorical expansion to lower the risk of dependence on a single category or product, especially during times of high inflation when consumers often reduce their discretionary spending. A recent example of an acquisition related to this theme was Mondelēz International’s purchase of Clif Bar for $2.9 billion, which will help it expand into the baked goods category.

Increased Category Focus

• CPG companies that already have a competitive advantage in certain product categories can look to M&A to strengthen their focus and brand positioning in those categories. For instance, Mars recently acquired Trü Frü for an undisclosed amount, strengthening and complementing its existing health and wellness portfolio.

Changing Consumer Preferences

• CPG companies often look at M&A deals as a way to meet evolving consumer needs (such as demand for health and wellness offerings), augment their existing offerings, and provide consumers with a wider array of options. For example, Unilever recently announced it would acquire frozen yogurt brand Yasso, helping it meet growing consumer demand for healthier frozen treats.

What We Think

Given the current macroeconomic environment and volatility, namely high inflation and interest rates, we expect large CPG companies will take a judicious approach to M&A in 2023, prioritizing acquisitions that help them establish a presence in fast-growing categories and keep up with changing consumer preferences.

Click here to read the full report.

Coresight Research Analysis

• During times of macroeconomic uncertainty, CPG companies should focus on long-term investments and building out their capabilities, including their automation, digital, technological and supply chain capabilities.
• To effectively manage long-term inflation, CPG companies should look at analytical models that consider a range of factors in real-time—such as sales, consumer behavior and market data—to optimize their products and prices.
• With multiple rounds of consumer price increases impacting consumer demand and brand equity and positioning, CPG companies should look to innovate their offerings in cost-effective ways.
• As consumers spend less or cut back on some discretionary purchases during an economic slowdown, CPG companies should reinforce the overall value of their offerings by communicating products’ unique benefits–convenience, health, wellness or multi-functionality–to boost sales.
• CPG companies need to put the consumer at the center of what they do, streamlining their operating and business models, as consumers increasingly want CPG brands to meet their product and service requirements.

What We Think

With many companies expecting an economic slowdown in the US in 2023, we expect CPG brands to divert some of their profits and revenues to funding long-term growth initiatives, learning lessons from previous recessions. We believe that these CPG companies will also continue to innovate, offering differentiated products that offer better utility, and work closely with consumers at different stages of product development, better aligning their products and services with evolving consumer demand.

Read the full report here.

In 2022, we estimate that year-over-year US edible CPG sales growth rose to 7.8%, growing to $667.4 billion, due to inflation-related price increases driving high-single-digit year-over-year growth in all food categories.

Figure 1. US CPG: Edible Segment Market Size (Left Axis; USD Bil.) and YoY Change (Right Axis; %)

Market size includes total e-commerce CPG sales and store-based CPG sales by retailers in the grocery, convenience store, drugstore, mass merchandiser, warehouse club and dollar store sectors
Source: IRI/Coresight Research

Coresight Research Analysis

• CPG companies operating in the food space will increasingly leverage innovation and technology, such as artificial intelligence (AI), to improve product quality and manufacturing efficiency, while reducing food production waste and using less animal-derived and environmentally unfriendly ingredients.
• Plant-based food products will likely witness a revival in 2023 with a shift in consumer buying patterns—from being bought because of product hype to being purchased because of their health and environmental benefits—as consumers better understand these products.
• CPG food companies will deepen their transparency on food safety and the food supply chain practices due to growing consumer demand for the same. CPG companies will also embrace sustainability throughout the retail chain–sourcing, packaging, waste reduction, and upcycling and recycling initiatives–while achieving their long-term sustainability goals.
• As consumers embrace food-as-medicine concept and prioritize health and wellness as critical factors when making their food purchases, CPG companies will offer various functional nutrition products that promote wellness and help consumers manage chronic diseases, such as hypertension and metabolic disorders.
• In 2023 and beyond, food and beverage CPG companies will look at mergers and acquisitions (M&A) to improve their categorical presence, address evolving consumer demand, and support entry into new segments.

 What We Think

We expect CPG companies to further invest in food production automation technologies that leverage AI and machine learning (ML) for enhanced decision-making, reduced production errors and faster product rollout. At the same time, CPG food companies will strive to become more transparent, increasing their brand appeal and improving their market share. These companies will also look to M&A to enhance their exposure in fast-growing categories and segments, while catering to consumers’ evolving eating habits.

Find the full report here.

Figure below shows our estimates based on IRI sales data from 34 healthcare product categories.

Figure 1. US: Consumer Health Product Sales (Left Axis; USD Bil.) and YoY % Change (Right Axis)

This includes self-care and personal hygiene, oral healthcare, baby healthcare, and other healthcare product categories, but excludes prescription drugs and over-the-counter medicines
Source: IRI/Coresight Research

• Growing consumer demand for preventive health and self-care offerings, a surge in the older population in the US and a proliferation of health and wellness products following the pandemic are some of the most significant factors driving the growth of the consumer health category.
• Pharmaceutical companies and CPG giants such as Clorox, Johnson & Johnson and Reckitt Benckiser dominate the consumer health category in the US, making it highly competitive.
• Conglomerates, such as GlaxoSmithKline and Johnson & Johnson are spinning off their consumer health businesses. This will provide the newly formed companies with more flexibility to build their businesses through a consumer lens, instead of dividing focus between consumers, medical practitioners, hospitals and insurance companies, as pharmaceuticals tend to.
• Likewise, the new consumer health businesses can adapt to changing consumer needs quicker than they could have as part of a large pharmaceutical corporation and direct profits toward improved digital tools and analytics, instead of vaccine or prescription medication development.

What We Think

The consumer health category will continue to be an important category for CPG companies in 2023 and beyond, allowing leading brands to take advantage of the long-term growth prospects provided by sustained consumer focus on preventative health and self-care. CPG companies should improve their functional nutrition product portfolio to cater to wellness-focused consumers, whether through new product creation or startup acquisitions.

Read the full report here.

From our recent report on dollar stores and grocery:

• The Coresight Research weekly US Consumer Tracker has consistently found since the start of October that more than one-fifth of respondents buy food products from Dollar General and Dollar Tree/Family Dollar. Both chains also consistently ranked in the top five retailers from which consumers bought food products, reflecting the strength of this channel in the US grocery space.
• Dollar stores’ food shoppers skew lower income—but middle-income consumers also play a significant role in their grocery sales growth. Diversifying into fresh foods and groceries will likely enable dollar stores to increase penetration of Supplement Nutrition Assistance Program (SNAP) recipients in its consumer base.
• Compared to 2019, visits to both dollar store retailers remain elevated, with double-digit growth in recent months. Although much of this foot traffic growth is due to new store openings over the past three years, we believe the grocery initiatives that dollar stores undertook over the same period are paying off and driving high visit volumes.
• Dollar General added an average of 1,018 net stores annually from November 2019 to November 2022. Dollar Tree/Family Dollar’s expansion has been modest by comparison, with Dollar Tree adding an average of 211 stores per year and Family Dollar an average of 104 stores per year over the same period. 

Find the full report here.

Discounters Aldi and Lidl have picked up momentum in the last 12 months as UK households navigate high inflation. According to Kantar Worldpanel, Aldi overtook Morrisons to become the UK’s fourth-largest supermarket chain by revenue for the 12 weeks ended September 4, 2022, helped by new store openings and consumers trading down. Meanwhile, in the same period, Lidl recorded its strongest sales performance since October 2014.

With current cost-of-living pressures, consumers are increasingly turning toward organized shopping regimes and away from impulse buys (the primary driver of instant commerce sales). Many instant commerce startups—which until now relied on external financing—have failed to gather enough capital in the current environment, leading to consolidation, staff layoffs and some companies ceasing operations.

What We Think

We expect food and beverage CPI to continue to rise into next year before beginning to weaken by mid-2023 as drivers of overall inflation begin to drop off. However, we will likely continue to see significant stickiness in grocery shopping priorities in 2023, with many shoppers prioritizing value over quality and convenience. We believe the key immediate challenge posed by discounters is pressure on sector-wide pricing. Despite margin erosion, discounters such as Aldi and Lidl have a sustainable cost advantage supported by higher sales densities, better bargaining power given by larger volumes on more limited SKUs and a leaner cost structure. HFSS legislation will create opportunities for both brands and retailers to diversify, innovate and create deeper connections with consumers.

Find the full report here.

• By 2030, food e-commerce sales will be close to double those of 2022, we estimate, with the online market worth $147 billion. We expect growth in the online channel to outpace that of the total US grocery market for the period 2022–2030, with a CAGR of 8.4%.
• An older population and a rise in single-person households will shift the dynamics in food retail demand. Retailers will face smaller-basket demand threatening to deleverage their fixed costs and will need to find ways to serve burgeoning demand for smaller baskets in a less margin-erosive way. 
• The rise in value-conscious shoppers will drive demand for grocery private label. US food and beverage private label will reach $203.5 billion in 2030, up $93.6 billion (or 85%) from 2022, we estimate from IRI data. Sustainable foods that contribute to consumers’ wellness and wellbeing will provide opportunities for adding value and encourage trading up. 

With this blog post, we also launch our new Food, Grocery and CPG Retail Hub, which aggregates the abundance of data, reports and company profiles that our analysts and data associates produce on this market. Among the data in the Hub are our weekly US survey results, weekly US store openings and closure data and monthly online and offline CPG sales data. While a number of the data points are US specific, we also feature data highlights from our international coverage, which spans Europe (especially the UK), Asia (with a focus on China and India) and Australia. International research can be found in our sector reports and company profiles.  

The Food, Grocery and CPG Retail Hub is the first of our planned sector hubs, each of which will serve as an entry point for clients into our data and reports. Please explore the new Hub and send us your thoughts!