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Estimating Category Leaders in FMCG Industries

January 27th, 2015

In this article, we have attempted to characterise category leaders across FMCG industries and the typical market shares they achieve. “Category leader” is generally a highly coveted status as it allows price-setting power and a better ability to influence category trends, enables economies of scale and implies a better bargaining power over retailers and suppliers. It also suggests that the company is doing many things right and it is thus rather common to benchmark against the category leaders and study their past strategies. However, category leader shares vary between industries and a successful company in one industry may differ from another.

 

Figure 1: Average Category Leader Share across FMCG Industries

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Source: Euromonitor International

Note:  Retail value sales

A typical category leader has a 37% market share

Category leaders are companies that have a leading market share in a particular market, ie shampoos in the US. For this exercise, to identify typical category leader shares we used company share data (at Global Brand Owner level) from Competitor Analytics for every country and category combination (we covered 406 Passport categories across 17 industries) and looked what market share is typically achieved by a leading company. Naturally, the category leader shares vary significantly between categories – in US laundry detergents, for example, Procter & Gamble had a 60% share in 2014, while Coca-Cola Co had a 55% share in cola carbonates in the UK, and Unilever was the leader in deodorants in Brazil with a 39% share. All of the companies were category leaders in respective categories, but respective market share levels were different. The goal of this exercise was, however, to identify if there are meaningful differences between industries.

As figure 1 indicates, in the majority of FMCG industries the 30-40% range is a typical level for the number one company. To be more specific, 37% seems to be the average category leader market share across the 17 consumer industries we have looked at. Tobacco has the highest average category leader share, at 54%, partially reflecting the fact that the industry is controlled by government monopoly in many countries, such as China, or has a clear category leader in other countries. Tobacco is followed by Alcoholic Drinks and Soft Drinks, where the category leaders have respective shares of 48% and 49%. This is due to the fact that many Alcoholic Drinks categories, especially beer, are very concentrated in emerging countries, where it’s not uncommon for the leading player to have an 80%+ share. The lowest shares for leading companies are in Apparel and Footwear (11%), Personal Accessories (20%) and Home and Garden (21%).

 

What is limiting company expansion in the category?

We can probably assume that companies want to grow as large as they possibly can in a category, and, as companies get larger, they gain more resources to capture the remaining category share. However, assuming a highly competitive industry, there are certain limits to how large a company can grow its share, at least through organic growth (for mergers and acquisitions there are specific limits set by regulations). We might say that, after a certain point, diminishing returns begin to appear, and the costs of chasing additional market share may outweigh the benefits derived from it. For example, if the company already has a 60% category share, it may “cost” it more to gain each additional percentage share than for a company that starts with 5%.

This threshold, or an industry typical category leader share, we argue, could originate from consumer preference for variety – after a certain point consumers (as well as retailers) will want to push for variety and will reward new and smaller companies over established and familiar ones. Also, as companies get bigger, they might begin to lose out in terms of innovation, limiting potential expansion. Retailers might want to keep the bargaining power over a more diversified group of suppliers and will prefer to give more companies shelf space.

To see if this assumption holds, we looked at industry consolidation levels for the 17 Passport industries. Figure 2 lists what percentage of global market size (in retail sales prices) is covered by either top 10 or top 100 companies in that industry.

 

Figure 2: Top 10 and Top 100 Companies as Percentage of Global Industry Sales

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Source: Euromonitor International

Note:  Excludes private label

Tobacco again appears to be the most concentrated among FMCG industries – the top 10 players account for 89% of global industry revenues, and the top 100 account for 94% of industry revenues. Other highly concentrated industries are Consumer Electronics (58% and 82%), Home Care (60% and 75%) and Beauty and Personal Care (48% and 73%). On the other hand, Packaged Food (16% and 33%), Apparel and Footwear (10% and 22%) and Home and Garden (7% and 12%) appear to be the least concentrated. This might suggest that consumers demand more variety in Packaged Food and Apparel, as opposed to Tobacco and Consumer Electronics. This consumer preference for variety is indirectly transmitted through retailers, which respond to consumer trends by seeking new companies, and pushing back against larger companies. Hence, the category leader shares will be typically lower in Apparel and Packaged Food compared to Consumer Electronics and Home Care.

Another interesting note is the difference between the share held by the top 10 and top 100 companies. Consumer Appliances, for example, has a rather low share controlled by the top 10 companies at 34%, but jumps to 71% when we take into account the top 100 companies. This suggests that consumers want variety in the industry, but not too much variety – 10 companies are not enough to cover the need for variety, but 100 companies cover three quarters of the consumer preferences spectrum.

How “category leader”-centric are the top 50 multinationals?

Multinational companies are present in hundreds of country/category combinations, often spanning across several industries. For example, PepsiCo Inc is in Soft Drinks/Packaged Food, while Unilever is present in as many as five industries – Packaged Food, Beauty and Personal Care, Home Care, Hot Drinks and Soft Drinks.

It’s an interesting question for strategic managers – should the company attempt to stay only in its “best” categories and build efficiencies there, or how much it should diversify into new categories it perhaps does not know very well? A good example is Procter & Gamble’s recent reorganisational efforts – the company is planning to sell as many as 100 brands in a strategic push to focus on core products.

In figure 3, we calculated what percentage of company revenues are generated from markets (country/category combinations) where the company has a leading share, and, for these leading categories, what is the usual percentage (average percentage share).

Figure 3: Top 50 FMCG Companies and Category Leader Focus

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Source: Euromonitor International

 

Coca-Cola is a good example – it is a market leader in 61%+ of the country/categories the company is present in, and it generates around 60% of revenues from there. SABMiller is a more extreme example – it is leader in 58% of countries/categories, and has an astonishing 77% average share where it leads – which is mainly because of its near monopoly in the beer market in many Latin American countries.

Procter & Gamble is somewhere in the middle (revenue from leading markets – 53%, average leading share – 47%). Lactalis, a Packaged Food company, is in the bottom quadrant (portfolio share – 42%, average share – 23%), as, arguably, as we have seen before, it is in categories where consumers demand more variety.

 

How important is industry nature?

We can conclude that, with few exceptions, most successful multinationals derive 40-50% of their revenues from “category leader” markets, which indicates mostly the strategy to concentrate their portfolios. As for the average share in the number one position – it’s around 35-45%, in light with findings from figure 1. The differences in this dimension between companies could be better explained by the nature of the industry in which they operate, rather than just marketing or operational efforts, with consumers setting the upper boundaries for expansion. Thus, a 20% leader’s share could be quite a remarkable achievement for an Apparel industry player, but the same 20% would be far from sufficient for a Soft Drinks or Consumer Appliances company to be called a “category leader”.

Alongside, it is important to note that market definition plays a role in calculation of category leader shares – categories at more detailed aggregation level tend to have higher shares on average than at more aggregate categories.

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Virgilijus Narusevicius

Virgilijus Narusevicius is as a senior data scientist at the Centre for Analytics, Modelling and Innovation (CAMI) where he works on developing new data-centric tools for enhanced market intelligence. His areas of expertise are multi-dimensional data visualization, interactive scenario tools, efficient computing and graph analysis. Previously he worked as a mathematician/system dynamics modeller for strategy consulting projects, and has built models for city planning and demand forecast models for consumer appliances. Virgilijus holds a Bachelor of Science in Mathematics and a Master of Science in Computer Science from Vilnius University.

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