How to Identify Growth Opportunities in Your Competitive Landscape: Part 2 – A Case Study
Euromonitor International’s previous article discussed how market size growth in developed markets has plateaued across many FMCG categories, and as a result, companies need to take a fine-tuned approach to growth strategy. In turn, this places a greater importance on strategic acquisitions as well as market share gains in companies’ existing categories as opposed to portfolio momentum driven growth. In the second article of this two-part part blog series, we illustrate several examples of how to use business intelligence to build and support an actionable growth strategy with a case study on Henkel AG in Western Europe.
Henkel – global company still betting on developed markets
Henkel AG is a global beauty and home care company, with brands such as Persil and Dial. It remains mainly exposed to developed markets, making it a good case study for this strategy. As illustrated in Figure 1, Western Europe accounted for approximately half of Henkel’s global consumer retail value sales in 2015. The only emerging region where Henkel has expanded more aggressively was Eastern Europe. However, in other growth regions such as Asia Pacific, its presence remains rather small compared to rivals with Asia Pacific accounting for only 8% of Henkel’s global retail value sales in 2015. In contrast, Asia-Pacific accounted for 21% of Procter and Gamble and 23% of Unilever’s sales, respectively.
Figure 1: Henkel AG global retail value sales in 2015
Source: Euromonitor Passport Database using the Competitor Analytics tool
Looking at Figure 1 above, the first strategic takeaway for Henkel is to focus more on growth markets such as Asia and Latin America. However, this article is not about growth markets. Instead, we will focus on how Henkel can find growth in developed markets, where market size growth is plateauing. From2010 to 2015 in laundry detergents, Henkel’s key category, posted a compound annual growth rate (CAGR) of just 0.8% in Western Europe. Hair care, another key category, also did not perform well with a CAGR of just 0.7%. While Henkel may be seen as successful in these markets, looking at the competitive landscape, we will be able to find further growth opportunities.
First step: Identify competitors
To start, we need to identify and understand Henkel’s competitors in Western Europe. Euromonitor International has developed the Competitor Analytics tool, which introduces market overlap as a measure of competitive distance. By scanning across all possible country/category combinations available on Passport market intelligence database, the tool can objectively map competitive landscape for every fast moving consumer goods (FMCG) company. Henkel’s competitive landscape is displayed in Figure 2; the top competitors are listed on the right along with market overlap values, and the scatter plot on the left displays how competitive dynamics have evolved over 2008-2015.
Figure 2: Having a good view of the competitive landscape is the first prerequisite for competitor analysis
Source: Euromonitor International (Competitor Analytics)
How to read the chart: The scatter plot summarises the competitive landscape for the selected company and shows how it has changed over time. The Y-axis shows market overlap, with companies trending upward becoming closer competitors to the selected company. The X-axis shows overall retail value sales for each competitor, with the vertical line showing the selected company’s overall retail value sales. Competitors to the left of this vertical line are smaller by overall retail value and companies to the right are larger.
The chart confirms that the largest competitive rivals for Henkel in Western Europe are Procter & Gamble, Unilever and L’Oréal (note they are the companies highest on the vertical axis). This may not be a surprise to anyone following the industry, but it is helpful to value the exact competitive distance between Henkel and its rivals. In this case, Henkel competes with its top three competitors for USD4.2 billion, USD2.9 billion and USD2.2 billion, respectively. The competitive landscape in Figure 2 also tells us that Henkel’s combined market overlap with its top three competitors, Procter & Gamble, Unilever and L’Oréal, is worth USD9 billion and is as large as its next 20 competitors combined. Hence, if Henkel AG is looking to expand in Western Europe where market size growth has been largely flat, it is imperative it understands its top three competitors and its biggest battlegrounds.
Second step: Examine each competitive pair in detail – and assess competitive footprints
Plotting company portfolios visually is a powerful way to identify white spaces and better understand the strengths and weaknesses of both companies. Figure 3 shows the competitive footprint between Henkel and Procter & Gamble in Western Europe. The colour shading refers to market share; the darker the colour the larger the market share, with numbers indicating which position the company has with 1 denoting the category leader. In addition, the dark gray squares indicate gaps in a company’s portfolio. For example, Henkel has many gaps in the UK where Procter & Gamble is strong. Finally, lighter gray squares highlight where neither of the companies is present (e.g. automatic dishwashing in France).
Figure 3: Competitive footprints – great way to identify white spaces or opportunities
Source: Euromonitor International (Competitor Analytics)
Using the competitive footprint above, we see that Henkel AG has the strongest competitive positions in its home market of Germany. There are no visible gaps for the categories shown and Henkel’s market share is strong. In fact, Germany accounts for approximately one-third of Henkel’s retail value sales in Western Europe, compared to 18% for Procter & Gamble. However, elsewhere in Western Europe, there are gaps in Henkel’s presence, notably in the UK and Nordic countries. Meanwhile, Procter & Gamble’s portfolio is much more dense with fewer gaps. In terms of categories, laundry detergents is key for Henkel AG, comprising some 30% of its retail value sales, whereas for Procter & Gamble it has more of a mix – laundry detergents and hair care being most important, along with nappies/diapers and shaving (Note: The last two categories are not listed on the chart above).
For a very thorough analysis, we recommend assessing all major competitive pairs to better understand their respective product positioning, allowing you to view advantages your company might have over competitors in a given product category or market.
Third step: Classify opportunities into action areas
1. Key markets – nurture and protect
The previous article laid out several ways to identify key markets. For Henkel in Western Europe, markets displayed in the top left corner of figure 4 could be considered key markets. They represent five categories and nine countries, and combined, these 45 markets account for 63% of Henkel’s total consumer retail value sales in Western Europe.
Figure 4: Competitive footprints with action areas
These are “costly” markets for Henkel to lose and the company should prioritise innovations and marketing in those categories to maintain market share. Likewise, these country/category combinations present the largest potential prizes for competitors. The categories that fall in this group are laundry detergents, hair care, facial care, bath and shower and surface care. Unilever, for example, could win USD687 million in retail value sales if it grows its market share in hair care in Germany from its current 3.6% to Henkel’s current 31.6% share. While this may appear far-fetched, given that Unilever has likely already tried to grow in the category before, it is not entirely unrealistic for Unilever to push harder too. Hair care is one of Unilever’s stronger categories. For example, in the UK and Turkey, Unilever has 18% and 22% value shares, respectively. L’Oréal is an even stronger contender to watch out for as it is traditionally very strong in hair care with value shares exceeding 30% in Belgium, Switzerland and France.
There are different key competitors in every country/category making it essential for Henkel to continuously protect these categories with product innovation; something Henkel has been doing rather well.
2. Key categories – bring the best products to more countries (acquisition if possible)
As companies usually expand with their strongest categories, the five core categories identified above are also best fit for geographic expansion. In Henkel’s case, these categories range from laundry to surface care. Laundry detergents account for 30% of retail value sales but Henkel also has notable gaps in the UK/Ireland and Nordic countries. The gap exists because Henkel has an agreement with Unilever to market it’s Persil brand in the UK/Ireland, and Henkel markets the brand elsewhere globally, therefore opportunities for introducing Persil to UK/Ireland could be limited.
Facial care and hair care, however, present further opportunities. In facial care, Henkel is present in only nine of the 17 countries in Western Europe, thus expanding brands such as Diadermine and Aok could be an option. In hair care, there are also weaknesses in Spain and Portugal, which could be an opportunity for brands such as Taft and Syoss.
The Western European region may not be the best fit for this type of analysis, as it is largely a single market, and companies are generally present in most countries. On the global level, however, more opportunities could emerge. For example, Henkel lacks presence in laundry detergents in many Asia Pacific markets, notably China. Getting into these markets could be of strategic interest for Henkel, especially since some of its hair care brands already have a presence in China.
3. Key countries – more focus on new products, possibly enter new related categories
Henkel is typically noted for its strength in product development but being less aggressive in geographical expansion. Henkel’s acquisition of Spotless Group in 2014 was mainly motivated by category expansion in key countries; Spotless is strong in laundry aids and home insecticides with a focus on Western Europe, mainly France and Italy. This made it a good fit for Henkel’s laundry detergents in some of its core countries where Henkel is trying to expand.
While category expansion ideas are harder to formulate in key markets, Henkel should continue to innovate/acquire categories. One approach is to identify “win” categories by looking at market commonality and complimentary fit to Henkel. This can be done by looking at its peer group globally – if companies similar to Henkel are generally present in some categories Henkel is not, it could be a potentially good fit. Additional “good fit” categories are colour cosmetics, where Henkel has a low presence and competitors such as L’Oréal and Kao Group are strong, or the tissue and hygiene industry based on Procter&Gamble Co and Kao Group. Another option is to experiment with new formats and price positioning platforms.
4. White spaces – fill the white spaces
Even though the EU is a single market and it is relatively easy to bring a product to other markets, there are over 30 gaps in Henkel’s Western European presence in its core countries/categories alone – more if smaller categories were added. Exploring the reasons why the company is not present here could be a good starting point for analysis, as these gaps are normally easiest to fill because they are located in the core countries or categories group.
5. Uncharted territories
Uncharted territories are rarely strategically planned and usually the by-product of an acquisition. For Henkel in Western Europe, an uncharted territory could be to introduce, for example an ice cream brand in Spain.
Top 10 “attack” moves
In the company’s existing markets, we can calculate potential strategic “attack” moves against major Henkel’s competitors: L’Oréal, Unilever and Procter & Gamble. These would “boost market share” since the company already has a brand or group of brands in the country/category and could potentially increase marketing expenditure or win new distribution agreements.
Figure 5: Top strategic “attack” moves for Henkel in Western Europe in 2015
|No||Competitor||Market – category||Henkel’s market share||Competitor’s market share||Potential prize – USD million|
|1||L’Oréal||France – Hair Care||8.0%||55.9%||893.3|
|2||P&G||UK – Hair Care||4.0%||29.7%||611.2|
|3||Unilever||UK – Deodorants||5.4%||60.1%||552.9|
|4||L’Oréal||France – Facial Care||5.3%||21.6%||445.2|
|5||P&G||Germany – Oral Care||1.4%||26.4%||442.7|
|6||L’Oréal||Italy – Hair Care||9.9%||39.9%||387.2|
|7||L’Oréal||Germany – Facial Care||5.8%||17.5%||370.9|
|8||L’Oréal||France – Fragrances||1.3%||16.1%||369.0|
|9||P&G||Germany – Fragrances||0.2%||13.9%||340.6|
|10||P&G||UK – Oral Care||0.4%||17.7%||310.6|
Source: Euromonitor International (Competitor Analytics)
These are country – category combinations where Henkel could seize the biggest prize if it succeeds in stealing share from its competitor. For example, Henkel is very strong in France overall, but has only 8% of the country’s hair care market, whereas L’Oréal has a share of nearly 56%. Even if it is a strong market for L’Oréal, consumers typically demand variety and Henkel could be in a good strategic position to expand here given Henkel’s focus on hair care. In any case, hair care in France should be high on Henkel’s agenda in Western Europe. Other such markets are listed in the table above.
Competitive landscape as a way to increase your chances of growing your market share
In this article, we showcased how a company can use Euromonitor International’s competitive intelligence framework to identify growth opportunities in mature markets. Typically, mature markets present a challenge for businesses because market size growth is often minimal or flat, but some companies are able to achieve growth in this type of environment. We argue that “mergers and acquisitions and strategy planning should take into account that “complimentary fit” is amplified in such markets. Competitive landscape analysis can help companies identify “winning” markets and increase the chance of success.
In this case study, we highlighted top 10 attack moves for countries/categories where Henkel already has market share and could prioritize those areas for expansion. Additionally, we presented a framework that allows a business to consider spaces where the company may not have a presence. In these cases, traditional market attractiveness metrics such as market size growth projections, category fragmentation, retailer distribution and consumer trends may be added to assist with strategy. A more granular breakdown by segment could also be useful when targeting precise brand level opportunities.