How to Identify Growth Opportunities in Your Competitive Landscape: Part 1
Growing market share in a growing market is an ideal scenario for most – if not all — companies. Many fast moving consumer goods (FMCG) categories, however, are highly mature and growth is hard to find, especially in developed markets. Volume demand for most FMCG products is near saturation and value-led growth faces pressure from branded competitors as well as private label. In such saturated markets, companies look to the competitive landscape to support growth. This two-part blog series introduces three main steps and five strategic directions businesses could take to find or re-discover growth opportunities in the competitive landscape. The second part of the series focuses on applying these steps into an actionable strategy using business intelligence data.
Searching for growth in plateauing markets
In a simplified form, a company’s revenue growth can come from several sources:
- Growing market size: either as a result of product innovation that carves out new categories and unlocks new consumer needs in the process; or momentum drove growth where market size is growing because of industry or consumer trends, such as higher disposable incomes and/or population growth that results in higher demand.
- Market share gain: winning market share from competitors through actions such as pricing, marketing and product innovation.
- Mergers and acquisitions (M&A): can boost market share or re-position the company in terms of geography/category exposure.
The first option is ideal, but the majority of FMCG categories, such as packaged food, are hard to re-invent and as a result market growth has plateaued. For example, the beauty and personal care category has averaged a modest 2.1% compound annual growth rate (CAGR) in current retail value terms over 2010-2015 in developed markets — placing it among the top performers. Home care grew by 1.1% over the same time period. Many categories that were strong in the past, such as cola carbonates and breakfast cereals are in decline or flat, forcing companies to rethink their growth strategies.
Figure 1: Growth becomes harder to find
Note: Average annual category growth in developed countries, selected categories, 2010-2015 CAGR % value growth, fixed exchange rates
Source: Euromonitor International
In some markets, using mergers and acquisitions to enter, protect and increase market share in existing categories becomes as important as growing overall market size. The second and third approaches also place greater importance on competitive intelligence departments as they track and respond to industry and competitor moves, in addition to adapting to consumer preferences such as trends in packaging, retailing, price positioning, eco-awareness and ingredients/flavours.
A typical growth industry such as technology may be able to ignore country-level trends and focus instead on aggressive innovation and a strong product with a strategy that’s more global in nature. However, saturated markets require a higher degree of fine tuning and “fit” searching at the country/category level.
The visual above illustrates the variability between countries in terms of growth. For example, breakfast cereals is a flat category, growing only 0.2% annually in developed countries. However, this masks many outliers such as Japan, where the market has nearly doubled during 2010-2015, or the US where the market has declined by 6% over the same period in current value terms. Planning M&A or new product development to reposition countries/categories in such an environment becomes very important to future company growth.
Using Euromonitor International’s steps and directions below, your company can learn how to use market research data to find growth opportunities.
Identify top competitive pairs by measuring market overlap
First, the prerequisite for any competitive analysis is to create a shortlist of competitors. Market research is most valuable during this stage. The more information you have on your competitor’s sales by country and category, the better picture you will have on whether competitors are playing in similar markets or if you are missing out on growth markets.
When identifying competitors, we should consider companies present in the same country/category combinations as the local company. For example, if two companies sell ice cream in the United Kingdom, they are directly competing for consumer spending on ice cream. Moreover, if a consumer decides to switch from one company’s brand to another, this would have a direct impact on both companies’ revenues.
Euromonitor International has developed a tool to measure and objectively calculate market overlap by scanning across all possible country and category combinations available on its Passport market intelligence database. In Figure 2, you can see the top 10 direct competitors for Coca-Cola Co, Unilever Group and Nestlé SA listed by US$ market overlap value. It’s worth noting not only names of competitors, but also the exact market overlap value. For example, for Coca-Cola, its competition with PepsiCo in value terms is as important as the competition with the next nine competitors combined.
Figure 2: Top 10 competitors and market overlap value for Coca-Cola, PepsiCo and Unilever
Source: Euromonitor International (Competitor Analytics)
You could also add potential and indirect competitors to the picture. Potential competitors are companies with no direct market overlap because they are present in different geographies, but could become direct competitors in the future. Indirect competitors, conversely, are companies that are in the same geography but compete in a different but not too distant category from a consumer standpoint. For example, tea and coffee, or cinema and theatre could be viewed as indirect competitors because consumers see both categories as substitutes for another.
Examine each competitive pair in detail – and assess competitive footprints
After identifying competitors, examine each competitor side by side in a matrix form. For example, see the chart with Henkel AG and Procter & Gamble below, with their categories listed vertically and countries horizontally. The colour shading refers to market share, the darker colour the larger the market share, with numbers indicating which position the company has (one denoting the category leader). In addition, the dark grey squares indicate gaps in a company’s portfolio. For example, Henkel has many gaps in the UK, Sweden and Denmark where Procter & Gamble is strong. Finally, lighter grey squares highlight where none of the companies are present (e.g. automatic dishwashing in France).
Figure 3: Competitive footprints – great way to identify white spaces or opportunities
This exercise should be completed for all major competitive pairs to better understand your respective product positioning, strength/weaknesses and gaps between competitors.
Classify the opportunities
Now that we have the competitive footprint of the company, we can classify strategic expansion opportunities into several areas and apply a recommended action for each:
- Key markets – nurture and protect
- Key categories – bring products to more countries. Is an acquisition possible?
- Key countries — more focus on new products, look for new category niches
- White spaces – fill the white spaces
- Experiment in uncharted territories
Figure 4: Competitive footprint and recommended strategic directions
Let’s walk through each of the five opportunities and associated action points.
1. Key markets – nurture and protect: A company’s portfolio can be clustered into markets that generate the majority of its revenues. Euromonitor suggests taking a figure of 50-60% as a benchmark to identify its core markets. This should encompass the core competencies of the company, which models the “fit” of other markets.
Protecting and prioritising these markets could serve as a stable base for future revenue growth and balance out more risky ventures in other categories and/or countries. A company may also look to further expand market share with acquisition where possible without breaking anti-trust rules in these markets. However, a greater share of effort should be on product development and innovation to retain consumers and protect from possible competitor moves.
2. Key categories – bring products to more countries: When it comes to boosting international presence, companies usually expand in their strongest categories first. For a highly diversified multinational company, however, it may not be easy to distinguish core categories. In this case, Euromonitor suggests using a combination of the following three metrics: % of the company total retail sales, the number of countries present and average market share. Figure 5 has an example of Unilever Group and its global retail value sales:
Figure 5: Identifying Unilever’s key categories
|% of company total retail sales||Number of countries present (max=85)||Average market share in a category %|
|Bath and Shower||9.0%||85||20.4%|
|Sauces, Dressings and Condiments||7.9%||73||12.0%|
Source: Euromonitor International
Please note that 85 is the maximum number of countries possible as this is the extent of Euromonitor’s company coverage.
While ice cream, hair care and laundry detergents account for the majority of Unilever’s retail value sales, the categories are not as geographically expansive as deodorants or bath & shower or hair care. This suggests that deodorants and bath & shower, with brands such as Dove Axe/Lynx, are the true core categories for Unilever and that the company has many gaps in their ice cream and laundry businesses. These gaps could be a good target for strategic expansion in other regions.
Cultural and regulatory challenges can still impede this expansion, as consumers in other markets may not have the same brand awareness or loyalty to a company’s products. Acquisitions can help overcome such barriers. For example, Mars’ acquisition of Iams line of pet care from Procter & Gamble has significantly strengthened its presence in North America and Japan, which were regional weaknesses in Mars’ portfolio with Mars adding over 5% market share in both markets after the acquisition.
3. Key countries – more focus on new products, look for new category niches: A similar statement can be made for countries as well as categories. For historical reasons, most companies are usually strong in their “home” markets. Henkel is strong in Germany, Procter & Gamble in North America, and LG Group and Samsung in South Korea.
In the “home” markets, companies have established marketing and supply networks and in-turn, can consider brand immersion or enter new categories to further their presence. For instance, Samsung and LG Group are extensively present in their home markets, with products ranging from smartphones in consumer electronics and washing machines to even jeans in the apparel category.
Home markets are where new product development is crucial. If new products are successful, then said concepts can be rolled out elsewhere.
A good example is Tide PODS, a multi-chamber tablet form detergent Procter & Gamble launched in the US in 2011. According to the company, PODS are the biggest innovation in laundry in the last 25 years. Even though tablet form detergents have historically failed to establish themselves in the US, P&G still chose to launch its biggest innovation in its home market. Established marketing presence and retailer relationships in home markets can help push riskier but potentially bigger prize innovations.
4. White spaces – fill the white spaces: These are gaps in a company’s core country/category presence. Examples of Henkel’s white spaces are in Facial Care – Italy (within key markets), Bath and Shower – UK (within key categories), Laundry Aids – Turkey (within key countries). For one reason or another, Henkel has no presence in these markets, even though it is generally present across these country/category dimensions elsewhere. Henkel may consider moving to one of these markets to increase their presence.
In some cases, there can be specific agreements for non-presence, such as Danone’s absence from India’s USD1 billion yoghurt market. Danone’s strongest category is yoghurt but because of its historical agreement with Britannia Biscuits, the company does not launch products in India in exchange for a joint venture.
In theory, white spaces should be easy to fill since a company already has a presence in the country, and also has brands in this category in other markets as well.
5. Uncharted territories – country/category experiments: For companies organized along market commonality lines, it is rather uncommon to have significant outliers. However, either as a result of an acquisition or a specific country-level strategy, a company may enter a market where it is not normally present. For example, Danone has market share in the fresh milk category in Russia and Morocco, despite its general strategy to stay out of consumer fresh milk in most markets.
Such categories could be seen as uncharted territory that hold potential to reposition the company in the future or reinvent the business model. They could also provide the possibility to divest if they do not seem to work.
Complimentary fit as an expansion strategy in mature markets
This framework helps companies think about competition methodically when seeking growth opportunities. After identifying and mapping out competitors, you can analyse where exactly competition takes place and if there are opportunities for brand extension or acquisition that could supplement your company’s portfolio.
The strategies suggested here align with the “complimentary fit” philosophy. Increasingly, Recently, this philosophy has become the main motivation for acquisitions in FMCG. Procter & Gamble, for example, has decided to focus on its core categories, which resulted in the spin-off of many brands in pet care, beauty and its Duracell batteries division. The brands that didn’t work for P&G aligned well for Coty. In turn, Coty purchased those brands. Having the right data and framework in place could help map the perfect “fit” and find growth opportunities.
Choosing a strategy for expansion also depends on shareholders’ risk tolerance and expectations. The data could be further supplemented with more traditional metrics, such as market size growth projections, category fragmentation, retailer distribution and consumer trends to better inform company’s strategy. A more granular breakdown of categories into segments could be useful when targeting brand level opportunities, e.g. we could further split “laundry detergents” into economy/premium or liquid/tablets/powder.