Disrupting disruption
Disrupting disruption

Disrupting disruption

How consumer and retail incumbents are using transactions to stay competitive

Consumer and retail businesses are feeling the impact of disruptive forces as keenly as companies in any sector. Markets and processes are being digitized, competitors are exploiting data that provide unparalleled insight into consumer behavior, old sources of competitive advantage are becoming sources of disadvantage.

Large incumbents are turning increasingly to three strategies, in particular, to stay competitive: strategic partnerships and alliances, strategic M&A, and venture investing. Through such alliances they’re finding the expertise they need in data and analytics to gain customer attention and build loyalty, the well-springs of creative ingenuity to launch breakthrough products and services, and access to online sales platforms to connect with more customers.

A brand new KPMG report, Consumer & Retail: beating disruption through partnerships, M&A and investments looks at how these three strategic transactions are being used to accelerate innovation and position retail and consumer companies for the new competitive landscape. In each case we examine the pitfalls and challenges, as well as opportunities and best practices for realizing strategic and financial value.

The growing appetite for M&A

In a recent KPMG survey, global CEOs said that they expect the No. 1 source of growth for their companies in the next three years will be strategic partnerships, followed by organic growth, M&A, and joint ventures. While only 16 percent cite M&A as their most important growth strategy, more than a quarter (27 percent) of CEOs indicate a high M&A appetite over the next three years.

Walmart’s transactions in recent years show what’s possible in the face of digital disruption. The traditionally bricks-and-mortar giant’s game-changing acquisition of Jet in 2016, in combination with other strategic acquisitions in 2018, have propelled the company’s digital and e-commerce capabilities. Walmart is now number three among America’s biggest online retailers.

To succeed and drive value, companies pursuing these strategies must, of course, be able to count sourcing, pricing, executing, and managing deals among their core competencies. Deals capabilities can have as much impact on performance as traditional industry expertise, such as merchandising or package design.

In the report, KPMG discusses the challenges, opportunities, and keys to success associated with each of the three deal categories presented. Each strategy has its pros and cons, but all three give traditional organizations the ability to experiment and test innovative concepts and technologies before they make long-term or significant financial commitments.

  • Strategic partnerships and alliances—Some companies looking to develop completely new products have created or sponsored innovation incubators where they collaborate with early-stage companies. Forming strategic partnerships and alliances with established innovation leaders can be a much quicker route. Walgreens, for example, is partnering with two tech companies to accelerate development of  their health-care service offerings.
  • Strategic M&A—M&A remains an important tool for reshaping consumer and retail organizations to fit changing demands. In October 2017, Kellogg Company acquired RXBAR, the maker of “clean-label” protein bars (made with natural ingredients) for $600 million. The deal brought Kellogg what is believed to be the fastest growing nutrition bar brand in the United States—and a company with a strong millennial customer base and an e-commerce sales channel.
  • Venture investing— In their quest for growth and innovation, retail and consumer products companies have become active venture investors. In 2010, just 1 per cent of VC deals were made by corporate investors. By the third quarter of 2018 that number had climbed to 20 per cent. L’Oréal is not alone in having made a significant foray into personalized products. But the company went still further in 2018 by launching a corporate venture capital fund called BOLD: Business Opportunities for L’Oréal Development. The fund plans to take minority positions in promising, innovative start-ups, providing them with guidance, connections, and expertise to help them grow.

An ongoing quest for talent, knowledge and skills

New technologies and business models and shifting consumer demands will continue to shape consumer and retail businesses. The speed of change will largely be driven by nimble young players based on unconventional thinking, swift innovation, and the skill and determination to exploit new marketing and sales channels.

Large incumbents are recognizing that to stay competitive they must access talent, knowledge, and skills at the leading edge. And the surest, fastest way to do this is through M&A, investments, and strategic partnerships.

Find out more

The consumer and retail companies that learn how to find the right deals and partnerships and manage them effectively will be the winners, even as they continue to leverage the power of their scale, supply chains, distribution networks and customer bases. To explore some real-life examples and find out more, read To beat disruption, use partnerships, M&A and investments.