Last year saw a lot of familiar names in consumer products join forces–Amazon acquired Whole Foods, 7-Eleven acquired Sunoco’s convenience stores and gasoline stations, and Walgreens acquired approximately 2,200 Rite Aid stores. In the first half of 2017 alone, consumer product mergers and acquisitions totaled $136 billion.
This begs the question, why now? Why are massive companies such as these compelled to grow through mergers? After all, they’ve already spent billions of dollars on internal research and development to come up with new products and efficient mass production techniques.
This activity reflects an important shift in consumer product innovation: More and more, large retailers are leaving the risky business of developing breakthroughs to start-ups and replacing corporate R&D with mergers and acquisitions. The industry’s transformation can have a mixed impact on consumers, though, including price hikes that arise from market consolidation. (Fewer players means less competition.) Service can also take a hit with retailers throwing buckets of cash at their e-commerce budgets and reducing their operational spends.
But there are some potential silver-linings: Retailers may see some cost savings and pass them along to consumers. Larger budgets may also open the door for wider product offerings since R&D risks would have less of an impact on the bottom line.
What’s certain is that business models will change significantly due to all this amalgamation. Competing against the “anytime, anywhere” mentality of the digital marketplace, brick and mortar locations will no longer be sufficient on their own. Adding e-commerce and technology-driven platforms will be a must to stay competitive. Touchpoints across all platforms will be critical; customers want to buy products how and when they want, wherever they are.
This requires boardrooms to change as well. C-level executives will have to act quickly in identifying innovative investments as well as emerging consumer trends and in gauging their impact on the industry. They’re going to have to get more comfortable with involving customers directly through crowdsourcing the development and testing of new products.
Corporations aren’t the only ones looking to invest. Private equity firms are also poised to get involved. The decrease in commodity and energy prices puts more disposable income in people’s pockets, making the consumer products sector attractive.
As retailers compete for customers with limited budgets yet limitless scrutiny, they need to keep evolving. This is the new normal, and the savvy retailers out there are quickly adopting a new attitude: challenge practically everything.
This article was paid for and posted by Mazars USA LLP.