Consumer Products

Consumer Products M&A Outlook 2010

The consumer products (CP) industry has grown at a consistent rate of 7 percent since 2005. This growth has been driven by mergers & acquisitions (M&A), innovation and emerging markets. Even with the state of the current recession, M&A activity remained steady through the end of 2009 and is likely to remain steady or increase in 2010.

With the food & grocery sector, 2009 saw many chain supermarkets (e.g., Safeway) cut prices to remain competitive with cost-cutting megastores such as Wal-Mart. While the strategy was to reduce prices even at the cost of their bottom line to maintain their respective customer bases, this strategy may turn out poorly for them if the economy, and thus consumer spending, does not soon increase. In 2010, look for increasing M&A activity in the sector as money runs out and it becomes cheaper to buy (the store, the setup, the customer base) than to build.

This trend will repeat in the home furnishings and discount merchandise sectors. Large companies will focus on buying smaller ones (low- to midmarket) to further their client base. Expect to see this happen frequently as big-brand companies look to gain scale through productivity and negotiating leverage with retailers. This type of activity was seen in the purchase of Smith & Hawken, Ltd. by Target Corp., Ukrop’s Super Markets Inc. by Giant Food Stores LLC, and Timothy’s Coffees of the World, Inc. by Green Mountain Coffee Roasters Inc., and is likely to continue through 2010.

Expect to see companies divest their interests to focus more on high-growth categories and emerging markets.

Late 2009 also saw a 15.5 percent increase in online sales, enough to propel holiday shopping sales to 3.6 percent. Expect the online shopping trend to continue throughout 2010, greatly benefiting companies with user-friendly websites and good shipping rates.

SOURCES: Deloitte; PriceWaterhouseCoopers

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• Consumer Products M&A Outlook 2009
• Retail and Consumer Products M&A Outlook 2008