Report

Consumer continues to be a safe bet for M&A

Consumer spending is under enormous pressure. Real wages are frozen, while prices and interest rates are rising.

Against this backdrop, hard-pressed consumers are now more cost-conscious than ever – leading to a rise in online shopping and the use of discount retailers. Although the depreciation of sterling following the Brexit vote has stabilised, the increased cost of goods from abroad is an ongoing issue. Competition in the consumer sector is fierce and cost pressures are growing.

Bricks versus clicks battle

There have been a number of casualties among well-known national groups, while independent and smaller operators are tending to fare better than their larger competitors. The same polarisation is playing out in the retail sector as consumers move towards either end of the value spectrum, with those in the middle most under pressure. Many high-street retailers are facing the ‘bricks versus clicks’ battle, having to reduce their physical footprint and increase their online presence.

Adapting to consumer behaviour

A major trend in the food and beverage sector is the rise in flexitarianism, veganism, plant-based proteins etc. as many consumers are becoming increasingly health conscious and nutritionally aware. Brand fatigue is also a challenge as consumers seek out more personal and unique experiences, and with smaller companies challenging the historical dominance of the FMCG giants.

Increased international interest

Demand for British consumer products and offerings continues to grow, however, both from established markets within the EU and emerging markets in Asia. In the food and beverage sector, exports of food and drink exceeded £22 billion last year, up 9.7% on 2016. A number of drivers continue to boost overseas appetite for UK assets. Some companies are using mergers and acquisitions (M&A) to guard or establish a UK presence. Asian interest in western consumer assets is rising and, for all overseas acquirers, the depreciation of sterling means they can still acquire assets at a reduced cost compared with previous years.

A stable home for long-term investment

Overall, while the consumer sector remains a challenging environment for operators, M&A offers a strategic means of staying competitive amid the ongoing headwind and complexity. Companies that understand and respond swiftly to the changing consumer landscape can prosper. Despite its challenges, the sector continues to represent a stable home for long-term international and domestic investments, for both trade and private equity investors, as the need for consumer staples will not go away.

Read more about our latest consumer credentials in Leading the way. [ 2604 kb ] If you’re considering strategic options for 2018 and beyond, please contact Trefor Griffith. 

Download the report
Download PDF [ 2604 kb ]