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Rosa Salvador, La Vanguardia, Barcelona, Spain – June 19, 2011
Willy Kruh, Global Chair of Consumer Markets, KPMG International, has over 25 years’ experience in mergers, acquisitions, public offerings, restructuring and other corporate transactions which, as he explains, are once again the order of the day for large corporations.
Manufacturers from all over the world have come together in Barcelona, but with an agenda that is also global in nature. Willy Kruh: The world has become smaller due to globalization. Before this process you could live in Barcelona and sell in Madrid, only looking towards Spain. Now, however, manufacturers are affected by what happens in Japan or the Middle East: as oil and raw material prices rise, costs also increase for these companies, which find it difficult to pass these higher expenses on to their customers and are forced to lower their margins. They also have to choose which products are profitable and generate a margin, something which some Spanish value retailers have done successfully by earning cents on each product and lowering costs and prices, thereby providing greater value for their customers.
Large manufacturers with their own brand products are suffering due to competition from generic brands. Kruh: Consumers have changed for good. Faced with high unemployment [in Spain] and stock exchange drops (for those who own shares), they are trying to obtain more value for their money, without forsaking quality and good service. They have tried generic brands and have seen that, for just two Euros, they can buy a product which costs four Euros under the manufacturer’s brand. In those countries where recovery has already started, consumers have stuck to these habits, having tried a cheaper brand that they like. The challenge for brand-name manufacturers is to hold on to the market share that they had before, and to do so they need to invest in their brands, innovate and keep them fresh, ensuring that consumers identify the brands in question with a particular experience.
Can you give us an example? This experience can be clearly seen with luxury brands. In terms of innovation, in food for example, there is a focus on health – incorporating well-being into the product and giving something more to the consumer. Sustainability is a key player in other sectors, with 80 percent of large companies having sustainability programs in place (Corporate Sustainability: A progress report, KPMG International, March 2011).
Are there sectors which can avoid narrowing margins? With the financial crisis a new kind of hybrid consumer has been born, who can buy food or shaving cream at a value retailer one minute and head to Prada the next. It really is a fascinating phenomenon. Luxury has also seen significant growth in many markets, such as China.
With the crisis it seems that companies have put large corporate transactions on the back burner. Growth through purchases remains a priority. According to CFO Insights: a global survey of consumer markets executives (KPMG International, April 2011)—a survey of over 300 senior financial executives within the sector—25 percent of executives plan to merge with or acquire other companies in 2011. A lot of venture capital and investment fund cash which had been static is now starting to move again, and the purchase of Cadbury by Kraft was the start of this recovery process.
Does growth through acquisition provide any advantages for companies? Yes. It helps gain market share and, even more importantly, enter into new markets. With infrastructure purchases, customer bases, management and particularly culture, you can enter into the local market’s culture.
What about diversification? Sometimes it helps, but only when the aim is to be closer to the value chain, balancing channels for example, or supplementing the distribution network by incorporating new products.
The outlook is complicated... Companies in mature markets like Spain and the US must remember that there are growth opportunities – by 2025 the world will have 1,500 million new consumers in India, China and other countries in the Asia Pacific region. It is important to bear this in mind when buying or associating with companies in these areas, which can be used to manufacture products or as suppliers.
Translated and reprinted with permission from La Vanguardia. View the original article (PDF 386 KB).
Jennifer SamuelKPMG International
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