A new study by The Boston Consulting Group and Information Resources, Inc., shows that in 2014, small and mid-sized companies stole 0.7 points of market share from larger competitors on top of the 1.3 points they stole between 2009 and 2014.
While this may seem like a small amount, it is a “significant threat” to large companies, said Dan Wald, a partner with the Boston Consulting Group.
Indeed, the market share shift represents a staggering $18 billion, said Krishnakumar Davey, president of strategic analytics at IRI. He added that only six large companies grew market share in 2014 and the greatest amount was only 0.3 points of market share.
But larger CPG firms, which the study characterized as making more than $5 billion in annual retail sales, are “doing quite a bit” to regain share and spur sales growth, Wald said.
For example, he said, “they are taking the playbook small companies use to grow,” which includes zeroing in on and meeting the needs of specific consumers and sharpening their understanding of shopper insights.
One way General Mills is doing this is by placing marketers in the homes of consumers rather than conducting broad tests. It also is shortening the prototyping process.
Large manufacturers also are buying smaller innovative companies to regain market share, said Wald. He noted General Mill’s acquisition of Annie’s is an example.
For this strategy to succeed, Davey said, the smaller acquisitions should remain distinct from the parent company so that they can continue to grow in the environment in which they best thrive. When small companies are integrated into larger companies, they have less chance of sustained growth, he added.
Large companies also are responding to the intrusion of small companies by undertaking significant cost-cutting strategies to improve profitability, despite shrinking market share, Wald said.
Large firms also are learning how to grow by looking at the successful strategies of small companies like Kind and Skinny Pop, which were the second and third fastest growing small CPG firms in 2014, according to the study. They fell behind the drug company Teva.
Kind gained 133% more volume and saw a 106% sales increase in 2014 from the prior year, according to the report. Wald added part of its success came from innovative distribution of its bars at Starbucks and cafes where they were positioned as midday snack for energy, rather than pure pleasure, Wald said.
Other factors in small firms’ growth
Small companies also are able to grow quickly and steal market share because of the rise of ecommerce, which lowers the barriers for success, Davey said. He explained ecommerce allows smaller companies to go to market without securing large distribution deals.
Likewise, social media has made it easier and less expensive for small companies to reach consumers and has provided a pathway for rapid growth, Davey said.
Large companies grow, too
Even though smaller companies are taking market share, large companies still are growing.
“In fact, PepsiCo, one of the largest CPG companies, grew nearly $1 billion in measured channels last year, three times more than any other company, and four or five times more than other comparable-sized companies,” Davey said in a release.
He told Food Navigator USA that companies of any size, category or price tier can grow by capitalizing on consumer trends, such as the demand for combined health, taste and convenience. He explained that consumers are unwilling to compromise on these three qualities and smaller companies have shown them that they can have it all.
Companies also should target millennials, who now are entering the market fully, Hispanics and multicultural consumers who are growing in number and have different tastes and cultural needs than the traditional white population in the U.S., and seniors, Davey said.
Other takeaways for CPG growth from the study include strategically leveraging pricing to enhance volume growth rather than as a tactic to drive dollar growth, Davey said.
He also recommended firms take advantage of macro-economic volatility and inflation in certain food and beverage categories.