Last year, venture firms raised more cash than ever before—and many in the industry forecast that such momentum will continue.

The market of consumer goods is often too small to ensure long-term stability. Consequently, companies expand vertically or in foreign markets allowing PE investors to co-define scaling scenarios. With the distribution opportunities arising from channel digitalization and more efficient supply-chains such as the megatrend of the last-mile delivery, these companies have managed to maintain and competitive edge also during the Pandemic – but, for how long such positive growth outlook will last?

For many in the industry, Covid represented a real opportunity to expand into new market segments and win customer loyalty. As markets often determine a winner, so it does with the defeated. Some larger consumer good companies have struggled to cope with sales during Covid times and their margin of sustainability is constantly eroded by new entrants which are often presenting strong unit economics and significant growth rates.

In response to such macro-economic factors, many established players are looking at new ways of generating new revenue streams and ways to capture value or retaining clients. Mid-market corporates are gradually allocating more resources to venturing and PE activities and are welcoming conversations around new partnerships and joint programs. In parallel, these companies are gaining exposure to direct investments in a more structured fashion – if this activity was carried by an M&A head, it is managed by innovation officers that have the full overview of the company’s strategic plans and productivity pain points.

Takeways:

  • Early growth consumer goods and fashion companies have raised significant sums but established companies are having budget constraints – only recently they are implanting innovation policies.
  • Strategic investors with operational backgrounds are a preferable option for consumer good labels. Mid-size companies are accepting flexible time horizons and expectations of profitability. 
  • PE awards founders that have coped well during Covid times and implemented effective distribution models whilst being cautious with their expenditures

M&A remains a valid instrument to maintain market share for companies in consumer goods and thus a top agenda item for many of them. As supply constraints persist, these companies are showing a tendency to expand vertically rather than consolidate their presence in their traditional market segments allowing a new wave of M&A and a new set of potential exit candidates from adjacent industries.