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2012 Consumer Packaged Goods Year In Review: Tier Two Manufacturers

Written by TABS Analytics | May, 20 2013

Last month I review how Tier I companies (the Top 15 in CPG) saw zero growth, and in fact, very little change in sales at all. Of the 15, only one (Mondelez at +6%) had growth equal to or greater than the category average of +2%. Conversely, only two of the 15 had any meaningful declines, both at -2%. This month we look at the 60 Tier II companies in CPG, which I will define as non-Top 15, but greater than $1B in US-AOC sales for 2012. The story of these companies, that account for 28% of CPG sales, start to tell an interesting story about the ability of companies to drive meaningful sales in their business.

In fact we see the Tier II companies actually outperformed the industry with +3% growth. Further, there was a significant variance in performance for these companies. As we can see in Figure 1 below over half of the companies had growth equal to or greater than the market. On the flip side, a substantial 18% saw declines of 2% or more. These declines were much greater than we saw with the Tier I companies. While none of the Tier II companies saw double-digit declines, sales reductions of 5% or more were fairly common.

So what are some of the major common denominators of growth? First, it helps to be a distributor of alcohol when several of the top national retailers have been consistently expanding their assortment. The four of five Alcohol distributors (AB/InBev, Constellation, EJ Gallo and Diageo) saw gains in the +4-7% range. The other major trend were a number of focused product vendors with breakthrough innovation: Chobani (Greek Yogurt), Green Mountain (Coffee Pods), Driscoll (branded Berries), Starbucks (expansion of Coffee) all saw growth way into the double-digit areas. We see other manufacturers that didn’t have the eye-popping gains of the aforementioned vendors, but still manage to outperform the market – Hershey (Candy), Dean Foods (Dairy), Hillshire (Meats), L’Oreal (Beauty), and Danone (Yogurt). The common denominator here is that these companies have a more narrow range of products categories than their Tier I brethren.

So I believe we are on to something here: growth will be driven by Tier II and III manufacturers, but sales will be preserved by the Tier I players. If the Tier I manufacturers continue to post flat sales, there is going to be pressure for them to divest some of their holdings. We saw it with the Kraft devolution and we also see it with P&G and Unilever shedding non-core categories. Look for this to continue into the foreseeable future.

1. Nielsen US AOC (All Outlet Channel) Data 52 weeks ending December 22, 2012