From Carrefour to Lidl, supermarket groups have been investing heavily in acquisitions in recent years. But what are they looking for? And why are they doing it? A new study by Strategy&, a subsidiary of PwC, has looked into this question.
Both upwards and downwards
Between 2013 and 2022, Europe’s major food retailers made 5% more acquisitions each year, totalling 84 deals. In 2020 and 2021, they took advantage of market turbulence to make cheaper acquisitions, but also the need to ensure security and strengthen supply chains, especially during the Covid crisis. Given the current volatility, Strategy& expects further verticalization ahead.
What did these food retailers invest in? Both upstream and downstream, because it turns out that almost 40% of all acquisitions in the last decade have been around access to or knowledge of consumers. This includes investments in data analytics, apps, delivery services and e-commerce.
However, more than a quarter (27.5%) of acquisitions went in the other direction: many retailers bought out suppliers or manufacturers to gain greater control over product sourcing or supply chain processes. Remarkably, food retailers have often bought into (partially or wholly) their bakery partners.
Buy-out or partnership
As governments and consumers increasingly demand sustainability, retailers have also invested in the end of the cycle, i.e. in recycling, during the pandemic years. More than one in ten deals were for waste management or recyclable packaging solutions. Retailers also acquired logistics and software companies.
As a prime example, Strategy& cites Lidl‘s parent company, Schwarz Group, which has invested heavily in its supply chain in recent years through a variety of acquisitions in the areas of production, logistics and IT. Nestlé, on the other hand, excels on the producer side: the FMCG giant has not only bought many start-ups and young brands to appeal to even more consumers, but has also entered into numerous collaborations.
The report highlights Nestlé’s agreements with Barry Callebaut and Starbucks, among others, but also strategic collaborations around raw materials, packaging and logistics. Hence, verticalization does not necessarily imply costly acquisitions.
Why is there such a need for verticalization and cooperation in the retail sector? You will find all the answers in the brand new edition of The Future of Shopping: Re-set Re-made Re-tail.