There’s usually much to do in the run-up to Christmas. How many seats do we need for Christmas dinner? What can I buy my nominated Secret Santa? (although I am just about to post my Secret Santa present ready for a Virtual Christmas Party). Some of last year’s logistical hurdles pale into insignificance in the wake of today’s new reality with COVID-19 restrictions and economic uncertainty, albeit there is a light at the end of the tunnel with the announcement of COVID vaccinations.
This new reality has challenged businesses in new and unforeseen ways. Yet, 2020 has also presented opportunities for companies to reflect on and respond to evolving consumer trends. It will be interesting, for example, to see how these factors will translate this holiday season – is this the year I try a recipe box Christmas dinner or perhaps get a tree delivered direct to my door?
Over the last year, COVID-19 has had far-reaching impacts to our way of life, the economy and businesses. Initially, a lot of companies were focused on building business resilience and ensuring survival. However, almost nine months on, the conversation has turned to the future: Is my business fit for the future and this new reality? What do the long-term impacts mean for different areas of my businesses? What does this mean from a consumer market perspective?
These are good questions to ask of an industry that has been significantly disrupted by COVID-19. The accumulating impact on consumer behaviour could potentially create a structural, long-term shift in consumer habits from how and how much we spend to what we buy. In a lot of instances, the pandemic has accelerated consumer trends that have had been emerging in recent years. For example, the rise of health and wellness, growing demands for convenience through e-commerce channels and the call for sustainably sourced products with traceability and lower carbon footprints.
These shifts are leading to most companies closely looking at their portfolios to question “are they the best owner of certain assets within their portfolio?” and “do these assets fit with their post-Covid COVID-19 longer term strategy?” Companies are embarking on portfolio reviews to ensure what they own (assets, brands, products and even the markets they operate in or the channels they use) are all aligned to their long-term strategy. Should this not be the case, these non-core assets can be sold to unlock value, generate cash. The cash can be used to strengthen their balance sheets or be used to invest in their core portfolio and for the purposes of M&A to help companies reshape and reposition portfolios for future sustainable and long-term growth. The carved-out assets are able to find a more suitable home where investment and synergies among many other levers can enhance performance. A carefully planned divestment and carve-out process is mutually beneficial for all parties.
For some companies, previous portfolio reviews will be turned on their heads as areas of the business that have historically been slower growth have become drivers of growth. Reckitt Benckiser’s Hygiene unit is one such example, following previous press speculation of potential divestment this division is now seeing accelerated growth (Q3 2020 saw 19.5% Like for like sales growth) as societies and therefore consumers focus on hygiene habits in response to Covid-19. In fact, recent press reports suggest Reckitt is preparing to sell some of its non-core personal care brands, perhaps to fund further investment into its Hygiene and Health units.
We have seen some exciting carve-outs unfold already this year - Kraft Heinz Cheese business, Tesco non-UK businesses, Coty’s Professional and Retail Hair business and Imperial Brands premium cigar business to name a few. With more consumer carve-outs being mentioned in the press such as Molson Coors strategic review of their European business and Nestlé Waters, it looks like one thing we can be sure on is carve-outs for Christmas.