Why Consumer Products Industry Is Recording More Mergers and Acquisitions – Report

A new report from global professional services firm EY has found that the consumer products (CP) industry is under mounting pressure from capital markets, prompting a significant shift toward mergers and acquisitions as companies seek to drive growth and restore investor confidence.

Titled The EY State of Consumer Products, the report is based on extensive research involving over 500 CP manufacturers and retailers, more than 20,000 consumers, 190 global CP CEOs, and direct interviews with 24 industry executives.

It paints a picture of an industry at a critical inflexion point, grappling with structural shifts in market dynamics, consumer behaviour, and investor expectations.

According to the report, investor confidence in the CP sector is wavering, with many firms struggling to maintain top-line growth in an environment of stagnant volume performance and heightened consumer price sensitivity.

In response, companies have increasingly turned to tactical cost-cutting and pricing strategies. However, with limited returns from these measures, many CP leaders are now accelerating M&A activity to unlock new growth opportunities.

While acquisitions have historically delivered faster revenue growth, the report notes they often come with trade-offs—typically lower operating margins and weaker shareholder returns. Divestitures, by contrast, tend to yield stronger shareholder returns despite lower margins.

Nevertheless, 81 per cent of CP leaders surveyed believe that growing valuation gaps will continue to challenge broad-based M&A recovery in the near term. Even so, firms are actively reviewing their portfolios and positioning themselves to pursue inorganic growth as part of a broader transformation strategy.

EY’s findings suggest that to win back investor trust, CP companies must shift away from traditional models and embrace a forward-looking approach anchored in technology, data analytics, and accelerated innovation.

The report calls for companies to build operating models that are not only agile and resilient but also focused on long-term value creation through more effective capital deployment and consumer-centric strategies.

The research also highlights a growing power shift in the relationship between CP firms and retailers. As retailers expand private label offerings and harness consumer data through retail media networks, they are gaining greater leverage in negotiations and shelf-space allocation.

Seventy-eight per cent of retailers surveyed said they expect only one mass-market brand to remain in stores over time, with the rest of the shelf space dominated by private labels, premium, and niche products. This sentiment is mirrored by 65 per cent of CP executives, underscoring the urgency for brands to reassert their relevance and profitability.

Retailers are also rethinking their product strategies, with a significant number planning to prioritise the development of their own brands over the next three years. As a result, many CP firms are exploring direct-to-consumer channels to reclaim control over distribution and strengthen relationships with their end customers.

While the competitive landscape continues to evolve, the report stresses that collaboration between CP firms and retailers remains vital.

Most executives on both sides agree that successful partnerships are essential, particularly in the areas of innovation and customer engagement. However, the report notes a disconnect between intent and execution, with only a small proportion of CP firms actively engaged in joint innovation efforts.

Innovation itself is increasingly complex. Although 76 per cent of CP leaders acknowledge the growing importance of analytics and artificial intelligence in driving innovation, fewer than one-third believe their current capabilities offer a meaningful competitive advantage.

Similarly, while many retailers depend on CP companies to deliver new and compelling products to attract customers, fewer than a third of CP leaders consider themselves effective at rapidly developing and scaling new offerings.

Retail media is emerging as a critical area of mutual interest, offering a powerful platform for collaboration. By leveraging first-party data from e-commerce and loyalty programmes, retailers can generate new revenue streams while helping CP brands reach targeted audiences more efficiently.

Sixty-three per cent of CP leaders report that retail media is becoming a more influential factor in their negotiations with retailers, further highlighting its growing strategic importance.

Commenting on the report’s findings, EY Global and EY Americas Consumer Products Sector Leader Rob Holston said the industry is at a turning point.

“Our findings present a roadmap for CP firms to reclaim relevance, restore belief in the power of brands and thrive in a changing world,” Holston said. “By understanding the critical shifts in consumer expectations, retailer dynamics and capital market demands, leaders can act boldly to rebuild relevance and lead with confidence.”

As the consumer products sector confronts a period of transformation, the report concludes that long-term success will depend on companies’ ability to move beyond defensive strategies and embrace bold, innovation-led approaches that address the expectations of investors, retailers, and consumers alike.

Why Consumer Products Industry Is Recording More Mergers and Acquisitions – Report is first published on The Whistler Newspaper