This may come down to experience: while acquisitions in the sector are relatively common, divestitures tend to be few and far between, outside of multinationals with dozens of brands. Companies in the sector may not have the in-house expertise to execute portfolio change through divestments. Furthermore, carving out a small business that is heavily integrated in a larger organization creates significant one-time complexity.
A lack of resources may also be preventing consumer businesses from gathering the data and producing the analytics they need to conduct more effective portfolio reviews, as cited by 58% of executives in the sector.
Consumer businesses need to dedicate the right resources to manage portfolio reviews and implement divestment decisions.
Where best to invest?
While most agree on the importance of divestments, companies often have internal debates over how to invest divestment proceeds. Disagreements over business model integration are one potential source of tension. For example, small, high-growth brands make attractive targets for consumer companies but they can be difficult to integrate.
Identifying target geographies is also a challenge. The highest levels of growth are taking place in emerging economies, where population growth, rising GDP and an expanding middle class continue to drive consumer demand. Yet according to the latest EY Capital Confidence Barometer, for the first time in five years, no BRIC (Brazil, Russia, India and China) country was selected as a top-five investment destination for the sector.
Factors in play here include the attraction of developed markets in uncertain times and the fact that the most innovative small companies are more likely to be found in developed economies.