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“Consumers want individualization”

“Consumers want individualization”

The focus at Migros is on sustainability and transparency. Two representatives of Migros, Beat Arbenz and Walter Huber, talk about current trends in their sector and which M&A developments they expect to see in the future.

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Beat Arbenz, Head of M&A, and Walter Huber, CEO of Industry

Beat Arbenz, Head of M&A, and Walter Huber, CEO of Industry

Patrik Kerler: Looking at the bigger picture, what trends are shaping your industry and who is driving them?

Walter Huber: Digitalization is having a huge influence. It is altering processes from procurement to production to consumers. We also see a much greater use of big data to create new solutions for our customers. And, of course, sustainability remains key. Both consumers and the industry are driving this. That’s the way it’s always been. Consumers know what they want. And when their expectations grow, you get new requirements. In addition, there are technical advances, which generate new options of which the consumer is not yet aware.

Beat Arbenz: Healthcare is also a major trend. We see demand for healthy products growing, and, more generally, consumers want existing products to be healthy as well as socially responsible and environmentally friendly. However, they are not prepared to pay much more for this. Producers must be smart in how to achieve this, because if making a product healthier changes the taste, consumers won’t accept it.

Huber: A good example is lowering salt content. When we put less salt in a product, the product’s taste can change and consumer acceptance can decline. Similarly with color – consumers want to avoid additives and food coloring, but if a product has an undesirable color, it doesn’t sell.

How do you factor in these issues along your entire value chain?

Arbenz: Backwards integration. It’s in our DNA. We can say with total conviction that we have full control over these factors as many of our products come out of our own production. A clear differentiation factor in comparison to our competitors.

Huber: Absolutely. And in terms of transparency to consumers, let me give you an example. In China we launched Orange Garten, an e-commerce shop-in-shop concept that enables us to show and offer our integrated capabilities. The entire value chain can be explained there. Nowadays, consumers want to know how a product is made and who’s behind it. So the CEO of the e-commerce platform visited our factories in Switzerland and live-streamed her visit to show customers the production process. This builds up trust in the products we sell in Orange Garten. And to remain competitive we invest vast amounts in the education of the employees, in new technologies and in new and highly automated plants and factories.

How about product customization - what role does that play?

Huber: Customers increasingly want ‘their’ cosmetics, ‘their’ cereal or ‘their’ candy bar. Many consumers are even willing to provide their personal data in order to receive tailored products, such as customized diets.

Arbenz: Intolerances and allergies reinforce this demand for personalized products. The result is stronger differentiation among the various products and thorough monitoring of the value chain so that we can guarantee certain ingredients are not included. Again, this is an area where trust is paramount.

Innovation is clearly at the heart of things. Where does it come from?

Huber: Innovation comes from internal and external resources. Start-ups play an important role. But from a certain stage they need marketing knowhow, distribution power and production facilities – that is often the starting point for cooperation with us.

Arbenz: Within the Migros Group, we implemented innovation and R&D processes working in an agile and systematic manner.

Talking about your companies, what kind of business do you want to acquire and how do you seek out targets?

Arbenz: In the past, we more or less received opportunities straight from businesses or their advisers. Now, we have become much more active in searching for targets. One key thing that has changed is our attitude to the size of a target. We no longer reject targets just because they are small. Instead, we analyze every target carefully.

Huber: That’s right. There’s also a second reason why targets have become smaller and younger, and that is pricing. There is a huge amount of capital in the market – both in terms of cash and finance. This means we have to get to a target very early on.

Have your desired ownership structures changed?

Arbenz: We rarely do 100 percent takeovers. Our partner will usually retain some ownership. We give the business a great deal of support and contacts, but the partner needs to help drive the business itself. We integrate as far as it’s required to exploit the synergies or for the financial reporting.

Huber: The structure also depends on the degree of integration. If a business is less aligned with our processes, we leave it to operate on a more individual basis so it keeps its entrepreneurial power.

A final question to you. How do you think M&A will look in your industry over the next one to three years?

Arbenz: A lot of unused capital will still be out there. You see this in the degree of interest private equity is showing in the consumer industry. Multiples are already bordering on the absurd for companies that are seen as highly future-oriented, especially those with a turnover of approximately CHF 70 million and more.

Huber: New M&A opportunities will arise that are strongly linked to consumers, healthcare and sustainability as a result of the issues we discussed earlier. This will drive the emergence of new start-ups and attract fresh capital – ensuring that the industry will continue to develop and innovate long into the future.

© 2018 KPMG Holding AG is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

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