Industry consolidations may provide opportunities
Jinfo Blog

By Jan Knight

Abstract

Many businesses are consolidating through economies of scale, brand alignment or market reach expansion, and their needs will of course change. For information professionals it is essential to think about how you can adapt your product or services to take advantage of these changes.

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Information vendors need to keep abreast of what’s happening in the industries they sell to so they can continue to serve them well and provide innovative products as these companies become involved in consolidation. This week IBISWorld reports on a study that provides evidence that a number of industries are consolidating to stay competitive.

I’m highlighting a few industries that are consolidating primed for consolidation and cite the reasons they are doing so. If your business serves these industries in some manner, it may be useful to think about how you can adapt your product or services to take advantage of these changes.

Economies of scale. Much of the consolidation is being brought about by mergers and acquisition (M&A) activities and the main driver for M&A is economies of scale. Horizontal integration and consolidation can happen when companies produce similar products within the scope of a specific industry. Among this category are food service contractors and warehouse clubs, and supercentres. Larger companies in both of these areas can increase the buying power and lower prices can be passed onto consumers.

Brand alignment. The larger companies involved in distilleries, cigarette and tobacco manufacturing, and animal food production are seeing growth in market share across the board. Larger firms have a competitive advantage as they can promote emerging brands with revenue from sales of their well known, established brands.

Market reach expansion. Firms in certain industries need to maintain high market share because the larger the company the more inventory can be held, and the variety of product sold increases. It’s also easier for larger companies to differentiate themselves in many ways. Cited in this category are hobby and toy stores, as well as arcade, food and entertainment complexes.

The future. Two industries that have great M&A consolidation potential are urgent care centres, and vitamin and supplement manufacturing. Look for activity in these areas.

Industry consolidation has long been a topic of business school lectures and it obviously has pros and cons for many involved. In 2011, a number of experts wrote that consolidation within the pharmaceutical industry could hinder drug research. Many of the smaller drug development companies have been acquired and some believe that this translates into few drugs being taken to market. 2011 also saw a trend in consolidation of the banking industry in the US with the 10 largest banks then holding nearly half of total US deposits.

Why is this important? When an industry goes from being fragmented with many small companies to fewer larger companies, their needs change. This includes their information needs.

It’s crucial to keep track of whether your customers are likely to become part of a consolidated industry in the short or long term so you can plan for their ever changing needs. Larger companies may also mean bigger but fewer contracts. What does it mean to your business?

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