Active investing in consumer mega-trends | Cinven

A focus on structural trends and the application of value creation playbooks can drive success in a cyclical consumer market, says Maxim Crewe, partner and head of the consumer and financial services sector teams at Cinven.

The consumer sector’s dynamism and often highly contradictory nature makes it exciting for investors. Consumers’ tastes constantly change, so the Cinven funds look to invest in longer-term trends in behaviour and demographics that will shape markets over decades.

Behavioural trends include the shift towards experience over goods, an increasing focus on health and wellness, and the growth in the pet market. Demographic trends take in wealth polarisation, ageing populations and the more eco-conscious consumer.

Our approach

We mitigate the consumer market’s cyclical nature by looking for long-term trends – or mega-trends – that support structural growth throughout the cycle. And we assess any potential investment against inflationary, deflationary and recessionary pressures. With this lens, we tend to favour:

• Smaller-ticket consumer products or services with repeat-purchase models
• Differentiated consumer propositions with robust pricing power thanks to strong brands or high-value service models
• Companies down the value chain where we can create value one or more steps away from the consumer

Mega-trends over sub-sectors

The Cinven funds look to invest in mega-trends – health and wellness, for example – over sub-sectors. We then look for business models or groups of companies focused on a particular niche – verticals – that create an attractive opportunity. Fresh berry research and development company Planasa, which the Cinven funds exited last year, was a highly successful example of this, and this summer we reached an agreement to become the lead investor in Vitamin Well.

As a plant breeder, Planasa sits in a high margin of the value chain. Vitamin Well has a very different business model but has three strong brands across three sub-sectors that play to our wellbeing mega-trend focus.

What’s in it for LPs

With the consumer sector representing half of European GDP, according to the EU, and a fifth of European deal value on average, it’s an area that’s almost impossible to ignore. While some of our peers have exited it, we’ve been a consistent investor for 30 or 40 years. Limited Partners (LPs) like that – it shows we’ve been through several cycles and have developed appropriate strategies.

The playbook

We’ve developed a playbook to help the Cinven funds’ consumer investments accelerate the opportunities in front of them to become market champions. It focuses on:
• Talent – backing existing resources and helping bring in new talent to augment teams
• Digitalisation – from applying artificial intelligence to data analytics
• Buy and build
• Consolidating fragmented markets
• Internationalisation – taking local champions and driving growth abroad
• Environmental, social and…