Your innovation team spent eighteen months developing a product that captured 0.3% market share. Meanwhile, a startup founded in someone's kitchen now owns 8% of the category. This is the reality forcing CPG executives to reconsider everything they know about growth.
The numbers tell a stark story. For the first five months of 2024, just 35% of global CPG launches were genuinely new products. In food and drink specifically, only 26% of launches qualified as truly innovative, down from 50% in 2007. Innovation has collapsed.
“Between 2020 and 2022, more than 4,300 CPG focused startups and extra small players captured an entire share point from large manufacturers, driving 20% of the sector's growth.”
These aren't flukes. They're systematic proof that traditional in house innovation models are broken.
The Build Case Is Getting Harder to Make
Average employee tenure in CPG R&D roles hit 3.9 years in 2024, the lowest since 2002. This matters enormously when product development cycles often span multiple years and depend on institutional knowledge. You're asking people who won't be there at launch to shepherd innovations from concept to market.
- 83% of CPG firms rank innovation as a top three priority
- 80% rate their innovation maturity as 'stagnating' or 'emerging'
- 76% of yearly product launches fail
- Two thirds don't achieve 10,000 unit sales
- 65% of successes are renovations rather than genuine innovations (highest in 30 years)
Some companies are defying these trends. Nestlé increased its innovation pipeline by 45% in 2024. L'Oréal invests 3.1% of sales in R&D and operates with what industry observers call "a startup mindset despite its size." Clorox deployed AI enabled consumer prototyping and cut innovation cycle time by 50%.
But these are exceptions that prove the rule. One analyst put it bluntly: "I honestly believe in the US, a lot of CPG companies are just not very good at innovation. They're not very good at moving their products forward."
What Acquirers Are Actually Buying
When PepsiCo acquired Poppi for £1.95 billion in March 2025, they weren't just buying a beverage brand with £500 million in annual revenue. They were acquiring cultural cache, a loyal Gen Z customer base, and eighteen months of runway before that brand became too expensive to consider.
Unilever's £1.5 billion acquisition of Dr. Squatch tells the same story. The brand generated £400 million in revenue and £90 million EBITDA in 2024, representing 22.5% margins. Beyond the financial performance, Unilever bought proof of concept: direct to consumer models, viral marketing capabilities, and brand authenticity that legacy companies struggle to manufacture.
“These aren't distressed sales. They're premium prices paid by buyers who understand the alternative: watching market share erode while internal teams fail to ship.”
The valuation multiples reflect this desperation. Dr. Squatch sold at roughly 20x EBITDA, matching recent high profile deals like L'Oréal's £2.5 billion Aesop acquisition and Church & Dwight's £880 million purchase of Touchland.
The Integration Problem No One Solves
Here's what the investment banking presentations don't emphasise: nearly seven in ten acquisitions fail to provide value to shareholders. Not "underperform expectations." Actually fail.
- Cultural mismatches derail post deal success
- Talent retention problems eliminate the institutional knowledge you paid to acquire
- 51% of acquiring companies lack capabilities to support pricing and go to market strategies for new assets
- 40% struggle with basic data cleansing and harmonisation
Companies frequently overestimate synergy savings and underestimate integration costs. When you overpay for an asset, you create an immediate financial burden that restricts your ability to invest in the very growth you acquired the company to generate.
The Third Way: Corporate Venture and Strategic Partnerships
AB InBev's approach offers an instructive alternative. In 2020, its corporate venture arm ZX Ventures invested £25 million in Super Coffee, securing distribution on AB's DSD trucks nationwide through a master distribution agreement. By 2021, Super Coffee raised an additional £150 million at a £500 million valuation.
“AB tested an unfamiliar category, generated substantial returns, and maintained a clear acquisition path, all without committing to a full buyout.”
This model is gaining traction. Corporate venture capital allows CPG companies to take minority positions in startups, gaining privileged insight into disruptive markets whilst preserving strategic optionality. You secure access to talent, capabilities, and business models without integration risk.
What This Means for Your Business
The UK saw £248.6 billion in M&A deals in 2024, up 71% from the previous year. CPG specifically is experiencing renewed appetite from both strategic buyers and private equity. Carlsberg's announced deal for Britvic and Mars' £36 billion acquisition of Kellanova signal that sector consolidation is accelerating.
- Can your internal innovation engine deliver genuinely new products that capture meaningful share? If 76% of industry launches fail and you're operating with average capabilities, the answer is likely no
- Can you afford the integration risk and premium valuations required to acquire established brands?
- Can you access growth through partnership, corporate venture, or strategic minority investments that preserve optionality whilst building capabilities?
The uncomfortable truth: most CPG companies aren't good at building innovation, aren't good at integrating acquisitions, and haven't developed the venture capabilities to pursue the middle path effectively.
The Executive Takeaway
The build versus buy debate presumes you're capable of either. The evidence suggests most CPG companies are not. Before you write a billion pound cheque or launch another innovation initiative, honestly assess whether your organisation possesses the execution capabilities required for success. If the answer is no, your first investment should be building those capabilities, not acquiring someone else's.