What Is a Mature Industry?
Let me explain what a mature industry is. It's one that has already gone through the emerging and growth stages of its lifecycle. The companies here are typically larger, older, and more stable than those in younger industries.
At the start of any industry's lifecycle, new products or services enter the market, and plenty of businesses pop up to capitalize on the demand. Over time, through failures and consolidations, only the strongest survive as the industry grows. That's when we consider the surviving companies mature. Eventually, growth slows down because new innovations replace the old offerings, kicking off a fresh lifecycle.
Key Takeaways on Mature Industries
You should know that the mature phase is a later stage in the industry lifecycle. These industries usually have bigger, more established, and profitable companies compared to younger ones. Right at the beginning of maturity, there's often a shake-out that weeds out the unsuccessful players. Later on, as organic growth tapers off, companies might consolidate to boost their market share and find new ways to grow.
Understanding a Mature Industry
The maturity phase often kicks off with a shakeout where growth slows, companies cut expenses, and consolidation happens. Some firms gain economies of scale, making it tough for smaller competitors to stick around. As the industry matures, barriers to entry rise, and the competitive landscape sharpens.
At this point, the remaining companies focus on market share, cash flow, and profitability since growth isn't the main driver anymore. Price competition heats up as products become less differentiated through consolidation. In the U.S., think of industries like food and agriculture, mining and natural resources, or financial services as mature examples.
One important note: stocks in mature industries often have low price-to-earnings ratios and high dividend yields. Earnings and sales grow slower here than in growth or emerging phases. The industry might be at its peak or just past it, not yet declining. While earnings stay stable, growth opportunities are limited as companies consolidate market share and block new entrants.
Why a Mature Industry May See Little Growth
In a mature industry, revenue and earnings can still rise, but don't expect the rapid growth from earlier phases. This happens because the market is nearing saturation, with most potential customers already reached.
Take breakfast cereal makers as an example—they're in a mature industry with solid market penetration that shifts only slightly. Each company has its customer base, and together, they've covered most of the available market. There might be some gaps, but the industry as a whole has hit its limits.
This setup challenges investors and company managers. You get stability, but everyone still wants future growth. To achieve that, companies must invest in R&D for paradigm-shifting products, sell off business units, acquire innovative smaller firms, or merge with peers to expand their reach.
Essentially, mature industries have plateaued in some ways and need new innovations to stay relevant. It's possible they'll get overtaken by emerging sectors. For instance, film photography was once mature and stable until digital photography advanced enough to match its quality at a similar cost, shifting the consumer market away from film.
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