What Defines a Mature Industry?
A mature industry is one that has moved beyond its emerging and growth phases. Companies within these industries are often larger, older, and have achieved a level of market stability.
At the onset of the industry lifecycle, new products or services begin to find their place in the market. Companies emerge to capitalize on the new demand, but over time, only the strongest survive through failures and consolidations. This period shapes the mature phase of the industry. As time progresses, industry growth slows as newer, more innovative products or services take the forefront, beginning a new lifecycle.
Key Characteristics
- The mature industry phase signifies a later stage in the industry lifecycle.
- Companies in mature industries are usually more established, larger, and profitable compared to younger industries.
- The start of this phase often involves a shake-out period where successful and unsuccessful companies are separated.
- During late maturity, companies may consolidate to boost market share as organic growth slows.
Understanding the Maturity Phase
The industry lifecycle’s maturity phase often commences with a shakeout period marked by slowed growth, expense reduction, and consolidation. Larger firms gain economies of scale, making it difficult for smaller competitors to sustain. Barriers to entry solidify, and competition becomes more predictable.
Market share, cash flow, and profitability dominate the focus of companies in mature industries, shifting from high growth to stability. As product differentiation diminishes with consolidation, price competition intensifies. Notable examples of mature industries in the United States include food and agriculture, mining, and financial services.
Mature industries frequently exhibit low price-to-earnings (P/E) ratios and high dividend yields. While earnings and sales grow slower than in the growth phase, the hallmark of this phase is stable, albeit modest, growth. Mature industries may peak or slightly decline, but they are generally not in the decline phase yet. Consolidation helps remaining companies defend their market share and create barriers to new entrants.
Limited Growth in a Mature Industry
Despite stable revenue and earnings growth, mature industries do not grow at the high rates seen during initial development stages due to approaching market saturation. For example, breakfast cereal companies have largely penetrated their market, and while marginal gains might occur, new customer bases become scarce. Each company has established its footprint, covering most available clientele.
Investors and company management face unique challenges within mature industries. Stability is a notable feature, but there’s an unceasing demand for future growth. Companies may achieve this by investing in research and development, selling off segments of their business, acquiring smaller innovative firms, or merging with peers to expand market share.
While seen as plateaued, mature industries must innovate to stay relevant and competitive. Inevitably, they might be overshadowed by new, innovative sectors. Consider film photography: it was once a mature, stable industry until digital photography could match and exceed the quality and cost-efficiency of film, shifting the consumer market largely to digital. Though film photography retains a niche, the broader market has evolved.
Related Terms: Shakeout, Consolidation, Earnings Growth, Mergers, Market Penetration.
