While many industries in Europe are consolidating and restructuring, one of the largest and most fragmented sectors—the manufacture of food and drink—has been relatively untouched. Indeed, the top ten food-and-drink producers in Europe’s leading countries still account for only about 14 percent of the market—a low level compared with industries such as grocery retailing (42 percent) and pharmaceuticals (35 percent). Meanwhile, the proportion of the industry’s market capitalization involved in merger-and-acquisition activity remains one of the lowest (Exhibit 1).

McKinsey research, however, suggests that consolidation could create more than $100 billion in net present value for industry participants, making an imminent restructuring almost inevitable. To quantify the benefits of consolidation and category leadership, we examined the financial performance of the main companies in each of four categories: beer, confectionery, spirits, and yogurt. Our analysis covered the world’s largest food-and-drink markets for which adequate data existed: France, Germany, Italy, Spain, the United Kingdom, and the United States. Almost all categories are more fragmented at the European level than they are in the United States, whose markets are also less fragmented than those of typical European countries.

The scatter graphs of Exhibit 2 display the result of our investigations. In any...