Construction Materials

Stagnating demand, cost pressure and high competition – the industry has reached the bottom of its downturn

What drives the industry according to public sentiment?

The industry faces a set of interwoven challenges impacting its operational and strategic outlook. Stagnating demand is expected, influenced by the delayed fallout from the real estate crisis and persistent market uncertainties. Light-side companies are expected to be hit harder than heavy-weight players, i.a. due to their larger exposure to residential real estate. Overcapacity in the market is driving fierce competition. This dynamic is compounded by the presence of players leveraging cost advantages, further eroding margins and market stability. Key input materials such as aluminum, sand, and cement are witnessing sustained cost increases, while energy expenses, particularly for oil and gas, have stabilized at elevated levels, straining profitability. Labor costs have surged, with average wages in the EU rising 29% between 2020 and 2024. This is underpinned by persistent labor shortages paired with inflation induced rise of labor costs, adding further strain on cost structures. The EU's ambitious target of a 55% emissions reduction by 2030 is reshaping demand dynamics. While these goals have stimulated interest in the large renovation segment, the path forward necessitates significant adjustments to align with regulatory and market requirements.

How can business leaders take position according to BCG experts?

To build rapid resilience, businesses must focus on achieving cost competitiveness, pushing beyond traditional levers such as network consolidation. Optimizing cash management is critical to ensure flexibility and to secure enough liquidity for strategic moves, including acquisitions. Leaders should also actively drive consolidation, as smaller players are more severely impacted, providing larger players an opportunity to strengthen their positions. Diversifying portfolios is another key step, incorporating lightweight and prefabricated solutions alongside installation services to expand offerings. A transformation towards sustainability is essential, particularly for heavy-side players who must prepare to meet increasing regulatory pressures and align with green objectives.

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