Mature Industry

What Is a Mature Industry?

A mature industry is one that has passed both the emerging and growth phases of industry growth. Companies in these industries tend to be larger, older, and more stable.

Toward the beginning of the industry lifecycle, new products or services track down use in the marketplace. Numerous businesses might spring up attempting to profit from the new product demand. Over time, failures and consolidations will distil the business to the strongest as the industry continues to develop. Here the enduring companies are considered to be mature. Eventually, growth is predicted to slow as new innovative products or services replace existing industry offerings and begin a new industry lifecycle.

Understanding a Mature Industry

The maturity phase of the industry lifecycle often begins with a shakeout period, during which growth slows, center shifts toward expense reduction, and consolidation happens. Some organizations achieve economies of scale, hampering the sustainability of smaller competitors. As maturity is achieved, barriers to entry become higher, and the competitive landscape becomes more clear.

Market share, cash flow, and profitability become the primary objectives of the remaining mature companies once growth is relatively less important. Price competition becomes significantly more relevant as product differentiation declines with consolidation. Examples of mature industries in the U.S. today include food and agriculture, mining and natural resources extraction, and financial services.

The shares of mature industries are characterized by low price-to-earnings (P/E) ratios and high dividend yields.

Earnings and sales fill slower in mature industries than during the growth and emerging industries phases. A mature industry might be at its peak or just past it however not yet in the decline phase. While earnings might be stable, growth prospects are few and far between as the remaining companies consolidate market share and create barriers for new competitors to enter the sphere.

Why a Mature Industry May See Little Growth

In a mature industry, revenue and earnings can continue to increase. However, companies from such industries are not expected to develop at the same pace that might have characterized the earlier phases of development. This might be due to the industry already approaching the point of market saturation in terms of reaching available customers.

For example, the makers of breakfast cereal and related grocery products could be considered to be part of a mature industry. Such companies have achieved a level of market penetration that might shift barely every once in a while, however they have largely reached the limits of the demographics they need to reach. Each company might have a footprint of customers it has connected with, however there might be some gaps in coverage. As a collective industry, such companies have the capacity to cover the range of available clientele.

Mature industries can pose a challenge for investors and the management of the companies in these sectors. While there is an expectation of stability that comes with a mature industry, a desire to see future earnings growth persists.

For companies in mature industries to realize growth that could appease investors, huge effort must be made. This can include researching and developing new products that change the paradigm of the industry. It could comprise of selling off parts of the business, getting assets from smaller, more innovative companies, or merging with a peer company to further expand the company's customer base and market presence.

Mature industries should be visible as having plateaued in some regards and may need to develop new innovations to remain relevant with their customers. It could be inevitable for mature industries to be superseded and made obsolete by the growth of a new business sector.

For example, film photography was once a mature and stable industry given there were few true alternatives to the medium until digital photography reached a stage of development that could consistently reproduce, at a comparable cost, the clearness of film photos. While there are nuanced reasons why film photography remains popular with some niche users, the consumer market largely shifted to utilizing digital.

Highlights

• In late maturity, companies might begin to consolidate as organic growth slows and they search for ways of increasing their market share and juice their growth.
• Toward the beginning of the mature phase, there can be a shake-out separating successful from unsuccessful companies.
• The mature industry phase is a later stage in the industry lifecycle.
• Mature industries tend to have larger, more established, and profitable companies than younger industries.