Asia the spot to be for CPG firms and fast-food chains

Posted by Daniel Palmer on 2nd October 2009

For retail and consumer-products companies, most of Asia continues to present growth opportunities, albeit at a slower rate in the short term, according to a new PricewaterhouseCoopers report, Glimmers amid the gloom. At the same time, markets in Central and Eastern Europe (CEE) and Latin America will contract.

“Well before the current global economic malaise, multinationals had been shifting strategy to concentrate on emerging markets because that’s where the growth was coming from,” Carrie Yu, global retail and consumer leader at PricewaterhouseCoopers, noted. “The outlook for the developed world over the next two years is still uncertain and many retailers and consumer-products companies are expected to put renewed emphasis on emerging markets as an engine of future growth. Overall, emerging Asia will be the fastest-growing region in 2010-2013, with a big boost from China and India, particularly for grocery and apparel.”

The report finds that there is little evidence that the expansion plans of multinational supermarket chains will falter. Asia remains particularly buoyant despite the global economic downturn. China is expected to see positive growth of 7% in 2009 in the food, beverages and tobacco sector. Europe’s biggest potential prize, Russia’s grocery market, is dominated by home-grown retailers that have expanded rapidly while many international chains procrastinated. In Latin America, retailers are concentrating on Brazil as their investment market and scaling back their plans in other countries.

Private-label had been slow to catch on in Asia compared to the US and in Europe, but now retailers worldwide are reporting increases in sales of private-label goods. In India private-label goods now account for 10-12% of the retail market. In Australia, it is in the low 20s, while in the UK it is above 30 per cent.

The fast moving consumer goods (FMCG) sector faces competitive threats from retailers’ private-label goods as a result. FMCG companies face an increasingly competitive environment, as consumers focus more on cost and less on brand name. Additionally, the FMCG environment remains immature and fragmented in some areas, particularly CEE and Latin America. The exceptions are some of the chocolate and confectionery brands.

“In one respect, this recession is the same as all others before it: consumers are uncertain about their economic prospects, so they are gravitating towards discounted items,” Ms Yu said. “The company that can bring down prices without sacrificing quality will be able to grow market share and emerge with brighter prospects when the good times return.”

Fast-food gains acceptance

Fast food is proving to be recession-proof in emerging markets. Because the fast-food sector works from a franchise model, expansion into emerging markets has been rapid and comparatively low-risk in financial terms. In Asia, affluent consumers are trading down from fine-dining options, but they and lower-income consumers continue to be able to afford to eat out. Restaurant chains are rapidly increasing their outlets and are keeping costs down to fund this expansion.