Concerns over slowing consumption in developing markets across the globe has caused investor appetite for the likes of household goods specialists Unilever (LSE: ULVR) and Reckitt Benckiser (LSE: RB), spirits maker Diageo (LSE: DGE) and clothes retailer Marks & Spencer (LSE: MKS) to dive over the past year.
Despite these current travails, however, I believe that an environment of rising population levels and improving disposable income levels should put a rocket under sales growth at these firms in the coming years.
And my belief has been given a shot in the arm by industry consultancy McKinsey & Company, which recently announced that emerging market consumption should hit $30 trillion by 2025, surging 150% from just $12tn in 2010. And expected growth in these regions far outstrips anticipated demand growth of 31% in established marketplaces, to $34tn, during the period.
Chinese dragon ready to soar
More specifically, the research house was bullish concerning future goods demand in China, an increasingly-critical marketplace for the world’s goods producers and retailers.
The country strode past the US last year to become the world’s biggest economy, according to the IMF, with a total value of $17.6tn. And McKinsey expects that half of Chinese urban homesteads will become “solidly middle class” by the end of the decade, up from just 6% in 2010.
This will be music to the ears of Diageo, where demand for its whiskeys and other distilled products has recently nosedived due to Beijing’s anti-extravagance drive over the past year. The news is also a major boon to Reckitt Benckiser, whose Durex product is the most popular condom in China.
Meanwhile, Marks & Spencer has targeted China as a key growth lever in future years, and is planning to boost investment in its Shanghai stores as well as rolling out new outlets in urban centres Beijing and Guangzhou. It is already witnessing surging online sales in the country and announced in November that Marks & Spencer is the fastest growing international brand on Tmall, a subsidiary of Alibaba.
Formidable brand power poised to deliver
McKinsey’s report also underlines the importance of significant ‘brand power’ in breaking these geographies, a quality which each of these firms carry in spades.
The consultancy notes that “emerging consumers… are highly receptive to effective branding efforts,” adding that “brands with high visibility and an aura of trust” are likely to succeed as the market becomes more fragmented and swamped with rival labels.
Reckitt Benckiser and Unilever boast an array of blue-ribbon brands across a multitude of markets, from the former’s Finish dishwasher tablets and Strepsils lozenges, through to the latter’s Dove soap and Persil laundry detergent. And like Diageo, both these firms are ploughing vast sums into market as well as product development to boost the appeal of these products.
