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Growth potential of consumer product industry

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May 22, 2015 : Ife Adedapo

Growth potential of consumer product industry
The introduction of varieties and entry of start-ups have contributed to the success of the consumer products industry, IFE ADEDAPO writes on the growth potential of this sector
Consumer products industry holds great growth potentials despite the low purchasing power of people in the past few years.
Experts say that a recent change in consumer preference for products and brands will drive the expected growth.
According to them, a number of consumer markets must dramatically shift their methods and strategies to reach consumers in terms of both product distribution and communications.
Growth, they add, is evident both at the top of the market where more consumers can afford higher-quality and packaged goods as well as the lower end where an increasing number of consumers are concentrating on value at a reasonable price.
The industry has also been made competitive by the entry of Small and Medium Enterprises that offer similar products as much as the large traditional corporations.
These products which come with cheaper and sometimes attractive prices tend to reduce the profit margin of large organisations due to movement of a great number of their clients to growing companies.
In an Ernst and Young’s research, 67 per cent of companies surveyed, believed that the economy is improving compared with 60 per cent of overall corporate organisations.
The consumer products capital confidence barometer report notes that global consumer groups such as Unilever, Procter & Gamble and Kimberly-Clark have seen revenues struggle at some stage during the downturn.
A shift in focus from developed countries to emerging markets
As highlighted in the EY report, the commodities market face a lot of challenges among which is a constant increase in price.
It states that the World Bank shows that the price of palm oil almost tripled from the end of 2008 to the start of 2011. Meanwhile, in the same period, sugar prices almost doubled, as well as oil prices.
As a result, consumers have found it difficult to meet with the huge expenses, their demands depreciate and the sales volumes fell therefore, limiting the rate at which the price increase is passed to customers.
It notes that the emergence of cheaper ‘private-label’ and non-branded products in supermarkets have strengthened the trend.
It adds that the companies affected had to negotiate a structural shift by moving from the developed countries to the emerging world.
EY’s Global Consumer Products Lead Analyst, Andrew Cosgrove explains, “As recently as 2005, the CP industry generated around 20 per cent of its revenue in emerging markets. Now that figure is up to 50 per cent or more, and climbing. It’s a massive change to manage.”
Signs of recovery in consumer products sector
The report says that despite the down turn and economic challenges, companies are seeing the signs of recovery.
“EY’s April 2014 Capital Confidence Barometer for the consumer product industry shows that 63 per cent of those surveyed see the economy as recovering, up from 51 per cent a year earlier. However, consumer products companies are still cautious with their focus, with only 37 per cent saying that the company’s focus is on growth over the next twelve months.”
Emerging market improve earnings
When it comes to consumer products, corporate and private equities strategies share a focus on emerging markets.
According to the International Monetary Fund, emerging markets will account for around 60 per cent of global Gross Domestic Products as early as 2015.
Euromonitor, a market intelligence firm, also forecasts that more than 60 per cent of retail growth will lie in emerging markets.
However, experts note that breaking into emerging markets can be challenging. This is because consumer habits vary, distribution networks differ from the retailer-focused model that western groups are used to, and there are already strong local and regional competitors in place.
Among other things, the report notes that regulations also pose significant barriers to entry.
“Establishing a presence in a market such as China, for example, is not easy. There are controls on labelling, restrictions on moving products in and out of the country, and regulations around how a business is domiciled. The opportunity is undeniable, but execution is difficult,” the report adds.
The report notes that big organisations are already reshaping their businesses accordingly.
It states, “In 2000, developing countries accounted for 20 per cent of profits at Procter and Gamble and in 2013, they brought in 39 per cent of the group’s profits and 45 per cent of sales volume.
“In 2013, Unilever was generating revenues of €28.3bn ($38.5bn) in emerging markets compared with just €21.5bn ($29.8bn) in developed ones. As businesses pursue growth, the share of earnings is bound to increase.”
Consumer risks and regulations
EY notes that in addition to negotiating the shift towards developing countries, consumer product businesses have also continued managing the day-to-day risks of doing business.
According to respondents to the survey, continued slower growth in developing countries was seen as the biggest economic risk by companies chosen by 31 per cent of respondents, while increased global political instability was seen as a major factor by more than seven per cent.
It notes that there are chances of another boost in commodity and energy prices, and the long-term challenge posed by cheaper private-label brands, are of particular concern, prompting companies to emphasise efficiency to protect margins.
According to EY Margin unlocked report, the world’s largest consumer products companies have only achieved margin growth of 0.6 per cent during the last decade. A poll of executives for the report showed that 75 per cent found it harder to sustain operating margins during the last three years; 60 per cent expect it to be harder to maintain margins in developed markets; and 67 per cent expect it to be tougher to sustain or grow margins in emerging markets.
In view of this, the report says that some companies have streamlined their supply chains and are cutting costs.
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Friday 22 May 2015

Growth potential of consumer product industry

May 22, 2015 : Ife Adedapo

Growth potential of consumer product industry
The introduction of varieties and entry of start-ups have contributed to the success of the consumer products industry, IFE ADEDAPO writes on the growth potential of this sector
Consumer products industry holds great growth potentials despite the low purchasing power of people in the past few years.
Experts say that a recent change in consumer preference for products and brands will drive the expected growth.
According to them, a number of consumer markets must dramatically shift their methods and strategies to reach consumers in terms of both product distribution and communications.
Growth, they add, is evident both at the top of the market where more consumers can afford higher-quality and packaged goods as well as the lower end where an increasing number of consumers are concentrating on value at a reasonable price.
The industry has also been made competitive by the entry of Small and Medium Enterprises that offer similar products as much as the large traditional corporations.
These products which come with cheaper and sometimes attractive prices tend to reduce the profit margin of large organisations due to movement of a great number of their clients to growing companies.
In an Ernst and Young’s research, 67 per cent of companies surveyed, believed that the economy is improving compared with 60 per cent of overall corporate organisations.
The consumer products capital confidence barometer report notes that global consumer groups such as Unilever, Procter & Gamble and Kimberly-Clark have seen revenues struggle at some stage during the downturn.
A shift in focus from developed countries to emerging markets
As highlighted in the EY report, the commodities market face a lot of challenges among which is a constant increase in price.
It states that the World Bank shows that the price of palm oil almost tripled from the end of 2008 to the start of 2011. Meanwhile, in the same period, sugar prices almost doubled, as well as oil prices.
As a result, consumers have found it difficult to meet with the huge expenses, their demands depreciate and the sales volumes fell therefore, limiting the rate at which the price increase is passed to customers.
It notes that the emergence of cheaper ‘private-label’ and non-branded products in supermarkets have strengthened the trend.
It adds that the companies affected had to negotiate a structural shift by moving from the developed countries to the emerging world.
EY’s Global Consumer Products Lead Analyst, Andrew Cosgrove explains, “As recently as 2005, the CP industry generated around 20 per cent of its revenue in emerging markets. Now that figure is up to 50 per cent or more, and climbing. It’s a massive change to manage.”
Signs of recovery in consumer products sector
The report says that despite the down turn and economic challenges, companies are seeing the signs of recovery.
“EY’s April 2014 Capital Confidence Barometer for the consumer product industry shows that 63 per cent of those surveyed see the economy as recovering, up from 51 per cent a year earlier. However, consumer products companies are still cautious with their focus, with only 37 per cent saying that the company’s focus is on growth over the next twelve months.”
Emerging market improve earnings
When it comes to consumer products, corporate and private equities strategies share a focus on emerging markets.
According to the International Monetary Fund, emerging markets will account for around 60 per cent of global Gross Domestic Products as early as 2015.
Euromonitor, a market intelligence firm, also forecasts that more than 60 per cent of retail growth will lie in emerging markets.
However, experts note that breaking into emerging markets can be challenging. This is because consumer habits vary, distribution networks differ from the retailer-focused model that western groups are used to, and there are already strong local and regional competitors in place.
Among other things, the report notes that regulations also pose significant barriers to entry.
“Establishing a presence in a market such as China, for example, is not easy. There are controls on labelling, restrictions on moving products in and out of the country, and regulations around how a business is domiciled. The opportunity is undeniable, but execution is difficult,” the report adds.
The report notes that big organisations are already reshaping their businesses accordingly.
It states, “In 2000, developing countries accounted for 20 per cent of profits at Procter and Gamble and in 2013, they brought in 39 per cent of the group’s profits and 45 per cent of sales volume.
“In 2013, Unilever was generating revenues of €28.3bn ($38.5bn) in emerging markets compared with just €21.5bn ($29.8bn) in developed ones. As businesses pursue growth, the share of earnings is bound to increase.”
Consumer risks and regulations
EY notes that in addition to negotiating the shift towards developing countries, consumer product businesses have also continued managing the day-to-day risks of doing business.
According to respondents to the survey, continued slower growth in developing countries was seen as the biggest economic risk by companies chosen by 31 per cent of respondents, while increased global political instability was seen as a major factor by more than seven per cent.
It notes that there are chances of another boost in commodity and energy prices, and the long-term challenge posed by cheaper private-label brands, are of particular concern, prompting companies to emphasise efficiency to protect margins.
According to EY Margin unlocked report, the world’s largest consumer products companies have only achieved margin growth of 0.6 per cent during the last decade. A poll of executives for the report showed that 75 per cent found it harder to sustain operating margins during the last three years; 60 per cent expect it to be harder to maintain margins in developed markets; and 67 per cent expect it to be tougher to sustain or grow margins in emerging markets.
In view of this, the report says that some companies have streamlined their supply chains and are cutting costs.
Copyright PUNCH.
All rights reserved. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from PUNCH.
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