Emerging Market FMCG Players Will Soon Expand Overseas, Led by Indian companies
- 06.05.2015 –
Consumer & Retail
July 12, 2011. Local fast moving consumer goods (FMCG) competitors in emerging markets such as Brazil, China and India have been growing from strength to strength. While emerging market brands are still focused on fortifying their foothold in their home markets, Indian FMCG brands are making aggressive moves overseas.
Emerging markets such as Brazil, China and India have been the focus of global FMCG companies such as Procter & Gamble, Unilever, NestlÃ© and Kraft. Unilever for example, says that Brazil makes up about one-fifth of their global sales and is their second largest market. Most have entered these markets with their own brands and quickly established R&D centers to customize their products and brands to local needs.
As a sign of the growing maturity and attractiveness of local players, global brands have also started to acquire local FMCG players in recent years. Reckitt Benckiser for instance, acquired India-based Paras Pharmaceuticals, makers of over-the-counter health and personal care brands, including, Moov, D’Cold, Dermicool, Krack, Itch Guard and Ring Guard. Some rebranded locally-acquired brands under their global brand portfolio; while others, like General Mills, have kept acquired brands and local distribution networks, and introduced other brands from their portfolio.
Local FMCG players step into the limelight
Not to be outdone, emerging market FMCG brands have grown into viable rivals to their global competitors on their own terms. Some are even nurturing global ambitions and venturing abroad. Here’s a quick look at some local FMCG players in these three markets; Brazil, China and India.
1. Brazilian FMCG companies
Brazil is a highly competitive market that is divided between the two big foreign brand owners Unilever and P&G, and other smaller but very strong foreign brands such as Reckitt Benckiser as well as local brands such as Hypermarcas and YpÃª. About 20 companies, each with revenues above US$ 65 million a year, account for 74% of the FMCG market.
As a testament to their growth and market position, more and more Brazilian FMCG companies have been acquired by foreign FMCG companies. Anheuser-Busch InBev now controls Brazilian powerhouse AmBev as a result of a merger of two market leading local breweries, Brahma and Antarctica, in 1999, and GuaranÃ¡ Antarctica, the maker of popular soft drinks in Brazil. Then there is the current dispute between PÃ£o de AÃ§Ãºcar, the largest Brazilian retail chain and Casino, its French partner, for the control of Carrefour in Brazil. Casino already declared Brazil as the origin of 50% of its global growth in the next five years.
As a contrast, Chinese cosmetic companies like Baojia and Shanghai Jahwa are trying earnestly to avoid being acquired by foreign companies and compete with those international brands both at home and abroad. Shanghai Jahwa United Co., a manufacturer and distributor of cosmetics, household cleaning products and perfumes, recently underwent a restructuring and transferred a nine percent stake to Shanghai Chengtou Corporation and Shanghai Jiushi Corporation in the hopes of strengthening its foothold in China. Already selling their products in more developed markets in Europe and the US, Shanghai Jahwa is in a good position to enter emerging markets like Brazil if it can continue to improve its brand recognition overseas.
In 2010, the non-refrigerated food sector led the FMCG logistics spending in Brazil with a share of 53.2 percent. The beverages sector followed with a 26.1 percent share of the total FMCG logistics spending. Given the enormous and under-tapped markets in Brazil in the FMCG market such as in cereals, toiletries and cosmetics, there is still a lot of growth potential domestically amongst Brazilian FMCG companies.
As such, not many have ventured abroad to tout their goods. Instead, Brazilian companies are increasingly looking outwards for production instead. The Brazilian footwear company, Vulcabras, recently announced that it would buy a factory in India to reduce production costs.
2. Chinese FMCG companies
China-based FMCG companies have their work cut out for them in their own domestic market. The very idea of packaged foods goes against traditional Chinese food buying patterns, with consumers often opting for fresh foods. Moreover, a recent survey by the China Market Research Group indicates that product safety is the top priority among Chinese shoppers ““ something that Chinese brands are not usually associated with. A survey by M-Brain (formerly Global Intelligence Alliance) amongst consumer and retail industry professionals in China, India and South East Asia in November 2010 revealed that 94 percent of respondents in China say consumers prefer foreign brands.
With Chinese consumers displaying an appetite for fresh foods and international products, coupled with food safety concerns, Chinese FMCGs until recently have not had the impetus ““ or capabilities ““ to expand globally. Its aging population and the need to expand to younger consumer markets could however, become a future driving force behind Chinese FMCG companies’ expansion into international markets.
As a telling gauge of China’s growing FMCG market, FMCG logistics spending in China grew at a CAGR of 6.5 percent between 2005 and 2010 according to a June 9, 2011, report by Datamonitor. The same report forecasts logistics spending for FMCG to grow at a CAGR of 6.3 percent over the period 2010-14.
In 2010, the non-refrigerated food sector led the FMCG logistics spending in China accounting for a share of 51.6 percent. Beverages sector followed with 22.2 percent share of the total FMCG logistics spending.
Given the increasing spending tendencies among the middle and upper classes, as well as a penchant for western goods, these numbers are likely to grow. However, as companies like Kraft and Unilever increase their efforts in China, the Chinese FMCG market will become increasingly competitive, giving all the more motivation for Chinese FMCG companies to expand to other developing markets in the future.
3. Indian FMCG companies
A growing Indian population, particularly the middle class and the rural segments, presents an opportunity for manufacturers of branded products to attract these new consumers as well as making local producers of these goods targets for MNC acquisition in the FMCG sector.
In 2010, an unprecedented number of domestic and international FMCG players alike took advantage of this opportunity in India accounting for US$797.8 million in M&A deal-making, compared to a mere US$47.9 million the year before due to a slowly recovering global economy.
By contrast, the 34 M&A deals within the FMCG category for 2010 in India were primarily driven by Indian companies looking to expand beyond their borders. Large Indian FMCG companies, such as Dabur, Godrej and Emami, are speeding up their international expansion amid aspirations to become truly multinational and concerns about increased domestic crowding. Given India’s significant long-term potential, persistent and increasing FDI inflows into the country have heightened competition within the FMCG sector in India””competition that could erode existing market shares and potential for future growth domestically. Therefore, Indian FMCG players are very ambitiously looking to strengthen their global presence.
Indian FMCG companies made a total of 13 acquisitions in 2010, most of them global.
For example, Dabur, Godrej and Emami are not resting on their dominant positions in India, and are instead looking to increase capital expenditures from US$218.8 million to US$656.5 million, in order to establish a stronger market position abroad. Godrej made seven international acquisitions in 2010, Marico made two, Dabur made two and Emami, one.
In contrast, their FMCG counterparts in Brazil and China are not expanding globally at nearly the same rate.
Popular first targets for market entries overseas
As Brazilian, Chinese and Indian FMCG players flex their muscles, which markets are they likely to enter? M-Brain (formerly GIA) predicts that other emerging countries such as Egypt, Nigeria, Indonesia, Thailand, Russia and Vietnam, will be very attractive. These countries have received a lot less attention from global players in general and therefore present much lower penetration levels of foreign competition.
Dabur, India’s fourth largest FMCG company, has set its sights on international markets such as the US, Egypt, Nigeria and the Persian Gulf as it looks to scale up the contribution of foreign markets to total sales to 25 percent from the current 20 percent. Dabur made its first overseas acquisition in the second half of 2010, buying Turkish personal care firm Hobi Kozmetik Group for US$69 million as part of its strategy to strengthen its presence in Middle East and North Africa.
Another Indian FMCG company, Godrej Group’s Godrej Consumer Products, acquired leading African personal care brand Tura from Nigeria’s Tura Group late in 2010. They also later bought Latin American hair color firm Issue Group and Argentinian-brand Argencos. While Issue Group is a market leader in Argentina, Peru, Uruguay and Paraguay, Argencos is a mid-sized Argentine hair care company. The combined sales of the two Argentine companies is said to be over US$45 million. In Indonesia, Godrej acquired baby care products manufacturer PT Megasari Makmur at the end of 2010.
India’s appetite for the FMCG market in South East Asia is also palpable. Marico Ltd, a Mumbai-based personal care products maker, has picked up an 85 percent equity in Vietnam-based FMCG firm International Consumer Products Corporation (ICP). Vietnam, which has exhibited tremendous growth in the FMCG market since 2006 when the industry grew 20 percent year-on-year, has continued to be attractive. Driven by increasing youth expenditures, better distribution networks and strong economic growth, Vietnam’s rapid growth in consumer strength has already attracted foreign investments in FMCG. Personal care product brands such as Colgate, Olay, Ginvera have entered the Vietnam market and are all performing well. Challenges remain for less developed FMCG brands however as 70 percent of the distribution and sales of FMCG products, such as personal care products, still occur within traditional channels such as “mom and pop” stores and traditional drug stores. That said, given the success of these more developed FMCG players, the growth of the Vietnamese market and its attractiveness to Chinese and Indian FMCG companies will not abate anytime soon.
The Russian FMCG market is also one that has great potential for growth, but remains largely untapped. Russia is the ninth most populous country in the world and has a market economy that has existed for two decades. However, Russia is a logistical nightmare for FMCG companies given its geographic size. An acute understanding of regional markets in Russia will therefore be vital for any FMCG company hoping to enter. The benefits would be well worth the effort though. The overall food market volume in the country reached US$ 270 billion and is expected to grow by about 15 percent CAGR through to 2014.
Emerging market FMCG competitors are set to conquer their home markets – and soon other emerging markets.