China topped poll for emerging market offering greatest opportunities for growth

China topped poll for emerging market offering greatest opportunities for growth

The third part of just-food's 2018 Confidence Survey asked for your thoughts on plans to expand internationally next year - and for a flavour of your M&A intentions. Ben Cooper reports.

Will you increase your investment in growing your business internationally during 2018?

At 53.1%, the proportion of respondents to just-food's 2018 Confidence Survey planning to increase investment internationally was at its highest level for three years, up from 45.6% in 2017 and 52.3% in the 2016 poll.

Source: just-food.com Confidence Survey 2018

The percentage forecasting a decrease in international investment also rose, from 2.5% to 4.1%, but remained low. The proportion expecting no change from last year was 22.5%, compared with 29.1% in the 2017 survey.

In which regions will you increase your international investment in 2018?

However, the percentage of respondents saying they will increase investment in North America is significantly down in the 2018 survey at just under 22%, compared with 33.9% in 2017 and 27.7% in 2016.

Source: just-food.com Confidence Survey 2018

The survey also points to lower priority being given to investment in Europe in 2018, with 36.6% saying their companies will increase investment in Europe, well below the 49.2% and 44.6% figures recorded in the 2017 and 2016 polls respectively.

Meanwhile, some 22% of respondents say their companies will increase investment in South America in the coming year, up slightly from 20.3% in the 2017 survey.

However, the proportion of respondents saying they will increase investment in Africa is lower, at 12.2% compared with 20.3% and 22.9% respectively in the 2017 and 2016 surveys.

Which emerging market/s do you expect to offer greatest opportunities for growth during 2018?

This year's survey has seen a significant upturn in the proportion of respondents expecting Russia to offer particularly strong growth opportunities in the coming year.

Source: just-food.com Confidence Survey 2018

Could this be linked to Russia being the host nation for the FIFA World Cup, the world's second-largest sporting event after the Olympics, in the coming year?

Russia's economy is expected to bounce back into growth in 2017 after contracting in 2016. The World Bank said last month it sees the Russian economy growing faster than previously thought over the next three years amid improving consumer demand.

Russia is, however, a country presenting significant challenges and one, let's not forget, that has had an embargo in place for certain food products from regions including North America and the EU for three years.

Nevertheless, whereas in the surveys for 2016 and 2017, only 6.5% and 9.5% of respondents nominated Russia, in the 2018 poll the figure has surged to 22.7%, putting Russia in shared third place with Brazil.

In the three years the question has been asked, China has topped the poll. The proportion of respondents nominating China increased sharply from 41.3% in the 2017 survey to 47.7% for 2018. 

Compared to the start of the 2010s or the Noughties, China's GDP has grown at a slower rate in recent years but the country offers plenty of promise for multinational food companies, especially in areas such as snacking and convenience, notwithstanding the challenges of doing business across such a vast and varied territory and of growing competition from domestic players.

Other emerging markets to be identified as offering the greatest growth opportunities in 2018 are Mexico, nominated by 22.7% of respondents, Indonesia (18.2%) and Vietnam (also 18.2%).

Do you expect there to be more M&A opportunities for your business in 2018?

Brexit and the unsettling impact of Donald Trump's presidency are widely believed to be the causes behind depressed M&A activity in FMCG sectors, as the prevailing uncertainties inhibit companies from making medium- to long-term decisions.

According to OC&C Strategy Consultants' 15th annual Global 50 report, M&A activity among the top 50 consumer goods corporations fell to $50bn in 2016 from US$226bn in 2015, while research from Grant Thornton indicates the number of mergers and acquisitions in the UK food and drink sector fell to its lowest level for two years in the first quarter of in 2017.

Latterly, there have been signs that M&A momentum is recovering and the suggestions of an upturn is further supported by the results of the just-food 2018 Confidence Survey

Latterly, there have been signs that M&A momentum is recovering and the suggestions of an upturn is further supported by the results of the just-food 2018 Confidence Survey.

Source: just-food.com Confidence Survey 2018

The proportion anticipating more opportunities (40.9%) is up on both 2017 when it was 34.7% and 2016 when it was 37%.

Will your business be more willing to use M&A to grow in 2018?

The just-food Confidence Survey suggests companies will be more inclined to use M&A to grow in 2018.

Some 45.7% of respondents say their companies will be more willing to use M&A as a route to growth in 2018, up significantly from 28.4% in 2017 and ahead of the 34% registered in 2016.

Source: just-food.com Confidence Survey 2018

Broadly, for major food multinationals, especially those operating in mature, packaged categories, M&A is becoming an increasingly important lever for growth. The so-called members of Big Food - multinationals based largely in North America and Europe - have, in general, struggled to get their top lines growing in recent years amid significant changes in the types of products consumers buy and how they shop.

2017 has seen Big Food increasingly use M&A to inject growth into their businesses, with larger companies either investing in or buying outright smaller players deemed to be riding faster-growing trends. Nestle and Unilever are two notable examples this year.

Moreover, in the final working days of 2017, two major transactions have been announced in the US that suggest Big Food could be getting more aggressive, snapping up businesses that are sizeable in their own right. Campbell Soup Co. has moved to buy Snyder's-Lance, the second-largest savoury snacks manufacturer in the US. Meanwhile, Hershey has decided to broaden its snacks offering with a deal to acquire US crisps and popcorn supplier Amplify Snack Brands.

With the appetite among buyers set to remain elevated, it could be an opportune time for companies looking to sell, or even those not looking for new owners but which may end up the subject of offers. Such conditions could, of course, keep deal multiples tasty.

Only 8.7% say their companies will be less willing to use M&A to grow their businesses in the coming year, while 45.7% say their view on the question is unchanged. 

Where will your business look to make acquisitions during 2018?

A question asked for the first time in the 2018 poll. Respondents were also asked where they would look to make acquisitions during the coming year, and the results further underline greater openness to international expansion.

Source: just-food.com Confidence Survey 2018

While 13.3% of respondents say their companies will look for acquisition targets in their domestic markets, 15.6% say they will look internationally.

The largest proportion (37.8%) assert they their companies will look both at home and abroad for acquisition opportunities, while 33.3% say they will not be looking to make acquisitions either internationally or domestically.

Could Brexit - and the uncertainty the UK's departure from the EU puts on the prospects for consumer confidence - lead manufacturers outside the UK and keen to continue to do business in the market look to buy businesses within the country to give them local production?