Wal-Mart, the world’s largest retailer, has added to the growing evidence that FMCG companies are having to adapt their strategies in emerging markets.
Last week, the US retail giant outlined its investment plans for its next financial year – 2014/15 – and, if where it plans to spend its money is a guide, it seems more confident on returns domestically than overseas.
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Wal-Mart set out plans to up its capex in the US, with a strategy to build more small stores. However, the retailer has cut its international capex budget. It is planning to open fewer stores in Mexico and India (two weeks ago, Wal-Mart announced the end of its venture in India and said it would go it alone in the market), while the company is planning to close stores in Brazil and China.
To say Wal-Mart is downbeat about the emerging markets would be wrong – the retail behemoth is, after all, planning on some expansion in the year ahead. However, the capex plans suggest a more circumspect approach to investment in markets that, in recent quarters, have slowed from the heady days of the Noughties – and where, although growth will still outpace many Western markets – is unlikely to reach the booming levels of a decade ago.
Comments from Nestle last week also underlined the consumer goods sector will have to adjust to a slower rate of growth in emerging markets. However, the world’s largest food manufacturer also sought to emphasise the prospects for these economies are healthy – and opportunities are still there to target.
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Nestle last week reported its sales for the first nine months of the year and sales in Asia, Oceania and Africa – which house many of the Kit Kat maker’s key emerging markets – showed an improvement in the third quarter, compared to earlier in the year.
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By GlobalDataThere have been concerns among analysts about Nestle’s performance this year in emerging markets but, speaking after the results were published on Thursday, CEO Paul Bulcke insisted he “did not feel we had to turn the corner” in those economies.
“What you see is a slowing down of growth. You have huge countries growing double-digit for many years and it’s showing over and again that you have to stabilise in order to have the capacity to have sustainable growth and when economies are growing at around 8%, I want to be a part of that,” he said. “It’s about having continuous … consistent [growth]… I would actually see that positively.”
This coming Thursday, another giant of our sector, Unilever, announces its third-quarter sales. The market got an indication of Unilever’s performance earlier this month, when it announced sales would be below expectations due to the slowdown in emerging markets and sales that were “flat to down” in developed markets.
Last week, just-food met with Unilever CEO Paul Polman in Germany, where the company was marking the 175th anniversary of the start of its Knorr business. Polman was sanguine about the slowdown in the emerging markets, insisting he had warned growth in some of the economies had been “too fast”. Those who question whether FMCG companies should be present in emerging markets were, he argued, guilty of “peanut thinking”. Growth in markets like Brazil or China had, he said, come back to “more normal levels” and was “still very high” compared to the US and Europe.
In the coming days, we will be running a full-length interview with Polman in which he discusses emerging markets, the success of Knorr and the challenge of growing Unilever’s spreads business, which some analysts have suggested the company could look to sell.
And, on M&A, the battle to buy Australian dairy Warrnambool Cheese and Butter Factory took another twist last week. Another Australian dairy, Murray Goulburn, which is a shareholder in WCB, launched a takeover bid for the business. Murray Goulburn is the third company to have at least indicated it would make an offer for WCB and its bid is the highest on the table.
A fortnight ago, Canada’s Saputo said it had agreed with the WCB board to make its own offer for the firm. That announcement came after a third Australian dairy processor – and WCB shareholder – Bega Cheese made a bid, which the WCB board rejected.
Murray Goulburn tried to buy WCB three years ago but withdrew its offer amid opposition from the takeover target and concerns from Australia’s competition authority.
WCB has so far only said its board would meet to study the Murray Goulburn offer in detail and asked shareholders not to act on the offer for now.
It is shaping up to be one of the most interesting takeover battles in the dairy industry for years. And what lies at its core? The desire to beef up supplies to serve growing demand for dairy in Asia. Emerging markets, it is clear, can still determine many an FMCG firm’s strategy.
