Three myths about growth in consumer packaged goods

0
(0)

brand packagingIt’s natural that for much of the past 20 years, the discourse on growth has highlighted the BRIC countries: Brazil, Russia, India, and China. But with competition in these markets intensifying, some companies have shifted their focus to other regions of the world, such as Africa and non-BRIC Asia and Latin America. Everywhere, however, competition and high capital requirements are making it increasingly difficult to achieve growth and create value through geographic expansion, so it’s crucial for companies to take the guesswork out of their plans

The three myths
We used McKinsey’s Cityscope Navigator tool to take a fine-grained look at the markets of more than 2,600 of the world’s largest cities. Our analysis revealed some surprising truths about where the most promising opportunities lie—and cleared up three widespread myths about CPG growth.

Myth 1: The United States isn’t a growth market

Most CPG companies have had very low expectations for growth in the US market. They’ve long seen it as the scene of a battle for distribution, where they must secure placement for their products in the fastest-growing retail channels just to maintain their share of a pie that’s not getting bigger.
But this no-growth (or, at best, low-growth) picture isn’t entirely accurate. Somewhat surprisingly, a number of cities in developed markets, including the United States and Western Europe, are growing as rapidly as those in emerging markets. Companies that ignore these cities could be missing out on opportunities very close to home. Our analysis forecasts that between 2014 and 2025, certain product categories—including anti-aging cream, still drinks, and mineral water—will grow at almost twice the rate of overall US consumer spending (Exhibit 1). Companies can thus generate above-average growth in the United States by not only taking market share from competitors but also making targeted investments in high-growth categories.

Myth 2: It’s too late to enter China or India

Some companies have written off China and India as unrealistic expansion opportunities; they feel their capital base isn’t sufficient for a credible entry or that the competitive environment is already too tough for new entrants. But companies shouldn’t dismiss these markets outright. Instead, they should ascertain whether building a presence in only a few selected cities is feasible.

For product categories with low minimum scale requirements, even a limited entry in China or India can yield returns equivalent to countrywide coverage in other emerging economies—or higher. The juice market, for instance, will grow more than three times as fast in Shanghai alone as in all of Malaysia. Furthermore, many cities in China and India are continually modernizing their retail and distribution infrastructures, making market entry less complex than it would be in rural areas.

Myth 3: Emerging-market consumers don’t buy premium products

As international CPG companies venture into the emerging world, many of them choose to sell only simple products that meet basic needs. And with good reason: fast-moving categories, such as soft drinks and laundry detergent, offer the greatest reach and the highest market potential.

Yet some large cities in emerging markets have per-capita income levels comparable to those of large North American and European cities. Demand structures in these emerging locales and their developed-market counterparts are increasingly similar. Discretionary products, such as premium cosmetics, disposable diapers, and pet food, therefore have higher sales potential.

Companies that meet this nascent consumer demand early will be well positioned to become market leaders. Forward-thinking companies can even play a part in stoking demand, as Procter & Gamble did with disposable diapers in China (until about a decade ago babies there wore only cloth diapers—or none at all). In 2006, P&G developed a cheaper but still absorbent Pampers diaper for the Chinese market. Working with the Sleep Research Center at the Beijing Children’s Hospital, the company conducted two studies showing that babies fall asleep faster and stay asleep longer when they wear Pampers. These messages were extensively marketed to Chinese consumers. Today, Pampers is the top-selling brand in the $6.7 billion Chinese diaper market.

Click here to read more about this article.

How useful was this post?

Click on a star to rate it!

As you found this post useful...

Follow us on social media!

Joe David