Deloitte launches Global powers of the Consumer products industry 2010
Latin America enjoyed strongest sales.
New York - One in five of the world’s largest consumer products companies recorded a loss in fiscal year 2008 (encompassing years ended through 30 June 2009), according to a new report from Deloitte Touche Tohmatsu. Global Powers of the Consumer Products Industry ranks the 250 largest consumer products companies by net sales and reveals that 44 of the 222 companies to disclose profit/loss figures operated at a loss. This compares with just 13 of 223 companies in fiscal 2007. Eighty-eight of the top 250 experienced a declining sales growth rate, with 32 companies suffering declining sales and recording a loss.
Dr. Ira Kalish, Director of Consumer Business for Deloitte Research in the United States said: “Consumer products companies faced an extremely challenging environment during fiscal year 2008 as economic conditions depressed demand for consumer goods. Manufacturers of apparel, home improvement products, electronics and other homegoods were hit hardest by consumers’ spending cuts. Companies in the food, drink and tobacco sector fared much better. Economic recovery will return the industry to a growth path, but the nature and geographic distribution of that growth will be quite different from recent years.”
Overall, the top 250 grew at a rate of 4.8 percent in fiscal 2008 to take total sales to $3.2 trillion, up from $3 trillion in 2007. There was strongly differing performance around the world with Japanese companies seeing a huge swing in sales growth from 7.9 percent in 2007 to -6.7 percent in 2008. Profitability also entered negative territory at -0.3 percent, compared with 4 percent last year. European companies fared better growing by 5.7 percent and within this group, the 11 UK-based companies performed particularly strongly, increasing their rate of growth from 7.9 percent to 9.6 percent and enjoying the highest profit margin of any region at 9.6 percent.
However, it was Latin America that enjoyed the strongest sales growth in 2008 with the regions nine companies growing at an average rate of 30 percent. Brazil provided two of the world’s fastest growing consumer products companies in the world in JBS S.A. (114.5 percent) and Perdligāo (71.8 percent). US firms accounted for 92 of the top 250, or 35.9 percent of total sales. Despite operating in one of the most volatile and uncertain economic environments in recent history, US consumer products manufacturers’ combined sales grew 4.9 percent, an increase on the 3.8 percent growth in 2007.
Hewlett Packard became the world’s largest consumer products company in fiscal 2008, overtaking Samsung. However, this was strictly on the basis of a strong US dollar against the Korean won and Samsung’s sales actually increased at a significantly higher rate than its US competitor. The economic concentration of the top 10 fell in 2008 as six of the companies are manufacturers of electronics products, an industry that continues to suffer falling prices, and now, weak demand as well. Indeed, half of the ten largest consumer products companies in the world experienced negative sales growth this year.
Some key findings from the report include:
Innovation opportunities abound as recovery takes hold
Kalish said: “With consumers carefully comparing products, trading down, switching to private label and otherwise looking for value, the consumer products industry needs innovative and differentiated products and services that offer great value and at the same time resonate with the other values consumers hold dear. “With the focus on emerging markets, innovation that addresses these markets’ unique culture and historical needs and expectations (e.g. smaller package sizes at affordable prices) will help companies capture growth opportunities.”
Manufacturers seek greater security of food supply
Consumer products companies have seen their margins squeezed in recent years as a growing global population, expansion of the middle classes in developing economies, crop yields impacted by climate change and use of grain for feed and biofuel have depleted stocks and increased price volatility.
Kalish added: “Concerned about the security of supply, more and more consumer product companies are locking primary suppliers into longer-term contracts, while some have made strategic investments in vertical integration to secure the supply of key raw materials. A growing number of countries and companies are investing directly in overseas farming to secure their supply and we would expect this trend to continue in 2010 and beyond.”
M&A activity to rebound
As the world comes out of a global recession and credit market conditions improve, stock prices rebound, cash accumulates from cost-cutting measures and consumers increase spending, now is an opportune time to consider mergers and acquisitions.
Kalish said: “In 2010, we can expect to see transactions designed to facilitate entry or expansion into growing geographic markets as companies seek opportunities to acquire solid brands and undervalued businesses that can be quickly scaled up. Companies will additionally be seeking opportunities to expand into growth industries such as health and wellness or functional foods.”
To download a copy of the 2010 Global Powers of the Consumer Products industry go to www.deloitte.com/consumerbusiness
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