Many investors in global personal-care and home-care corporations, which include Unilever (NYSE:UL), Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL), were quite bullish about the significant growth in emerging markets. However, that emerging market business growth has recently been slowing, resulting in stock price's sluggish performance.
Among the three, Unilever has suffered from the biggest decline at more than 10.20% in the past six months, whereas Procter & Gamble experienced a drop of more than 2.30%. Colgate-Palmolive rose by only around 1.70% during the same period.
High emerging market exposure
Unilever has the highest exposure to emerging markets. Around 55% of its total business derived from emerging markets, while the developing markets accounted for only 39% of P&G's business and around 53% of Colgate-Palmolive's business.
Indeed, in July, after posting 10.3% growth in the emerging markets in the first half 2013, Unilever warned investors about the potential growth slowdown. Unilever's CEO Paul Polman mentioned that 10% growth could not be maintained in the future.
The growth projection was also lower for P&G. While its top 10 developing markets enjoyed organic growth of 8% in fiscal year 2013, the developing market growth was expected to be around 6%. Colgate-Palmolive, with its global leading position in the oral-care business, has had the highest growth of 11% in the emerging markets this year.
Strategic actions in emerging markets
Interestingly, all three corporations have planned ahead and initiated different strategies for the overall slowdown in the emerging markets. Unilever has dealt with it by launching new brands, such as Cif and Domestos in Brazil and Dove in China. Moreover, Paul Polman of Unilever believes that in order to move ahead, growth must be diversified.
P&G, on the other hand, is more likely to rely on premium innovations to drive sales mix growth in emerging markets. The recent launch of 3D White products has lifted Oral-B toothpaste values to more than 9%, driving Oral-B sales in Brazil 57% higher last year. Moreover, the company will also actively manage cost savings and productivity more efficiently.
Most of Colgate-Palmolive's growth also depends on a wide range of product innovations, which will continue to be the main driver of business growth. Moreover, it focuses on the improvement on the business execution on the ground, where the company could directly engage with both retailers and end users. Colgate-Palmolive thinks that execution excellence is the key to build its brands and grow market shares.
Ian Cook, the company's chairman and CEO, has shared the example of winning shares in the Indian market by reaching the mom and pop stores with small vans to have direct control over the distribution channel. Colgate-Palmolive felt bullish about the growth potential of rural areas in the emerging markets.
Foolish bottom line
Looking back, Unilever has grown its business by 9% per year in emerging markets over the past 25 years, whereas Procter & Gamble has had similar growth since 1988 and 1989.
In the long run, emerging markets are still where most of the consumer goods growth will come from. With their global leading positions, deep market penetration, premium innovative products, and distribution excellence, all three corporations will keep expanding alongside businesses in the fast-growing world population.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.