Consumer markets in developed economies are anything but robust. The European consumer is shouldering wage freezes, benefit cuts, and tax hikes while the U.S. economy looks to be on shaky ground again, amid a pullback in consumer demand. For consumer goods companies, that necessitates an increased focus on emerging markets -- and not just the rising middle classes of Asia and Africa, but these regions' poor, too.
Among the companies making a push into this demographic is French food and nutrition giant Danone (OTC: DANOY.PK), the company behind such familiar brands as Activia and Danonino. According to a recent Wall Street Journal article, Danone is targeting consumers who subsist on a dollar-a-day food budget, offering 15-cent cups of water in Mexico and 10-cent tubes of drinkable yogurt in Senegal. Sales of the latter product have been growing at an average monthly clip of 10%.
The investor's first response, of course, is whether such ventures can be profitable. Yes, apparently. Danone reports that its emerging-markets bottled water operations, for example, are more profitable than its developed economies water business. However, profitably selling the small-serving dairy products hasn't been without challenge, and at least one product is now sold mostly to urban stores rather than rural villages, as originally planned.
Danone is not alone in its efforts. In 2008, diversified consumer packaged goods giant Unilever
Meanwhile, emerging markets exposure was one of the charms that Kraft
However, the strategy of repackaging existing products as smaller portions with lower price points might not work for every company with a significant emerging-markets footprint. Colgate-Palmolive
Ultimately, whichever happens to be your favorite consumer-staples company, I'd keep a keen ear out for their emerging-markets strategies. Success among the world's expanding middle class and its poor could be the difference between single- and double-digit earnings growth, and accordingly, a rising or flatlining stock price.
Unilever is a Motley Fool Global Gains recommendation. H.J. Heinz, Procter & Gamble, and Unilever are Income Investor recommendations. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters, free for 30 days.
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