In the US, economists are growing more pessimistic about the country’s growth prospects. In Europe, political disputes over the eurozone, rather than solutions to the crisis, are making the headlines. Against this backdrop, the emerging markets seem a more attractive prospect than ever.
Growing populations, consumers becoming wealthier and more open to Western products and the more fragmented nature of emerging markets present a wealth of opportunities to food manufacturers and retailers in the US and Europe.
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It is, however, always critical to be aware that, although emerging markets offer huge rewards, there are equally significant risks. And, in the last week, two of the largest companies in our sector have faced questions over their operations in specific parts of the developing world.
Wal-Mart appears beset by problems in China. Its local chief executive has resigned, becoming the latest of a number of senior executives to leave the business this year. The departure of Ed Chan was said to be for personal reasons but it comes with the retailer under investigation by police over the labelling of pork in its stores. Wal-Mart is said to have re-labelled and sold pork as organic. The retailer has been fined, staff have been arrested and stores closed.
With competition from domestic and multinational retailers intensifying in China, the scandal comes at a bad time for Wal-Mart. The problems in China’s food supply chain are not just limited to Wal-Mart and some believe the country’s authorities have cracked down on the retailer to demonstrate to consumers that they are acting to drive out unsavoury business practices.
However, the likes of Tesco and Auchan are looking to expand further in China, while domestic retailers like Lianhua are making efforts to lure consumers away from the Western chains. To reap the rewards of China’s growing economy, Wal-Mart will need to act quickly to regain the trust of consumers. But, worryingly for Wal-Mart and its investors, the recent management departures in China suggest the company is lacking direction in the country.
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By GlobalDataSimilar questions have been asked about Danone and its business in Russia. Last year, the French dairy giant made a significant strategic move in Russia when it acquired local processor Unimilk. Danone had ambitious goals for its business in Russia but has since struggled, with management changes, volumes down and margins lower than expected.
Danone, which has had notable problems in emerging markets in recent years, insists it can return to double-digit growth in Russia but analysts remain unsure. Sanford Bernstein analyst Andrew Wood said Danone’s business in the country has been “one disaster after another” and believes there could be more bad news in the coming months. “We would not bet against other issues coming out of the woodwork,” he said last week.
Again, like Wal-Mart, Danone is facing fierce competition, not least from PepsiCo after the US company’s acquisition of Russia’s largest dairy processor Wimm-Bill-Dann earlier this year. Russia remains high on PepsiCo’s list of emerging markets, with chairman and CEO Indra Nooyi telling Reuters last week that the company planned to invest US$1bn over the next 12-18 months in the country in distribution and production capacity. Some of that investment will take in PepsiCo’s snack and beverage operations in Russia but the company plans to expand Wimm-Bill-Dann’s presence in the convenience retail channel in the country. As a senior executive from PepsiCo said in April, the company, already the largest food and drink company in Russia, wants to “accelerate away from the pack”.
