Global

Details

  • Industry: Retail, Food, Drink & Consumer Goods
  • Type: Business and industry issue
  • Date: 10/19/2012

The state of the CIVETS 

These countries were billed among the next BRICs. But are their consumer markets performing?

Behind the numbers

Behind the numbers

 

Ready to spend

Ready to spend


COLUMBIA

State of the market: It's not all coffee. Colombia was named by JP Morgan as the second-most-promising country in Latin America for investment. Disposable income has doubled since 2006, but the current GDP growth rate of 5% will need to pick up if Colombia is to reduce poverty and narrow income gaps.


Strengths: The Colombian government is rated the most business-friendly in Latin America, with the country offering major tax breaks for business and relatively good labor flexibility. It is earlier in its growth cycle than more developed Latin American countries, so has more room for expansion.


Weaknesses: The 9.7% rise in the peso against the dollar this year has left exporters paid in dollars struggling to meet overheads in local currency. The diminished guerrilla violence still constrains growth. Infrastructure is poor: it costs more to truck cargo from Bogota to ports than to ship it across the world.


Consumer Stars: Hypermarket operator Grupo Exito, Colombia's largest retail chain, opened 64 new stores in 2011, making a total of 351. It recently acquired controlling shares in Uruguayan stores Disco and Devoto, setting its sights on expansion.


Foreign Investors: FDI hit a record US$14.8bn in 2011, but most is in oil and mining. In retail, France's Carrefour is a major presence with 70 hypermarkets. Luxury brands including Ferragamo are moving into Bogota. Last year, Unilever acquired Colgate-Palmolive's Colombian detergents business.


The Verdict: "Colombia's growth means it is popular for companies to enter the country, so expect to face strong competition. The leaders in the consumer market right now are sugar mills, while home- computer equipment and footwear markets are strong. Regulatory changes present a threat." - Claudia Sofía Ramos, Partner, KPMG in Colombia


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INDONESIA

State of the market: Thanks to earlier banking sector reform and a consumer boom, Indonesia had one of the strongest economies in the G20 in 2011, growing by 6% with inflation its lowest (at 3.8%) since 1998; retail sales have risen 20% to US$13.8bn.


Strengths: A large population (239 million), 50% of who are under 30, and a burgeoning middle class: up from 1.6 million in 2004 to 50 million now, and expected to hit almost 150 million by 2014. Little wonder brands are excited: income growth and low inflation has fuelled sustained spending on consumer goods.


Weaknesses: Indonesia's geography and poor infrastructure put it 75th in the World Bank's 2010 Logistics Performance Index, well behind Thailand, Malaysia and the Philippines. Many companies are family-owned, led by an aging patriarch – legacy issues loom. Contradictory laws can appear out of nowhere.


Consumer Stars: High-end lifestyle retailer MAP reported a 79% jump in profits last year, helped by its 40% stake in Samsonite Indonesia. It aims to see a further 25% growth this year, with plans to open 300 more stores (it has 1,065 already). Retailers Ramayana and Matahari are also strong players.


Foreign Investors: FDI jumped 18.4% to US$19.3bn in 2011. In 2011, Unilever announced a US$600m investment in its production base. P&G has spent US$100m on factories. Japan's 7-Eleven is a hit with young Indonesians: it entered the market with 20 stores in 2010 and aims to have 117 by year-end.


The Verdict: "Companies must understand the complexities of product distribution. The penetration of products and market perceptions can vary considerably. The population is far from homogeneous and you shouldn't treat the market in simplified demographic terms." - Thomas Thrasher, Partner, KPMG in Indonesia


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VIETNAM

State of the market: Recent challenges faced by Vietnam include inflation at 18.6% in 2011, compared with 9% in 2010. The Central Bank has increased the refinance interest rate to 15%, up 7% since November 2010. GDP grew 5.89% in 2011, down from 6.78% in 2010. Despite it all, retail sales rose last year.


Strengths: Vietnam has a high literacy rate of 94%. Annual disposable income has risen over US$20bn$ since 2008. Rural households represent more than 70% of the population and their spending is on the rise.


Weaknesses: The market is fragmented and difficult to reach. While foreign-owned retailers can register for an operating licence, they are generally only allowed to open one outlet and expansion is subject to an 'economic means test'. Local governments can arbitrarily limit access to the domestic market.


Consumer Stars: Masan Consumer, the market leader in fish, soya and chili sauce, increased its 2010 revenue to US$272m from US$96m, attracting private equity firm Kohlberg Kravis Roberts, which bought a 10% stake.


Foreign Investors: The consumer goods sector accounts for 25% of M&A – most investment comes from Japanese companies. Kirin Holdings recently took a 57% stake in soft drink producer Interfood Shareholding. FMCG corporation Unicharm bought a 95% stake in hygiene product company Diana for US$128m.


The Verdict: "There will be a battle between local brand and channel owners for access to consumers. Foreign entrants should understand exchange controls, restrictions in distribution channels and market segmentation to select business models and forms of market entry."- KP Chong, Head of Markets, KPMG in Vietnam


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TURKEY

State of the market: Last year, only China's economy grew faster than Turkey's among major markets: the country's GDP growth hit 7.8% in 2011. But a major slowdown is needed if inflation is to climb down from over 10% to the government's 5% target. And a current account deficit of US$77bn is a hindrance.


Strengths: Turkey has a youthful population of more than 75 million. Increased spending power has helped niche markets and brand awareness develop. Tourism attracts foreigner shoppers, especially from the Middle East, Russia and CIS member states. Political stability has brought a more liberal economy.


Weaknesses: A high level of competition means a land grab for retail locations. Turkish consumers have to budget more for food than those in other European countries, so market sentiment is closely linked to food prices. Further structural reforms to fiscal policy may be required to improve competiveness.


Consumer Stars: Food manufacturing conglomerate Yıldız Holding is a US$10.9bn player, with international interests through luxury chocolate brand Godiva. Koç Holding is Turkey's largest company, and the only one featured in Fortune's Global 500. It is active in food processing, white goods and DIY retail.


Foreign Investors: Tesco has announced plans to invest US$129m, opening 51 new outlets. Diageo acquired Turkey's leading spirit producer Mey Içki for US$2.1bn, while Anheuser-Busch InBev will launch high-end beer products in partnership with Carlsberg. Nestlé is investing US$54.8m in a new cereals plant.


The Verdict: "Establishing a presence in Turkey is relatively easy. However, companies should carefully analyze their operating models before entering the market. The country has some issues it needs to address to achieve sustainable growth, but there are opportunities."- Fikret Selamet, Consumer Markets Sector Leader, KPMG in Turkey


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SOUTH AFRICA

State of the market: South Africa was hit hard by the global recession, but GDP growth picked up to an estimated 3.5% in 2011. It has the 20th largest retail market in the world. Consumer goods sectors including white goods are reliant on imports, but retail is dominated by resurgent, home-grown companies.


Strengths: A fast-growing black middle class now has more total spending power than the white population and a desire for luxury goods. Households' disposable income is growing by 4.7% a year. Strategically, the country acts as a gateway to the rest of Africa.


Weaknesses: Although infrastructure in South Africa is better than the rest of sub-Saharan Africa, supplies of raw materials continue to be uncertain. High unemployment (23.9%) and corruption levels act as brakes on consumer spending. Companies can get caught in a web of regulatory and trading barriers.


Consumer Stars: Furniture retailer Steinhoff acquired France's Conforama for US$1.66bn last year, to become the world's second biggest household goods retailer. It is considering further expansion. SABMiller is the world's second largest brewer.


Foreign Investors: Foreign direct investment more than tripled last year to US$4.5bn, boosted by Wal-Mart's highly significant US$2.4bn purchase of a controlling stake in retailer Massmart. Nestlé recently invested US$70m to expand its South African operations as part of a continental push.


The Verdict: "South Africa is increasingly being seen as a springboard to the rest of Sub-Saharan Africa. A newcomer might find it challenging to break in, so acquisition of an established operator is the best bet. The opportunity is enormous." - Daryll Jackson, Head of Africa Consumer Markets, KPMG in South Africa


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