Emerging Market Consumers

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Emerging Market Consumers: These Companies Are Set to Profit

by Tony Daltorio, Investment U Research
Friday, January 29, 2010

Whether Wall Street analysts and individual investors know it or not, emerging market consumers have a growing appetite for quality goods, a fact that big name brands took notice of quite a while ago.

Cadbury ADR (NYSE: CBY), for example, committed three years of research and development to creating the newest version of its Dairy Milk chocolate bar, which it recently unwrapped in Mumbai, India. By doing that, it directly combated the idea that emerging markets only care about cheap, made-to-measure products.

As a Cadbury spokesperson aptly said: “There is a huge set of emerging consumers who want world class products.” The company knows that for a fact too, considering that it worked for years to gain control of almost two thirds of the chocolate market in India. And outside competitors like Kraft Foods (NYSE: KFT) respect that position enough to pay top dollar for it.

Similarly, Harish Manwani – who manages Unilever ADR (NYSE: UN)’s emerging market portion – has increasingly launched new products in the developing world over traditional consumer hotspots. That includes the company’s Clear brand shampoo, an anti-dandruff product launched in China more than two years ago before expanding into over 30 other countries, including Russia and Brazil.

Beauty and Brazil: The Emergence of 20 Million Consumers

Avon Products (NYSE: AVP) knows the value of emerging markets as well, particularly in Brazil, where over 20 million consumers have emerged from poverty over the last six years. The growing middle class wants to spend and Avon wants to help them do just that, especially since the country has quickly become the world’s third largest beauty products market.

With the obvious consumer slump in the U.S., the American-based company turned to Brazil instead, successfully turning it into its biggest market as of last year’s third quarter. The company’s one million plus representatives within the country accumulated $1.67 billion in 2008 alone, second only to Natura, which made $2.1 billion.

And considering that only 40% of Brazilian women own lipstick, both companies still have a lot more room to grow.

According to Abihpec – the cosmetics industry association – the market for beauty products in Brazil has risen steadily by more than 10% each year since the mid 1990s. That makes sense considering how women’s roles within the country have changed over that time period. As they join the workforce in larger numbers, they naturally spend more money on themselves.

Emerging Market Consumer Confidence

Even while consumer confidence continues to waver in Europe, the U.S. and Japan, Bharat Puri, who works for Cadbury’s India division, points out how emerging markets “have an amazing optimism about the future.”

That’s why international drink company Diageo ADR (NYSE: DEO) decided to tap into even the most underdeveloped markets, like Nigeria. And so far, the strategy appears to be working, considering that the country recently overtook Ireland as the second biggest global market for Guinness beer and ale.

The corporation credits much of that growth to its advertising campaign themed “Greatness,” which portrays a prosperous future for African men – a larger message that emerging markets everywhere happily subscribe to. And it’s that very optimism that makes these countries’ chances so spectacular.

Investors should adopt a similar attitude when it comes to the companies feeding off of that sentiment if they want an equally optimistic future.

Good investing,

Tony Daltorio