Global Food and Beverages Emerging Markets

Beverage Industry

Economic growth in countries like China, India, Brazil and Vietnam will have a positive impact on the global beverage industry. Most packaged beverages are discretionary purchases, which makes them luxury products unattainable to the very poor. Yet, they are relatively low cost, and provide a fairly high level of utility for many people. As national income rises in a country, that wealth will usually be distributed, maybe not evenly but certainly there will be economic beneficiaries. In the past couple of decades, many people in the above-mentioned countries have been lifted out of abject poverty by the developments in those economies. China, for example, claims through its official media to have lifted 700 million people out of poverty since Deng Xiaoping's economic reforms were first put into place in 1978 (Xinhua, 2015). Many of these people have transitioned from a position where they were unable to purchase small discretionary consumer items such as packaged beverages to a position where now they can. In many cases, such purchases are now routine.

For beverage companies, the implications are clear. Western markets are mature. For example, in North America the share of carbonated soft drinks in the beverage market has declined for nine consecutive years. Sales were down 1% for these products last year in North America and volumes are also down (Trefis, 2014). For this industry, there is no growth to be found in their largest markets. As such, growth prospects for the industry are dependent on emerging markets. In these markets, rising levels of personal wealth create new potential consumers every day. With their saturation marketing strategy and ability to distribute even to remote areas, beverage companies are in a strong position to be among the first to capture the benefits of this growth -- people can afford the occasional soda long before they can afford their first car, for example.

The result is a long-run trend of beverage companies investing in emerging markets. They are investing in production and distribution capabilities in particular, but also in product development. Major beverage companies like PepsiCo and Coca Cola have massive portfolios, over 1000 products globally, and this is because of the high number of local products that they develop for their different markets. From the product perspective, more resources need to be deployed to these emerging markets in order to help build out market share with local flavors that can support the core flagship products in the portfolio.

The food industry faces the same situation, more or less. Large food companies see these emerging markets as a major growth opportunity. While their products may be less discretionary in the sense that people need to eat something, they are nevertheless not the traditional products of these lands. Thus, global food companies face the challenge of convincing people to get their calories from their products, rather than from traditional options, and moreover to pay a premium for the privilege. Cultural tastes seem to be more of an issue for food companies. For example, while it is easy to convince Chinese people to eat KFC -- they already eat a lot of chicken -- it is much more difficulty to them, to eat McDonald's hamburgers, as they have no history of eating beef. There are significant issues sometimes with adapting to local tastes, and companies must sometimes be creative in doing so.