Oreos For Everyone: Food Companies Target Emerging -- and Less Obese -- Markets For Growth
With a dragging U.S. recession and a population in which 67 percent of us are already eating too much, you have to wonder how food companies like Kraft (KFT) and General Mills (GIS) are going to find growth in their primary American market. The answer is: They're not.
By and large, most of the sales gains for big food companies over the next five years will come from people overseas buying American products, especially in emerging markets. Take the humble Oreo, for instance. Sales of Kraft's flagship cookie have grown to $200 million in the Asia-Pacific region during the past two years, while U.S. sales have barely budged. Getting Oreos into increasing numbers of Chinese kitchen cupboards has helped Kraft boost its revenue from developing markets (excluding acquisitions and currency fluctuations) by 10.4 percent in the fourth quarter. Compare that to a 2.7 percent drop in U.S. revenue for the same period. Access to emerging markets is a big reason Kraft CEO Irene Rosenfeld spent months fighting tooth and nail to acquire Cadbury. It's not that Kraft is suffering from a lack of chocolate products. What they need is Cadbury's sales and distribution inroads in places like Mexico, India and South Africa. In Mexico, for instance, Kraft's sales are only $350 million while Cadbury's are $500 million. And the company barely sells anything at all in India and South Africa.
Hopes are also high at General Mills over prospects in China, as well as Russia, Indonesia and Vietnam. CEO Ken Powell chirpily told a conference of Wall Street food analysts in Boca Raton on Tuesday: "We just see this middle class growing and growing around the world." While food companies aren't exactly giving up on U.S. consumers -- Pepsi (PEP), for instance, hopes to drive more beverage sales from their acquisition of two big bottlers -- Edward Jones analyst Matt Arnold summed it up best: "The U.S. consumer is all grown up," he said. Unfortunately that's true in more ways than one. Maybe by the time other countries develop major obesity problems, we'll have figured out how to fix ours and can add that to our list of exports.