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PwC: Represents the best growth
September, 26th 2009

The FINANCIAL -- For retail and consumer-products companies, most of Asia continues to present growth opportunities, albeit at a slower rate in the short term, according to a new PricewaterhouseCoopers report, Glimmers amid the gloom. At the same time, markets in Central and Eastern Europe (CEE) and Latin America will contract.

Carrie Yu, global retail and consumer leader at PricewaterhouseCoopers, said:

Well before the current global economic malaise, multinationals had been shifting strategy to concentrate on emerging markets because thats where the growth was coming from.

The outlook for the developed world over the next two years is still uncertain and many retailers and consumer-products companies are expected to put renewed emphasis on emerging markets as an engine of future growth. Overall, emerging Asia will be the fastest-growing region in 2010-2013, with a big boost from China and India, particularly for grocery and apparel."

The report, Glimmers amid the gloom: The outlook for the retail and consumer products sector in emerging markets, written in co-operation with the Economist Intelligence Unit, discusses the outlook for six retail and consumer-products sub-sectors in emerging markets and finds that:

There is little evidence that the expansion plans of multinational supermarket chains will falter. Asia remains particularly buoyant despite the global economic downturn.  China is expected to see positive growth of 7% in 2009 in the food, beverages and tobacco sector.  Europes biggest potential prize, Russias grocery market, is dominated by home-grown retailers that have expanded rapidly while many international chains procrastinated.

In Latin America, retailers are concentrating on Brazil as their investment market and scaling back their plans in other countries. Private-label had been slow to catch on in Asia compared to the US and in Europe, but now retailers worldwide are reporting increases in sales of private-label goods. In India private-label goods now account for 10-12% of the retail market.

For apparel retailers, Asia is the most promising growth region. China and India are both expecting double-digit growth in sales. In China the high-end apparel market is dominated by international brands from France, Germany, Italy, Japan, US, UK and South Korea. European retailers have made significant strides into CEE and Russia, spurred on by the regions low cost base for manufacturing. However, consumer spending on apparel has shrunk significantly, with the exception of a buoyant discount sector. Latin America also offers little growth in 2009.

Fast food is proving to be recession-proof in emerging markets. Because the fast-food sector works from a franchise model, expansion into emerging markets has been rapid and comparatively low-risk in financial terms. In Asia, affluent consumers are trading down from fine-dining options, but they and lower-income consumers continue to be able to afford to eat out. Restaurant chains are rapidly increasing their outlets and are keeping costs down to fund this expansion. Fast-food restaurants have penetrated every market in CEE. Brazil is a battleground for fast food in Latin America.

The fast moving consumer goods (FMCG) sector faces competitive threats from retailers private-label goods. FMCG companies face an increasingly competitive environment, as consumers focus more on cost and less on brand name. Additionally, the FMCG environment remains immature and fragmented in some areas, particularly CEE and Latin America. The exceptions are some of the chocolate and confectionary brands. The trend across Asia and Latin America is for firms to penetrate markets more deeply and reach lower-income consumers such as through smaller packaging sizes rendering products more affordable to rural populations.

Sales of luxury brands are tumbling in CEE and Russia. The luxury sector has been a stand-out success, with heavy investment in marketing and product offerings including small items and accessories, which has opened exclusive brands up to the newly rich in emerging markets. However, global sales of luxury goods are predicted to fall 10-15% in 2009 as consumers tighten their belts. Depressed oil prices and the real estate slump have slashed the number of MOSCOW billionaires by 60%, substantially impacting sales of luxury goods.

In CEE and Turkey, luxury brand awareness does not necessarily equate to sales. Sales are slowing in Latin America, but luxury firms will continue to expand cautiously and focus on long-term brand building. Asia has the brightest outlook by comparison, with 15,300 households estimated to have a net wealth of over US$1m in 2008. By 2015, China is forecast to become the worlds top buyer of luxury goods. India also has huge potential, but regulation is preventing rapid expansion.

Turbulent times for consumer electronics companies, as costly one-off purchases consumers can delay or forego. The picture is rosy in Asia where consumers are likely to continue spending on electronics, particularly on TVs and computers. CEE, Russia and to some extent Turkey will see household electronics and audio-visual equipment selling in lower volumes in 2009 than in 2008, although there is still growth in sales of PCs and TVs. The same trend is true in Latin America. Household audio-visual equipment is set to see a double-digit decline in Brazil across 2009. Computer sales will hold their ground.

Carrie Yu, global retail and consumer leader at PricewaterhouseCoopers, remarked:

In one respect, this recession is the same as all others before it: consumers are uncertain about their economic prospects, so they are gravitating towards discounted items. The company that can bring down prices without sacrificing quality will be able to grow market share and emerge with brighter prospects when the good times return.

Laurel West, Asia director of industry & management research at the Economist Intelligence Unit, concluded:

The global economic picture continues to improve, but there is a chance of a fallback in growth in 2011 in developed markets as the effect of stimulus packages wears off. Yet in China, job creation will continue to fuel private consumption, which means that the economy and the retail market will overshoot even the governments targets. India will not be far behind, though it may prove more vulnerable to global trends.

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