Manufacturers must invest in food production in developing markets

31-Oct-2012 - Last updated on 31-Oct-2012 at 12:46 GMT

Investing in food manufacturing in developing countries will help food firms harvest sales worth trillions of dollars

Manufacturers need to invest in overseas production facilities to avoid missing out on burgeoning food retail sales worth trillions of dollars in emerging markets, according to the Economist Intelligence Unit (EIU).

The EIU forecasts that, by 2022, the emerging so-called BRIC countries of Brazil, Russia, India and China will have become four of the six largest retail markets in the world.

The Chinese retail market alone will be worth $8.3 trillion by 2022 – around a quarter of total global retail sales and twice the size of the US at $4.5 trillion, it claimed.

Chief retail and consumer goods analyst at EIU, Jon Copestake, said: “These four countries will become dominant in the retail market. China will account for a third of the world market by 2022.

“If manufacturers form partnerships with experts in these countries they could potentially make millions in these overseas markets.”

Partnerships

Copestake predicted that manufacturers would be unlikely to export in large volumes into these markets, as retailers would tend to source products from local suppliers. He encouraged more manufacturers to follow the lead of major players, such as Unilever, Nestlé and Danone, which were already investing in production in these markets.

In the first instance, manufacturers would probably need to form partnerships with local companies to enable them to create bridgeheads in these developing markets.

“The challenge for food manufacturers is that all the retailers they sell into will be looking to source locally in the countries, making it very hard for manufacturers to exploit the market,” said Copestake.

“The only way to take advantage of the market will be to explore mergers and acquisitions. By purchasing a minority stake in a local company, a manufacturer could learn about the market from this company and enhance its brand. Then, over time, it could buy it out.”

Big four retailers

The EIU’s Retail 2022 report stated: “From a retail perspective, the opportunity is already well-established in emerging markets.”

The big four global retailers – Walmart, Carrefour, Metro and Tesco – all have a growing presence in China.

Tesco has 125 stores in China, which serve around 4.4M customers each week and bring in annual revenues of £1.3bn.

In a statement, Tesco said: “China is a major sourcing location for our Group. Our international sourcing headquarters are based in Hong Kong and we also have a hub in Shanghai. We currently buy around £2.25bn worth of goods and services from China for the Tesco Group every year.”

The retail giant also sources over £300M of products from Indian suppliers each year. These are stocked in Indian stores under the Star Bazaar name, as part of its franchise agreement with Trent, the retail arm of the Tata group.

Commenting on the potential in these emerging markets at the recent annual convention of retail think tank IGD, Marc Bolland, Marks & Spencer’s (M&S’s) chief executive, said India, Shanghai, Russia and the Gulf were “priority areas” for M&S.

Bolland added: “M&S has transformed from being a traditional UK retailer to an international, multi-channel retailer.

“If we are not international and multi-channel, everyone is going to be eating into our business.”

M&S aims to launch 100 stores a year around the world, he added.