Significant Differences In Health Consciousness Across EMs

Broadly speaking, health consciousness is one of the most significant trends currently affecting the global food and drink industry. However, it is not simply the case that developed nations are becoming more health focussed while developing markets continue to purchase unhealthy foods. There are significant differences in such trends between countries often grouped together, which we highlight below.

Health awareness surrounding the food and drink sector has arguably received greater attention in recent years, as many governments around the world increase their involvement in such issues and food provenance concerns such as the horse food scandal in the UK and various outbreaks of diseases in China have raised consumer awareness.

One of our core long term views is the increased interaction between national governments and the food and drink industry in order to promote healthier eating. Most recently, the US government has introduced new regulation regarding food labelling, in an effort to marginalise unhealthy food and drink products (see 'Obama Administration Announces Major Food Labelling Overhaul', February 28). Another recent development was the enforcement of a tax on unhealthy food and carbonated soft drinks in Mexico, which began on January 1 this year.

Trajectory Heading To Zero
The Coca-Cola Company - Volume Sales In Select Regions (% chg)

Significant Differences In Health Consciousness Across EMs

Broadly speaking, health consciousness is one of the most significant trends currently affecting the global food and drink industry. However, it is not simply the case that developed nations are becoming more health focussed while developing markets continue to purchase unhealthy foods. There are significant differences in such trends between countries often grouped together, which we highlight below.

Health awareness surrounding the food and drink sector has arguably received greater attention in recent years, as many governments around the world increase their involvement in such issues and food provenance concerns such as the horse food scandal in the UK and various outbreaks of diseases in China have raised consumer awareness.

One of our core long term views is the increased interaction between national governments and the food and drink industry in order to promote healthier eating. Most recently, the US government has introduced new regulation regarding food labelling, in an effort to marginalise unhealthy food and drink products (see 'Obama Administration Announces Major Food Labelling Overhaul', February 28). Another recent development was the enforcement of a tax on unhealthy food and carbonated soft drinks in Mexico, which began on January 1 this year.

At a very basic level, consumers in developed nations such as the US, Australia and many Western European countries are adopting a more healthy approach to food and drink consumption than in the developing world, and we expect this trend to continue. The relative saturation of developed markets, combined with consumers' higher disposable incomes and companies' increased focus on innovation in healthier products, will help to aid growth of healthier food and drink products.

However, there is no blanket statement that can be made with respect to health trends across emerging markets (EMs). Countries that are often grouped together (such as the BRICS nations of Brazil, Russia, India, China and South Africa) are likely to develop in highly different ways with regard to the health-consciousness trend. In the table below, we have calculated per capita carbonated soft drinks consumption growth rates in volume terms for selected countries across three periods. In our view, this metric can be used as a proxy for health consciousness in various countries. One would expect a nation exhibiting trends towards healthier consumption to move from carbonated soft drinks to other beverages, such as functional drinks and bottled water.

Select Countries - Per Capita Carbonated Soft Drinks Volume Consumption Growth (litres, % chg y-o-y)
2005-2008 Average 2009-2013 Average Forecast 2014-2018 Average
Australia -3.92 -0.93 -3.82
United States -3.23 -1.62 -1.64
United Kingdom -0.20 1.60 -0.09
Nigeria 5.92 -2.36 0.86
Brazil 2.55 2.05 1.55
Russia 3.06 2.13 1.81
Germany 0.53 1.62 1.95
Thailand 3.08 2.92 2.63
Mexico -0.32 2.32 2.79
South Africa 3.51 3.20 3.26
Argentina 5.88 5.98 3.30
Turkey 2.71 7.78 4.92
China 10.13 7.41 4.97
Poland 7.87 3.75 5.08
India 0.05 3.92 5.63
Vietnam 4.53 5.50 5.65
Czech Republic -6.90 1.87 7.67
Source: BMI

Countries at the top of the above table are forecast to experience declines in per capita consumption of carbonated soft drinks, while those towards the bottom will largely see growth. In our view, Australia, the United States and the United Kingdom - all developed states - are likely to see a fall in such consumption. However, the difference between various emerging markets can clearly be seen. Nigeria and Brazil are forecast to see a lower rate of growth, while the Czech Republic, Vietnam and India will be among the fastest growing markets globally. One aspect to pay particular attention to in the above table is the difference between the three time periods. A slowing growth rate, which to an extent may indicate increasing maturity of the carbonated beverages market, is also indicative of growing health awareness. Consumption in China and Nigeria, for example, has slowed considerably over the past decade, while countries such as Vietnam and Poland have maintained or accelerated their pace of growth, indicating no real increase in health consciousness.

The outlined trend can be seen in sales growth figures for various multinational food and drink companies. While both The Coca-Cola Company and Nestlé have large and diversified product portfolios, most of their revenue comes from perceived unhealthy items, and both companies have a significant presence in all regions around the globe. For Coca-Cola and Nestlé, overall revenue and volume growth rates in developed markets have been close to, or below zero, for some time.

Trajectory Heading To Zero
The Coca-Cola Company - Volume Sales In Select Regions (% chg)

For Coca-Cola, Latin America has underperformed the regions of Eurasia and Africa and the Pacific; a scenario experienced by other companies. For Mondelez International, Latin America has generated the lowest average volume sales growth across the last three quarters, while the East Europe, Middle East and Africa region has experienced the highest. Such a trend resembles the situation outlined in the first table.

Mondelez International Volume Sales In Select Regions (% chg y-o-y)
Q2 2013 Q3 2013 Q4 2013 Average
Total 2.5 3.6 5.3 3.8
North America 0.9 3.2 2.0 2.0
Europe 1.3 3.8 4.7 3.3
EEMEA 7.4 12.3 16.4 12.0
Asia Pacific 4.1 3.5 4.7 4.1
Latin America 3.2 -2 3.8 1.7
Source: Bloomberg
Developed Markets All Suffering
Nestlé - Revenue Growth In Select Markets (% chg y-o-y)
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