BMI 's regional risk/reward ratings provide a platform for investors to compare markets across a variety of indicators that assess the relative strengths and weaknesses of individual countries. In doing so, our ratings provide a platform for benchmarking regionally, and by being forward-looking by nature, we can gauge which markets we think are going to provide the strongest opportunities in the future. We can also dig a little deeper and go sub-regional, which can be useful for ambitious regional food ret ailers or drinks companies .
B riefly touching on the indicators we use to assess countries, the reward part of the rating takes into account market size, current consumption levels, future industry growth prospects (based on our five-year industry forecasts), market fragmentation (with greater fragmentation indicating higher opportunities) and the size of the youth population. The risk part of the rating s takes into account the legislative environment, the level of development of the organised retail sector (with higher development leading to lower risks), as well as relevant aspects of the economic and political environment.
Brazil Edges Out Chile And Mexico
Brazil tops the ratings this quarter ahead of strong challenges from Chile and Mexico. All three markets are more or less evenly matched , with Colombia not too far behind . Indeed, there is certainly potential for positional flip-flopping going forward. Where Brazil, Mexico and Colombia particularly stand out is with regard to their populations, which are a lot larger than Chile's. Our ratings do favour countries with stronger growth outlooks , with the reward portion carrying a 60% weight. While many countries score well in reward terms , the standout in risk terms is Chile, and this is the main factor behind its strong ranking.
The table below outlines the factors that make up each rating and the scores for the Latin America region. The six factors that make up the reward rating are: food consumption per capita; market fragmentation; per capita food consumption (five-year compound annual growth); population size; GDP per capita; and youth population.
|Reward||Industry Reward||Country Reward||Risk||Industry Risk||Country Risk||Food & Drink Rating||Rank|
|Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It comprises two sub-ratings, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' rating comprises 'industry reward' and 'country reward', which have equal weighting and are based upon growth/size of food/alcohol and soft drinks industry (market) and the broader economic/socio-demographic environment (country). The 'risk' rating comprises 'industry risk' and 'country risk', which both have 20% weightings respectively and are based on a subjective evaluation of industry regulatory and competitive issues (market) and the industry's broader country risk exposure (country), which is based on BMI's proprietary Country Risk Ratings. Source: BMI.|
The first indicator we are going to look at is food consumption per capita , which reflects the existing spending power of top three markets - Brazil, Chile and Mexico . All three possess relatively well developed food and drink sectors compared with many of the emerging markets we cover globally.
The second indicator we are going to look at is market fragmentation , which is a subjective indicator that assesses how relatively developed (less fragmented) or underdeveloped (more fragmented) a market is. Whereas the first indicator dishes out strong scores for high existing spending, the second indicator rewards countries where the long-term scope for growth is the greatest. These are typically markets where there is a lot of room for growth, innovation and development. Almost all the markets we rate in Latin America score well here, which underlines why so many of the region's leading food and drink companies are investing so heavily in regional growth.
The third indicator within the reward part of the ratings system is per capita food consumption growth (five-year compound annual growth). Along with market fragmentation, this is the joint highest weighted indicator within the reward score framework. For good reason, this indicator carries a strong weight. Given that our ratings are designed to be forward-looking, this indicator is one of the main ways we gauge growth and, in combination with some of the other high-weight indicators we look at, informs our preferences for certain markets. Population size is the fourth indicator and , as mentioned earlier , Chile scores relatively poorly here . GDP per capita is the fifth indicator ; almost all the Latin America countries score reasonably here .
The final reward indicator, youth population , was introduced as a way to factor in a more comprehensive demographic angle to our ratings. Again much of the scoring is reasonable here. A combination of a large and young population, solid infrastructure and good growth prospects always sits well with regionally focused and growth-seeking food and drink companies.
The Seven Risk Indicators
The seven factors that make up the risk rating are: mass grocery retail (MGR) penetration; regulatory environment; short-term economic risk rating; income distribution; lack of bureaucracy; market orientation; and physical infrastructure.
The first risk indicator we are going to look at is MGR penetration . This is our principal way of assessing how relatively developed the overall consumer sector is. A higher MGR score is risk-positive in the sense that it reflects better developed routes to consumers. Very low MGR scores reflect the ongoing predominance of kiosks and markets with weak centralised distr ibution mechanisms.
The second factor, regulatory environment , evaluates the complexity of things such as labelling and nutrition requirements. It also can be used to gauge the state of the overall business environment. The more developed and mature markets usually score better here and that is once again the case in Q213. Brazil and Chile score quite well , while Venezuela has work to do.
The third factor, short-term economic risk rating , assesses the degree to which the country approximates the ideal of non-inflationary growth with falling unemployment, contained fiscal and external deficits and manageable debt ratios. It is principally the candidates towards the top of our ratings that do well on this criterion - underlining the link between economic stability and the overall attractiveness of the consumer market.
The fourth factor, income distribution , is measured by the proportion of private consumption accounted for by the middle 60% of earners.
The fifth factor, lack of bureaucracy , is a measure of the hurdles that any producer is likely to face in areas such as starting and closing businesses, paying taxes, dealing with licences and registering property.
The sixth factor, market orientation , is a measure of how business-orientated an economy is and measures the level of foreign direct investment protectionism, tax rates and the level of government intervention. The final risk factor, physical infrastructure , measures the ease and cost of operating in a market from an infrastructure perspective.
|Food consumption per capita||9||10||9||6||4|
|Per capita food consumption, five-year compound annual growth||4||4||4||3||3|
|GDP per capita, US$||5||6||5||5||5|
|Youth population, %||4||3||6||5||6|
|Short-term economic risk rating||7||8||8||5||3|
|Lack of bureaucracy||5||6||5||5||2|