26  l  The Grocer  l  28 July 2007  l  www.thegrocer.co.uk
uk  l  28 July 2007  l  The Grocer  l  27
the oc&c global giants index
the
dragon
slayers
China is a land of opportunity
for global manufacturers –
but it’s not an easy market to
crack. Paul Carey reports
I
magine an untapped
market with a GDP the
size of Spain. That is the
extent of the opportuni-
ty awaiting the Chinese
bounty hunters – in the next
three years alone. By 2010 the
Chinese economy is forecast to
grow by $1,113bn, not far short
of the $1,226bn GDP boasted
by the world’s seventh-biggest
economy, Spain. And with a
population of 1.4 billion versus
Spain’s 40 million, this estimat-
ed growth figure is just the tip
of the iceberg.
Global food and drink manu-
facturers are lining up for a piece
of the action. It is easy to see why
they’re eyeing the market with so
much interest, even if there are
plenty of challenges facing the
would-be dragon slayers.
The performance of the top
50 companies was “robust, but
not outstanding” in 2006, accord-
ing to the sixth annual OC&C
Global Giants Index compiled
exclusively for The Grocer. Sales
growth was just 5.6%, 0.6 per-
centage points lower than the
year before and Return On Cap-
ital Employed was down from
21.1% to 20.7%, although prof-
it margins rose 0.5 percentage
points to 17%.
“Companies are looking for
new markets that offer signif-
icantly better opportunities to
grow, and China is the number
one priority,” says Chris Outram,
chairman emeritus at OC&C.
“Our analysis shows that the
international market has got
tougher. Very few companies
have consistently grown organ-
ically over the past four years
and the mature western mar-
ket is now a very difficult place
to operate in, with energy and
raw material costs rising.
“China is a golden goose
for many companies. The de-
velopment of the market has
happened so quickly that it
seems incredible to believe
the scale of potential for ex-
pansion.”
The market has come a long
way in a short time. Trade be-
tween China and the rest of the
world only opened up in 2001
when China became a member
of the World Trade Organisa-
tion. Since then, the Chinese
government has worked hard
to become more open to over-
seas manufacturers.
It now allows overseas players
to set up wholly owned foreign
subsidiaries, rather than having
to establish joint ventures with
www.thegrocer.co.
✱ China: winners and losers ✱ the growing market
60%
Winning international expansion plans
China 86%
P&G
Eastern Europe/Russia 76%
India 57%
% mentioning geography as an expansion target
Sales growth in China
Up and coming
Shisheido Recent disputes Emerging markets represent a major area of
Unilever with Danone’s jv international growth. China is clear favourite.
partner suggest
Henkel this position may
be at risk turnover in china in 2006 ($m)
Nestlé PepsiCo
PepsiCo 1,940
L’Oréal Danone Procter & Gamble 1,900
Groupe Danone 1,897
Heinz
S&N Nestlé 1,400
Avon
0% Failing Colgate-Palmolive Stagnating Unilever 645
0% China as % of global business 10% L’Oréal 462
Colgate-Palmolive 390
Size indicates
operating margin
Source:
Annual reports, OC&C analysis
Shiseido 364
Few companies can claim to have completely cracked the Chinese market,
but P&G is growing at a remarkable rate and achieving healthy profit
Avon
General Mills 200
212
margins, but Heinz, Colgate-Palmolive and Avon are not faring so well.
Scottish & Newcastle 163
Henkel 135
domestic players. throughout the world.”
HJ Heinz 130
Several companies already Outram argues that some
have successful Chinese subsidi- players are in danger of miss-
aries. PepsiCo, Procter & Gamble ing the boat – and questions The shape of things to come? Opportunities
and Groupe Danone boast sales why others have failed to devel- in China are so great that it could transform
of nearly $2bn apiece in China op a more significant presence the world order of fmcg companies. PepsiCo,
thanks to products such as Pep- in the market. P&G and Groupe Danone have a big lead
si, Head & Shoulders and Evian “Companies such as Heinz over the competition, and at this rate could
respectively. should have established them- overtake Nestlé on the international stage.
Sales growth in China has selves in China by now but have
been exponential. P&G sales rose failed to do so,” he says.” Col- growth rates: china vs world ‘06
50% last year, outstripping the gate-Palmolive has been in China
Procter & Gamble 50%
4.5% growth for the total busi- for many years and has been
ness more than ten-fold, with pretty successful in toothpaste,  4.5%
products such as Crest Herbal although it is struggling to go
Crystals and Tide Clean White beyond that.” Kimberly-Clark 36%
among their most successful P&G was one of the first com-  5.4%
brands. Kimberly-Clark (Hug- panies to see the potential of
gies, Kleenex) achieved 36% sales the Chinese market, setting up Shiseido 30%
growth, Japanese cosmetics a joint venture with established  -0.4%
manufacturer Shiseido (Aqual- company Hutchison Whampoa
abel, Aupres) 30% growth and in 1988 and introducing Head & Unilever 30%
Unilever (Dove, Lux) 30%. Shoulders. Greater China has
 4.1%
Global fmcg companies are now become P&G’s number two
bullish about the market. Those market in terms of sales. Henkel 25%
that are active have the poten- China has already become a
tial to create a new world order very competitive market, but  4.8%
in the fmcg fraternity, accord- P&G’s scale has enabled it to re-
Nestlé  18%
ing to Outram. duce costs, says Charles Zhang,
“PepsiCo, P&G and Groupe P&G external relations, Great-  7%
Danone top the turnover league er China. n China n World
in China, while world lead- “The vast majority of the
er Nestlé is lagging behind,” products that we sell in China The Chinese operations of fmcg companies
he says. “In a decade or two we make here in China. Most are outstripping performance globally.
these positions in China could of our raw materials are locally Source: Annual reports, OC&C analysis
be representative of the order Continued on p28  
28  l  The Grocer  l  28 July 2007  l  www.thegrocer.co.uk www.thegrocer.co.uk  l  28 July 2007  l  The Grocer  l  29

the oc&c global giants index cex

  Continued from p27

Grocery
Grocery
Sales in
Grocery
sales Profit purchased,” he says. ✱ star performers companies that impressed this year ✱ key strategic directions
Company & ranking Country of Sales 2006 total sales growth Margin Roce 2006 Of course, it is not all plain
Domicile ($M) (%) 2005-06 (%) 2006 (%) (%) organic growth
sailing. P&G had difficulties with It may not have been an outstanding year for the top 50 fmcg companies, but there were certainly
1 Nestlé Switzerland 73,285 93 7.8 14.0 18.4 authorities over metal levels in some good individual performances. There were three new entries, some impressive climbers and Product innovation 98%
2 Procter & Gamble 1 US 71,005 100 4.5 19.8 13.4 some of its cosmetics last year profit margins to envy. Here we highlight the companies that stood out.  98%
3 Altria Group US 70,007 100 2.0 24.5 27.9 and had to temporarily remove
them from sale. Reckitt Benckiser PepsiCo Brand stretching 69%
4 Unilever UK/Netherlands 49,799 100 3.2 17.4 33.9
Though Danone has been one Highest mover in the index, One of the few companies to  67%
5 PepsiCo US 35,137 100 7.9 20.1 38.8 of the most active companies gaining seven places, due to consistently grow organically over
6 Coca-Cola Company US 24,088 100 4.3 27.3 30.6 in the market, its investment efficient acquisition of BHI, the recent years, its sales stand at Increase in marketing efforts 54%
7 L’Oréal France 19,836 100 8.7 17.1 14.4 in China is under threat after launch of new products and better investment in $35,137m. Its average growth has been 6.8%
 34%
8 British American Tobacco UK 17,991 100 4.7 30.5 22.4 a public spat with its Chinese brands such as Vanish and Finish. Sales grew by over the past four years, with a high of 9% in
partner, Wahaha, following a 17.8% to $9,071m and ROCE hit 31.9%. 2005. Its ROCE of 38.8% is healthy, and margins Greater R&D spend 77%
9 Groupe Danone France 17,679 100 8.1 13.9 16.0
row over the use of its Chinese are above 20%.
10 Japan Tobacco Japan 17,133 96 -1.0 15.0 14.8 brand name. SABMiller  41%
11 InBev Belgium 16,718 100 14.2 23.5 16.0 Plenty of companies have sim- At the top of the growth league, Beiersdorf
Strategic partnership 61%
12 Archer Daniels Midland US 16,221 44 -0.5 5.4 13.6 ply failed to make an impact. achieving a sales increase of 20%. The German skin and beauty
But many are reassessing the This is attributed to the group’s company enters the list after sound  41%
13 Sara Lee Corporation US 15,944 100 -0.5 6.6 12.5
market, or looking to increase lager volumes, which were up 19%. This was growth in Germany and the rest
14 Heineken Holding Netherlands 14,860 100 9.6 15.5 20.8 their presence. supported by strong organic growth due to of the Eurozone, supported by strong growth in Channel diversification 53%
15 Cadbury Schweppes UK 13,298 100 15.5 20.7 21.9 Manufacturers now have a excellent performance in all geographical China, Latin America and Eastern Europe. Profit  33%
16 Diageo UK 12,835 100 8.7 30.0 23.0 better understanding of the hur- segments. margin increased from 12% to 16.6%, the third-
dles to negotiate, says Professor highest jump, because pre-tax profit rose from
17 Kimberly-Clark US 12,723 76 5.4 13.3 20.4 Groupe Danone geographic strategy
David Brown, director of the Lan- €535m to €853m as a result of sales of BSN
18 Anheuser-Busch US 12,389 79 3.1 21.0 28.5 caster Centre for Management The most consistent performer Medical and improvement in EBIT in both the Global expansion 76%
19 SAB Miller UK 12,378 100 20.0 22.2 12.9 in China. “Ten years ago compa- in terms of growth, achieving an consumer and Tesa business segments.  61%
20 Colgate-Palmolive US 12,238 100 7.4 17.7 42.5 nies were working in the dark, average sales increase of 7.8% in the
but now there are established past four years, with 2006 organic growth of 9.7%. Procter & Gamble Focus on main markets 29%
21 Tyson Foods US 12,000 47 8.0 -0.2 -0.7
trade organisations and consul- Its growth slipped below the magic
22 General Mills US 11,640 100 3.5 17.4 15.7 InBev  31%
tancies that can help minimise 6% figure in 2003, but since then it
23 ConAgra US 11,579 100 0.7 6.6 9.2 risks,” he says. Had the fourth-highest growth of has had three years of impressive Focus on domestic markets 16%
24 Kellogg Company US 10,907 100 7.2 16.3 25.0 “As companies such as Tes- 2006, up 14.2% to $16,718m. This sales, achieving average annual growth of 7.2%
co, Carrefour and Wal-Mart was primarily due to its Stella Artois in the past four years. It is the second-largest  8%
25 Dean Foods US 10,099 100 -0.7 5.9 11.5
increase their presence – and business, which grew 60% in the premium import global fmcg company, rising one place with sales
26 Johnson & Johnson US 9,774 18 7.5 25.9 30.1 their sales are growing at about segment in the US and 17% in Canada. of $71,005m. P&G is one of the key overseas Core business strategy
27 Reckitt Benckiser UK 9,071 100 17.8 18.5 31.9 45% a year – it will be easier for fmcg players in the Chinese market.
manufacturers to get their prod- Tate & Lyle Acquisitions in core business 84%
28 Kirin Breweries Japan 8,970 83 3.9 9.2 9.0
ucts to market. That still leaves A new entry in the index at 40, Mattel  76%
29 Henkel Germany 8,770 55 3.9 10.6 15.2
hundreds of cities and towns after achieving sales of $6,689m Another new entry is the American
30 Avon US 8,764 100 7.5 8.5 28.6 without ‘traditional’ supermar- and growth of 11.3%. Sales toy company, which owns the Fewer global brands in core activities 33%
31 HJ Heinz US 8,643 100 6.7 13.6 15.7 kets, though.” were driven mainly by growth in value-added Fisher-Price and Barbie brands.  47%
32 Nippon Meat Packers Japan 8,528 100 3.1 0.6 1.2 “Developing local contacts product including Splenda Sucralose. However, Increase in international sales coupled with
and taking advantage of im- it was not all good news. Its operating margin domestic growth (especially girls and boys Divestitures from non-core operations 47%
33 Reynolds America US 8,510 100 3.1 23.7 17.1
proving infrastructure is vital declined from 7% to 2% due to an impairment brands in the US) helped Mattel gain 48th spot.  37%
34 Asahi Breweries Japan 7,961 100 1.0 9.5 11.0 to reaching markets away from charge of £272m following the implementation Sales stand at $5,650m, an increase of 9.1%.
n 2006 n 2005
35 Pernod Ricard France 7,384 100 6.3 19.6 9.4 the lights of Beijing and Shang- of the new EU sugar regime regulations. Profit margin reached 13% and ROCE hit 23.4%.
hai,” says Brown. Source: Annual reports/10K/OC&C analysis
36 Campbell US 7,343 100 3.8 15.8 23.3
Understanding Chinese cul-
37 Kao Japan 6,985 81 2.7 11.9 12.4
ture is key, easier said than done
38 LVMH France 6,926 36 11.8 20.0 18.1 given that it can vary enormous-
39 Carlsberg Denmark 6,920 100 8.0 9.5 9.3 ly depending on geography. drinkers were persuaded to mix Western companies that make on research and development with the vast majority of deals
40 Tate & Lyle UK 6,689 100 11.3 2.0 3.8 “There is not one homog- it with green tea and it has been the most of the opportunities and many are already doing so, “Companies focused on core activities, re-
enous Chinese market,” says a success. China offers, however, will be says Outram, often by buying vealed the OC&C analysis. The
41 Estée Lauder Companies US 6,464 100 2.9 8.2 24.3
Jacques Penhirin, a director “When P&G introduced nap- able to offset the impact of any in the NPD. need to find top 10 deals were all based
42 Ajinomoto Japan 6,267 64 4.2 5.2 8.2 at OC&C’s Greater China arm. pies to China it had to educate weaker markets they are oper- “Instead of spending time ways of taking around strengthening or increas-
43 Arla Foods Denmark 6,175 81 -0.1 2.9 7.5 “China is the size of Europe, mothers about their purpose. ating in. coming up with new ideas them- a bigger share ing existing positions instead of
44 Scottish & Newcastle UK 6,133 100 2.1 11.7 7.2 has many different languages, They had never seen them be- “Companies need to find selves, companies such as P&G diversification.
a huge temperature range and fore and needed to be taught ways of taking a bigger share are buying innovation in the of the growth in “Fmcg companies have been
45 Yamazaki Baking Japan 5,949 92 2.0 1.5 2.9
massive differences in develop- how they worked.” of the growth in developed mar- form of smaller companies. developed selling off their non-core opera-
46 Shiseido Japan 5,938 100 4.9 4.2 6.0 ment levels. Some products work Trying too hard to meet the kets,” says Outram. “There is They have adopted a ‘proud- tions and refocusing on the main
47 GlaxoSmithKline UK 5,800 14 4.9 33.9 51.9 everywhere, but you can’t rely on needs of the local market can evidence of a strategic shift to- ly found elsewhere’ mentality, markets” business,” says Outram. “They
48 Mattel US 5,650 100 9.1 13.0 23.4 the same strategies – or prices – have unanticipated consequenc- wards top-line growth. They which is paying off. It gets prod- have spent years cutting costs
in Beijing as the rural areas. es for other parts of the business are splashing out on advertis- ucts to market rapidly, reduces and they are now running out
49 Imperial Tobacco UK 5,531 100 1.2 41.5 28.2
“You need to understand the as Tesco discovered when Brit- ing and being more aggressive the failure rates and is likely to of rope, so need to concentrate
50 Beiersdorf Germany 5,436 85 7.1 16.6 45.6 Chinese consumer, and tweak ish newspapers reacted with at driving sales.” be copied by a range of com- their efforts much more. With
Methodology: Financial figures have been converted into US$ to compare fmcg groups, since 22 groups release their accounts in $. Average figures are
products to suit. moral outrage to the discovery Those that continue to focus panies.” everyone battling it out in Chi-
grocery sales weighted average. Sales have been adjusted to exclude excise duty. Sales growth has been calculated in the origin currency then converted. “Scotch whisky was consid- it was selling live turtles in its on more established markets Elsewhere, acquisitions re- na, it is still vital to keep your
1. Pro forma numbers including full year’s turnover for Gillette. Source: Annual reports, 10K, OC&C analysis ered too strong for Asians, but Chinese stores. will need to increase their spend vealed a greater level of caution, eye on the ball at home.”  n