Baby boomers key to growth for consumer product companies – Deloitte
The affluent, aging populations of the developed world represent one of the most likely sources of profitable growth for consumer products companies in the coming years, according to a new report by Deloitte. ‘Global Powers of the Consumer Products Industry’ argues that while developed markets as a whole offer limited opportunities for growth, the “forever young” attitude of the baby boomer generation represents a significant opportunity for innovation to address the specific needs of this consumer segment.
Ira Kalish, director of consumer business for Deloitte Research in the US said: “With the oldest baby boomers turning 65 this year, American companies have responded by creatively overhauling product lines, enlarging typeface and lowering store shelves to cater to and capture market share of a relatively affluent generation.
“Aging populations elsewhere in the world such as the UK, Germany, Japan, and even China and Russia offer similar opportunities and we would expect to see new products being developed for this group. For example, consumer products companies are already leading the way in functional foods to help manage disease, illness, and health and wellness.”
While baby boomers have the potential to become a source of growth for consumer products companies, the report suggests that the biggest single opportunity comes from the emerging middle classes in developing economies, with an estimated 70 million new consumers expected to enter the global middle classes each year.
However, to fully exploit this opportunity, companies must prepare for radical innovation to deliver the right products at price points that are typically well below equivalent products in the developed world.
Lawrence Hutter, global consumer business leader at Deloitte Touche Tohmatsu Limited, said: “The emerging markets will be a laboratory for innovation, as companies adapt and develop new products, services, manufacturing, and marketing techniques to fit the lifestyles and values of their consumers. We can also expect to see more mergers and acquisitions in the Asia Pacific region, especially China, as well as in Latin America, specifically Brazil.
“Those markets continue their fast growth and both foreign and domestic consumer products companies want a part of that opportunity.”
The report, which ranked the world’s largest 250 consumer products companies by global sales, found that 60 per cent suffered falling sales in the most recent financial year. As a group, the top 250 consumer products companies saw a composite sales decline of 1.2 per cent in fiscal year 2009, which encompasses year-ends through to 30 June 2010. While the rate of decline slowed or even reversed for some companies in the fourth quarter, 149 companies in the top 250 experienced negative sales growth for the year as a whole.
However, many companies acted swiftly in this challenging environment to adjust their cost structure in order to maintain or improve profitability. As a result, the composite net profit margin improved for the 215 companies that reported their bottom line results. The fiscal year 2009 net profit margin increased to 6.4 per cent from 5.6 per cent. In stark contrast to the dismal sales results, nearly 90 per cent (193 of the reporting companies) were profitable in 2009 compared with 80 per cent of these companies in 2008.