The News Keeps Getting Worse
01/20/2014 12:01 am EST
For those hoping for a rebound in this depressed asset class, they should look more closely as MoneyShow's Jim Jubak reviews a series of developments that are not too encouraging.
We're getting more perplexing and perhaps dispiriting news from emerging markets and consumer companies. We've recently gotten an announcement from Loreal, the big French cosmetics company, hair dyes, Garnier is one of their brands, Loreal is one of their brands, that they're going to pull Garnier out of the Chinese market. Garnier is sort of the lower end of their price range. What they were saying basically in China is they're not seeing much growth down at that end. They're seeing a lot of pricing pressure, so the mass market in China is not very attractive to them. That would be one isolated data point, but we've got other data points from companies saying the same thing. We have Nestle coming out and talking about India and saying that they had made a strategic mistake by trying to package goods for the lower end of the market in very affordable bulk lots and here we're talking about noodles and things like that, and Nestle basically saying, not that we're going to pull out of India, but this is a mistake.
We're seeing much more growth at the upper end of the market. We're not seeing the growth at the lower end of the market that we hoped for. We're not seeing people move up. The whole strategy was, introduce them to low-priced noodles and then move up to higher-priced noodles or buy one tube of toothpaste and then move up to a more expensive toothpaste. Instead, what they're saying is people are staying exactly at the price point where they were introduced and not moving up. What Nestle has said is we need to refocus our efforts, because this is not working the way we thought it would and we're seeing a lot of price pressure at the lower end of the market for rising commodity prices for things like palm oil for soap, etc. What you're seeing is a kind of two-pronged worry about emerging economies. One is that, on the luxury end in countries like China, because politically it's become unacceptable to show a lot of conspicuous consumption if you're an official, or something like that, so we're seeing some pressure on the upper end. At the lower end, more importantly, what I think you're seeing is a sense that these economies aren't growing as fast as they once were, because you're not seeing the same kind of move up from the lower end. I think you're still seeing, over time, that kind of process where people's incomes do go up and they do indeed move up the consumer ladder, but it's not happening as fast as we would have hoped.
In Brazil, for example, the difference between 2% growth and 4% growth means that this process is not happening very fast. In India and China all of that very, very important focus or influence of lower growth rates, not no growth rates, but lower growth rates, on a process that companies were thinking about. For the big global consumer companies, I think you're seeing some rethinking about this. I don't think anybody is abandoning these markets, but they are certainly going how much money do we put into this? How much marketing do we put into this, because we're not seeing the growth that we expected? That's going to show up in some lower earnings figures for 2014.
This is Jim Jubak for the MoneyShow.com video network.