Business Vitality in Asia

Located in a strong geographical presence, enjoying good revenue performance and experiencing steady innovation in the region, Anglo-Dutch Unilever has emerged as the overall leader in the latest Asia-Pacific Food and Beverage Business Vitality Index, a survey conducted by Fusion Consulting, the Global Intelligence Alliance (GIA) group company in the Asia- Pacific, to gauge the ability of companies to impact their industries in the region.

The survey evaluated the overall performance of a selected group of 20 companies in the food and beverage industry by focusing on three dimensions: innovation, regional presence and revenue performance. America’s PepsiCo and Kraft Foods came in second and third. Among the Asian companies in the group, Taiwan’s Uni- President Enterprises leads the pack and New Zealand-based diary manufacturer Fonterra follows closely.

Major companies wanting to enter into the fastest growing markets such as China and India are investing in research and development centers and local manufacturing capabilities in these countries.

Innovation

In terms of innovation, western-origin brands generally perform better than their Asian competitors. Unilever was found to be best in class with an outstanding effort in appointing chefs and food experts in 18 key markets to research and develop new products that are customized to the local needs and preferences.

Switzerland’s Nestlé comes second in being innovative with its research and development (R&D) centers in China. However, America’s Kellogg Company and General Mills seem to struggle in this dimension. Japan’s Nissin Food Products and Chinese Ting Hsin International however came in as being the most innovative among the Asian companies in the group.

Asia continues to be a very attractive market for global food and beverage companies and it is a large revenue source for most of them. The sector has witnessed significant growth momentum during the past few years due to a large consumption base with increasing spending power of Asians.

More companies realize that a key to a successful business in Asia is the ability to customize products to local requirements, not only in terms of packaging but also in taste and appearance. Major companies wanting to enter into the fastest growing markets such as China and India are investing in R&D centers and local manufacturing capabilities in these countries. The survey has also confi rmed this trend among top performers in the industry.

Unilever’s active kitchens and Nestlé’s R&D centers in China are two recent examples. Other companies have opted to open local manufacturing capabilities such as Lotte/Hersheys’ chocolate factory in China and Yakult Honsha’s announcement to open three production plants in China by 2015.

The strongest trend is perhaps the local player acquisition strategy seen during the last two years, such as Coca-Cola’s $2.3 billion deal with China Huiyuan Juice and Kellogg Company’s biscuit acquisition of Zhenghang Food Company. Kraft Foods is also seen doubling its presence through a successful acquisition of Groupe Danone’s biscuit business in China and announcing a similar investment in India with a local player.

These strategic investments will put foreign companies in a better position to face the fierce competition that is anticipated from local players in Asia as they improve on their product quality, supply chain efficiency and distribution. The success of these foreign and local companies will now depend on their proactive and prolonged ability to meet the challenges and be on par with the industry best practices.

Asian companies are seen to lack a strong record with regards to expansion in the region with the exception of Japanese Yakult Honsha. Despite a strong presence in Asia, Yakult did not rank well in the index due to its poor revenue performance.

Similarly, while Coca-Cola shares the strongest geographic presence with other top players in the group, it was ranked fifth as revenue growth from its Asian business seems to be lagging. However, its diversifi cation into the water and fruit juice business in China will boost revenue growth in the coming year. Cadbury Schweppes, however, has yet to improve on innovation but it is expected to start climbing higher on the list.

Revenue performance

Revenue performance forms the basis for healthy growth and expansion. Denmark-based Arla Foods ranks highest in revenue growth in the group. However, the scandal of melamine content found in its products will likely hit its China business, affecting its overall performance in the region.

With a better than average revenue performance in Asia, we have yet to see smaller companies such as Japan’s Kagome and America’s Del Monte expanding into other Asian countries. Korean-Japanese Lotte Confectionery and Japan’s Meiji Seika Kaisha also seem to be struggling with their revenue performance and innovation, as they rank last in the index.

Moving into 2009 and 2010, Campbell Soup is expected to rank high in the index in Asia due to its recent efforts in customizing its products to the local markets and geographical expansion. Similarly, despite Danone’s revenue decline due to its dispute with Chinese Wahaha, the company should be able leverage on its recent investment activities in Japan, Thailand, China, India and Vietnam and return as a strong performer in the region in the future.

Table 1: Asia-Pacific F&B Business Vitality Index ranking.(Source: Fusion Consulting)

Table 2: Who’s who in the F&B Business Vitality Index. (Source: Fusion Consulting)

www.fusionc.com

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Market Analysis

The Fusion Consulting Asia-Pacific Business Vitality Index is an analysis of the presence, growth and innovation of major companies in the Asia-Pacific region. It covers a range of sectors such as retailing, chemical, consumer electronics, logistics, financial services and media. The analysis is multi-dimensional and takes “soft” factors into account while looking at financial performance. Its aim is to provide a benchmark for business expansion in the Asia-Pacific region based on nonproprietary, public domain information that is comparable across sectors.

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