Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Switching — 67
over 300 billion sticks with around 45 million smokers. We estimate
the Russian cigarette market to be USD 4 billion. With an improved
Russian economy, we are seeing a shift in product preference from
discount brands to premium cigarettes. We believe Philip Morris
International is better positioned in the emerging markets than
British American Tobacco, owing to the strength of its brands. We
estimate Philip Morris International generates over 40% of its profits
and over 50% of its volumes in the emerging markets. Philip
Morris International’s brand strength is first-rate, as it owns 7 of
the top 20 global cigarette brands, including the number 1 global
brand Marlboro. Marlboro appeals to consumers because it is targeted
to all adult age groups. We believe it would be difficult for a
competitor to allocate the capital and resources required to build a
franchise to compete with Marlboro’s success on a global basis.
HPC companies benefit from social change
Previously, few women in emerging markets used household and
personal care (HPC) products regularly, but this trend is seeing
a reversal. Growth in this industry is driven by the increasing
sophistication of the female population as their incomes grow.
Many women have attained newfound freedom, both at home and
in the professional world, and are therefore placing more importance
on health and beauty. Growing awareness of personal
grooming and heavy advertising have also resulted in the emergence
of the men’s skin care market, a new business opportunity
for HPC makers. The cosmetic companies L’Oreal (2.4% of total
sales generated in China in 2005) and Shiseido have launched aggressive
offensives in China, the eighth largest global cosmetics
and toiletries market with a value of USD 7.9 billion, according to
Euromonitor. Unilever has a strong position in personal care in Latin
America, while Procter & Gamble has established distribution networks
in 2,000 cities and 11,000 towns and villages in China.
Table 2
Source: Credit Suisse
Recommended branded producers
Companies well-positioned to reap the benefits of rising demand for branded
goods, because of their significant exposure to emerging markets.
Subsector
Stocks to focus on
Food manufacturing
Nestlé, Danone
Beverages
PepsiCo, Coca-Cola, Diageo,
InBev, Pernod Ricard, SAB Miller
Luxury goods
LVMH, Swatch Group
Automobiles
BMW
Cosmetics, HPC
Colgate-Palmolive, L’Oréal, Shiseido
Tobacco
Altria, British American Tobacco
Consumer electronics
Nokia, Sony, Matsushita Electric
Industrial, Sharp
Stocks in bold are rated BUY, stocks not in bold are rated HOLD by Credit Suisse
1
Maslow’s hierarchy of needs refers to Abraham Maslow’s theory of human motivation and
needs. Maslow suggested five levels of needs, including physiological (health, food, sleep),
safety, love/belonging, esteem (e.g. recognition) and self-actualization (e.g. self-fulfillment).
Table 1
Source: Credit Suisse Demographics Project, UN Population Division
Population growth rates in the emerging markets
Demand for consumer goods in the emerging markets will be well supported by above-average population growth for the next 10 –15 years.
Population growth rates (%) in the years 2000 – 2005 2005 – 2010 2010 – 2015 2015 – 2020
World 1.2% 1.1% 1.1% 1.0%
More developed regions 0.3% 0.2% 0.2% 0.1%
Less developed regions 1.4% 1.3% 1.3% 1.1%
Least developed countries 2.4% 2.3% 2.2% 2.1%
Less developed regions, excluding least developed countries 1.3% 1.2% 1.1% 1.0%
Africa 2.2% 2.1% 2.1% 1.9%
Asia 1.2% 1.1% 1.0% 0.9%
Europe 0.0% – 0.1% – 0.1% – 0.2%
Latin America 1.4% 1.3% 1.2% 1.0%
Northern America 1.0% 0.9% 0.8% 0.8%