The Forecast Model’s Q4 update reinforces the industry downgrade to US$4.4 billion, when compared to the Passport Baseline. The marginal cut points to core markets hit by spending cuts that are likely to persist over the short-term. While prospects remain robust, dynamic categories had their CAGR over 2015-2020 levelled in strength. This calls for a rethink of innovation in favour of fewer but higher-value SKUs, and greater emphasis on niche brands that typically target resilient growth pockets.
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The Industry Forecast Model’s Q4 2016 revision underpins Brazil’s 2015-2020 growth downgrade by US$1 billion, as its GDP moves further into negative territory. In constant value terms, the BPC downgrade is equivalent to -0.7% in CAGR terms. GDP recovery and consumer confidence are expected to rebound from 2018.
While discretionary categories such as fragrances and skin care continue to exhibit strength, their resilience is limping as markets that fuelled growth witness lower demand. This is the case of fragrances in Brazil and Saudi Arabia, and skin care in China and the US.
Key players such as Unilever and L’Oréal are more exposed to market lapses, due to their heightened activity in terms of investment over the past decade. While their broader geographic coverage helps cushion exposure, their innovation pipeline needs to offer more segmented value-added lines to make purchases more worth spending on.
China and Japan will remain notable opportunities in terms of product sophistication, innovation and value-driven solutions. However, adverse scenarios such as high public sector debts and ageing demographics pose risks to FMCG as lower overall disposable incomes will eventually feed into demand for consumer goods. Meanwhile, India is forecast to fuel growth dynamism, ripe for industry players seeking fresh revenue sources, stemming from greater demand for discretionary items, even if within the mass segment.
Acquisition activity points to a growing strive for high value, low volume ventures in the beauty industry. Estée Lauder and Unilever now boast a greater share of high equity niche brands in their portfolios, to target resilient growth pockets and bolster revenue prospects. P&G has divested several premium brands, but its recent streamlining activity suggests it is in pursuit of maximising revenues from fewer but more impactful SKUs.