Cost crisis will fuel risky consumer growth dash

Analysts expect consumer goods groups will struggle to meet their targets. According to consensus forecasts, Heineken will fail to meet its mid-single-digit growth goal over the next three years, while Nestlé will only see annual growth of less than 4% and Unilever just over 4%, as per Visible Alpha. These issues are reflected in sector valuations which have all come down since the outbreak of the conflict in the Middle East.

To stay on target, consumer goods groups may have to go hunting for growth. That means seeking more scale in more vibrant emerging markets, such as Vietnam where the economy is expected to grow 7.5% this year, according to the International Monetary Fund. These groups could also try to sell more in India or Ethiopia, which are expected to grow by over 6% and over 9% respectively, according to the IMF. On Wednesday, Nestlé announced plans to spend $170 million expanding its pet food production processes in Thailand.

But these markets all carry their own risks. India is already very competitive and its home-grown brands are increasingly competing with global titans. Vietnam is not large enough to make up the shortfall in the U.S. and Europe and war-torn Ethiopia has an uneven economic record. There’s also a danger that these companies all try to muscle in on the same geographies which will push prices down. This risky backup plan means consumer goods company valuations are likely to stay depressed.