The health of the world economy has picked up considerably in 2010 with BMI forecasting global GDP growth of 3.2% (driven largely by emerging markets). However, rather than force through positive consumer spending momentum, I see 2010 proving to be another difficult year, with developed market consumer confidence remaining weak. At the real economy level, high unemployment and weak sentiment (worsened as fiscal stimulus packages wear out) across most developed markets suggest that ‘value’ will continue to have the greatest bearing on determining how consumers part with their money.

• Developed market consumer trends continue to have arguably a greater bearing on the performance of the world’s largest food and drink firms than in other sectors. Indeed, I think it is interesting to note that of the world’s largest food and drink companies, only SABMiller and Unilever currently have more than 30% of their sales revenues accounted for by emerging markets.
• With consumer spending patterns having not changed that much compared to 2009, I think demand growth within premium segments (organic foods for instance) will continue to be much slower than up to the 2008 peak. Similarly, the discount boom appears far from over, with ‘value’ still largely determining spending.
• Not forgetting Kraft’s near GBP11.7bn acquisition in Q1 2010, M&A activity within the food and drink sector has remained subdued so far this year. Cost saving still appears to be driving most firms’ corporate strategy. Having said, that I think that firms that can commit their balance sheets to strong investment spending will be particularly well placed to come out of the downturn with their competitive position enhanced.
• Looking ahead to the BMI Food and Drink team’s long-term view that emerging markets will drive growth, I think the ‘E7’ markets of Brazil, China, India, Indonesia, Mexico, Russia and Turkey will continue to attract the most investment. Away from the more obvious EMs, the BMI team likes Indonesia in particular. It has a huge population and really strong food and drink forecast indicators.

Although I see multinational companies having a key role to play in the development of food and drink in the E7 markets through both organic and M&A channels (with some segments like beer attracting more investment interest than others), increasingly well capitalised domestic companies will also play a central part going forward.