US Companies will Benefit the Most from Growth Abroad
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In a report just released by the McKinsey Global Institute of consulting firm McKinsey & Co., it is predicted that 600 cities will contribute about two thirds of the total global growth by 2025. The study, "Urban world: Cities and the rise of the consuming class," projects that most of the growth will be in 440 cities and that one billion more members around the world will be added to "the consuming class."
Oddly enough, the companies best placed to profit from the growth abroad are American consumer giants such as Wal-Mart (NYSE: WMT), Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Walt Disney (NYSE: DIS), McDonald's (NYSE: MCD), Yum! Brands (NYSE: YUM), Burger King Worldwide (NYSE: BKW) and Kraft Foods (NASDAQ: KRFT).
The report cautions that this urban growth will be a continuation of the shifting of "the world's economic center" from the United States and Europe to Asia, as has been transpiring since the mid-1980s. It says that, "We expect this trend to continue, so executives and policy makers must be prepared to respond."
As for being prepared to respond, the companies mentioned above have already "been there, done that and got the T-shirt."
Just the recent news, never mind what has happened since the mid-1980s, evinces this. After a 60-year absence, Coca-Cola is now entering Mynamar, the former socialist Burma. PepsiCo products are presently distributed in more than 200 countries and territories. There are now only two countries in the world that do not sell Coca-Cola or PepsiCo items: Cuba and North Korea. North Korea might not be that far off as as at a recent function for Dictator Kim Jong Un, Walt Disney characters such as Winnie the Pooh and Minnie Mouse performed in an unlicensed production.
What will hopefully happen for Walt Disney and other companies in North Korea has already transpired for Yum! Brands in China. While Yum! Brands has 4,500 of its restaurants in China, such as KFC and Pizza Hut, as opposed to about 18,000 in the United States, the profits per store top $200,000 in the People's Republic with less than $33,000 being registered per unit in America. China now serves up for Yum! Brands nearly half of its total sales and 62% of the restaurant profits. Since 2010, the percentage of total profits from China for Yum! Brands has increased from 34% to 45%.
Not surprisingly, competitors are also expanding in China. Burger King just announced plans to open 1,000 restaurants in the People's Republic in an opening salvo for the upcoming burger wars to conquer the hearts and stomachs of the People's Republic. Denny's Restaurants (NASDAQ: DENN) will franchise 50 new operations in China, where McDonald's already has the Golden Arches soaring over 326 locations. When a Denny's, Burger King, Pizza Hut or McDonald's goes into a new location abroad, out comes Coca-Cola or Pepsi pouring from the soda dispensers.
These fast food restaurants are far behind Wal-Mart in China, however, which opened its first Supercenter and Sam's Club in Shenzhen in 1996. Wal-Mart does not just sell in China, it buys...big time. Most of the products on the shelves of Wal-Mart are made in China.
As a result of its acquisition of Cadbury's, consumer giant Kraft has increased its investment in India by more than 70%. Kraft, the biggest packaged food maker in North America and purveyor of such items as Oreos and Maxwell House Coffee, has a goal of being one of the top five food companies in India. It is expanding so forcefully in India as it needs to counter "sluggish growth in the developed markets."
During the Great Recession, the middle class in emerging market nations continued to expand as "developed markets" contracted. According to McKinsey Global Institute, this consumer segment will continue to grow by one billion more consumers in urban areas abroad in little more than a decade. That is the equivalent of almost another India lining up at a McDonald's counter or watching a Walt Disney movie purchased from the local Wal-Mart.
There is no better news than that for the world today and a hoped for future of peace and prosperity. Hopefully that figure of one billion new members of the world's consumer class will include the populaces of North Korea and Cuba. Even if it does not, investors can still profit from this international growth through owning stock in American companies that service the needs and demands of the burgeoning global consumer class, no matter the nationality.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney, The Coca-Cola Company, McDonald's, and PepsiCo. Motley Fool newsletter services recommend Burger King Worldwide, McDonald's, PepsiCo, The Coca-Cola Company, Walt Disney, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
