We are all familiar with the big food brands such as Nestle as we consume their products regularly.
Investors may often have thoughts about investing in brands that they use – since you use and understand the products well so why not?
As Buffett often say, invest within your circle of competence. Nothing beats investing in companies that you truly understand.
Moreover, food brands are considered defensive and becoming increasingly important with rising inflation and looming recession.
Strong brands are able to pass down the rising costs to consumers without having much impact to the demand.
They are also resilient during recession because their products are considered necessities and consumers would scale back on other expenses to buy these stuff.
Hence they make good long-term investments as they steady through good and bad times.
However, there is a problem with the well-known food brands today – they are growing too slowly.
Companies like Nestle, Kraft Heinz and PepsiCo are already global companies with their feet in many markets. Pretty saturated we can say. There aren’t many new markets to expand into.
It is evident in their revenue growth rates which are at the same pace with a developed country’s GDP growth.
Brand Finance has an annual ranking for food and drink brands and the latest 2022 top 10 brands can be found in the image below.
The content below was originally paywalled.
We added the growth rates and we observed the familiar western brands are growing at 5% or slower.
Those that are growing at more than 10% per year were the Chinese brands.
Yili and Mengniu are large dairy companies in China. You might be more familiar with the Ambrosial greek yoghurt, a sub-brand of Yili, while Mengniu owns an Australian baby food producer Bellamy’s.
Haitian is China’s largest soy sauce company which has expanded into other types of sauces and condiments.
These brands are famous in China but not so much outside of it. But thereby lies the investment opportunity.
Not many are aware of their pace of growth as China alone is domestically a huge market, and the affluence is rising too. The massive middle class provides a lot of support and financial benefits for these companies.
These brands are expanding outside of China too, and unlike the western counterparts that have little new markets to expand into, the world is their oyster.
China stocks can be a controversial investment for some because of political considerations.
But from an investment merit perspective, it is no doubt the Chinese food companies possess higher growth potential than the western counterparts.
