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France Food and Drink Report Q1 2010
Business Monitor International, Jan 2010, Pages: 86
France Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on France's food and drink industry.
In line with incoming economic data indicating that the French recession ended in Q209, and the prospects for a moderate global rebound, the authors have revised upwards the 2010 France real GDP growth forecast, from 0.0% to 1.1%. The resilience of the French consumer has been particularly impressive. However, we maintain our view that future growth is likely to remain lacklustre.
Certainly champagne, seen as the bellwether of the French economy, continues to suffer. The trade body for champagne, Comité Interprofessionnel du Vin de Champagne (CIVC), announced in September that it will restrict the amount of champagne produced in the current year to combat a glut caused by the sharp drop off in demand. This is in line with the latest industry figures from the French wine and spirit export association, FEVS, which suggest that champagne exports fell by 45% in value and 41% in volume in the first half of 2009. Perhaps more so than in any other industry, exports from France’s champagne industry are tied to global economic performance. While rising demand for champagne around the globe, including in the key emerging markets of India and China, means that consumption is likely to eventually bounce back, the historic figures suggest this may take some time. Following the dotcom crash, total consumption did not reach the levels seen in 1999 until 2007. If the 41% drop in export volumes during the first half of the year reported by FEVS is accurate, the time taken to rebuild sales this time around may be even longer.
In what could signify a momentous move, Nestlé Chairman Peter Brabeck revealed during Q309 that the firm is considering a move towards ‘well-being’ and personal care offerings as it moves away from low margin, commoditised product lines. The announcement has renewed speculation that it may look to take full control of French beauty products maker L’Oreal, in which it currently holds a 30% stake. Despite Brabeck’s insistence that ‘currently L’Oreal is a financial investment, not a strategic one’, the authors do not believe it will maintain this position over the long term, but will either bid for the full business or sell the stake to invest in brands over which it has direct control. Clearly, a sustained move into personal care lines would have a transformational impact on its strategy. Nestlé is likely to be tempted by the high margins on offer in this sector, along with the limited impact from the growth in private labels when compared to the food and drink sector. Yet with little experience or product lines in these categories, such a move would almost certainly be tied to acquisitions, with L’Oreal an obvious target given its existing stake in the business.
Speculation surrounding a possible bid for L’Oreal has mounted since a shareholder agreement that prevented the Bettencourt family selling their 30% stake in the company expired in April 2009. the authors have previously said that the business does not fit neatly with Nestlé’s existing strategy and offers limited overlap or synergies with its current portfolio. However, with the company’s chairman talking up the possibility of a greater focus on personal care, a bid is beginning to look like a much more possible prospect – a view which seems to be shared by investors, with L’Oreal’s share price surging over the last few months.
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