I’ve made reference in a few posts now to a long held investing thesis of mine regarding healthcare companies and my reasoning for classifying certain consumer products companies in the healthcare portion of my portfolios. In essence I’ve had a single focus for the healthcare component of my investments and it follows this line: “I’m not targeting just the health of people here at home, but those all around the world.”
The reasoning for this focus is very simple and was outlined quite nicely just last week at the annual shareholders meeting of Procter & Gamble (PG) by new CEO Bob McDonald. McDonald made reference to a long-term growth initiative that the company has been focused on regarding investments in emerging markets (China and India) and the need to increase market penetration to reach more consumers.
Currently annual per capita spending (based on 2008 estimates) of P&G products in the US was roughly $100 per consumer. This contrasts with $70 per capita in the UK, $40 in Germany and $20 in Mexico. China and India combined account for spending of less than $4 per capita. McDonald made a statement that bringing per capita spending in both China and India to Mexico levels ($20) would boost sales at P&G by over 50%.
The math is pretty simple when you consider that new consumers in emerging markets will begin to use an increasing amount of personal care products (oral care) and cleaning products to improve their standard of living. The execution by Daniela Riccardi, President of Greater China operations, has been so far a slow methodical approach but over time companies such as Procter & Gamble and Colgate-Palmolive should begin to build up market share and increase sales at a quickened pace. This not only increases sales globally but differentiates operations for the companies so that slowed growth in one or two economies doesn’t drag earnings momentum as much as during this past recession.