By working closely with their suppliers, consumer companies can lessen their environmental and social impact and position themselves for strong growth.
The next 10 to 15 years will present major opportunities for consumer companies. Some 1.8 billion people are expected to join the global consuming class by 2025, a 75 percent increase over 2010.1Consumer spending should rise even more than the number of consumers as household incomes swell and people use bigger shares of their budgets to buy consumer goods. China, for example, is on track to gain 100 million working-age consumers by 2030, and it is expected that their spending on personal products will be double the current rate.2
These trends contribute to a strong growth projection for the consumer sector: 5 percent a year for the next two decades. For investors, this level of expected growth should be good news. The worth of a company can be expressed as the sum of two values: the present value of the company’s current cash flows extended into the future, and the present value of the expected growth in its cash flows. When we studied the enterprise value of the top 50 publicly traded consumer-packaged-goods (CPG) companies, we found that their expected cash-flow growth makes up roughly half of their current value. Because of this, factors that alter these companies’ growth projections will also have a major effect on their total returns to shareholders.
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