Iconic American brands see a boon in sales amid lackluster U.S. demand
Yu-hui Ferng was 18 years old when she left Panama to attend college in America.
Ferng, now 31 and working as medical researcher in New York City, grew up well acquainted with American customs before she set foot in the United States.
“I was born in Taiwan, so I am ethnically Taiwanese, but my family moved to Panama when I was 6 years old, so I grew up speaking Spanish and Chinese,” she said. “But wherever we lived, there was McDonald’s, Coca-Cola, and Nike shoes,” she said, peering from behind her glasses with a wry smile.
Though classic American brands have long staked out a global presence, the iconic brands that define American pop culture are earning fewer dollars for their corporate parents in the United States while pulling in more revenue from expanding sales abroad, according to earning statements from some big-name U.S. companies. The Golden Arches and the swoosh are taking aim at a new consumer base with the promise to earn billions for years to come.
The sales growth abroad is no surprise to industry watchers like Rene Desborde. “Whenever companies have saturated their markets at home, they will look at the potential for sales overseas,” said Desborde, an associate professor of business at Kentucky State University. “It’s a pretty standard strategy to follow.”
Consumers abroad are poised to reward the companies that follow this strategy.
For decades, demand from American consumers fattened the coffers of corporations that have come to define popular culture in one of the world’s largest economies. Companies like Pepsi-Cola, McDonald’s and Microsoft relied on domestic sales to prop up revenue and profits.
But consumer demand within the United States started flattening out several years ago. In some instances, sales have even dropped. The Coca-Cola Company, the world’s top soft-drink maker, saw U.S. sales volume for its flagship carbonated beverages slip 2 percent in late 2007, according to a financial statement released to investors. The largest food retailer, McDonald’s, with more than 10,000 domestic restaurants, reported a dip in sales to 5 percent, larger than the previous year’s dip of 6 percent.
Still, these companies report higher profits, thanks to growing demand in the expanding consumer markets of Asia.
“The potential for growth is immense,” said Rutu Mody Kamdar, an expert on consumer brands at Narsee Monjee Institute of Management Studies in Mumbai, India. Kamdar noted that Asia’s expanding consumer base and growing wealth could prove a boon to McDonald’s, Coca-Cola and other U.S. consumer goods.
“Many U.S. products sell purely because of the brand,” she said. “The brands are popular because they’re American.” American pop culture has a far reach; Asian children are bombarded with images of American brands through the mass media.
“Growing up, all we knew were Reebok, McDonald’s and Barbie,” Ferng said from her Manhattan office. “These were the brands we saw the most in the movies, on television and advertising."
These images instill a brand attraction that eventually translates into sales once young people take on the role of consumers, said C.W. Whan Park, an expert in global consumer branding at the University of Southern California.
Park, a native of South Korea, who has taught marketing at U.S. universities since 1974, said Asians are drawn to American brands because of the lifestyle they project. He said the preference comes from an attraction for “the free spirit” embodied in much of the nation’s popular images.
“Levi’s became a strong brand in Japan and the rest of Asia because James Dean represented a very unique kind of spirit and personality”, Park said, pointing to the dominance of the U.S. jean maker in the Pacific Rim.
Sales figures paint a picture of the shift toward reliance on global sales. In 2007, U.S. sales contributed only 27 percent to Coca-Cola’s revenue. The beverage giant said in its recent annual report that sales in China and Japan drove its profits up for the year. Similarly, McDonald’s, which has twice as many restaurants abroad than at home, pulled in 65 percent of its revenue from outside the United States. In 1992, U.S. sales generated more than half of the hamburger chain’s revenue.
The reliance on revenue streams from overseas markets holds true even for relatively recent symbols of American brand supremacy. Microsoft Corporation reports steadily rising revenue from its Eurasian market, which includes Russia, China and India, with yearly growth rates as high 100 percent in Russia.
“The fact that we now have over 60 percent of our sales outside the United States has allowed us to continue to grow very well from a revenue point of view,” Chris Liddell, Microsoft Corporation’s chief financial officer, told a group at investors in early March.
Park, who studies how consumers develop attractions to brands, noted that Asians have very distinctive brand preferences tied to the origin of the product.
“It’s a common belief among Taiwanese, for example, that if a product is made in America then it must be better,” Ferng said. “Whenever I travel back home, I need to pack my suitcase with Revlon, Ralph Lauren Polo shirts and Centrum vitamins for family members who prefer these items directly from the States.”
“Taiwanese will even pass up identical American products if the packaging bears Chinese characters rather than in English.” Ferng added
There is little fear, though, that American brands will crowd out local favorites. Kamdar, the brand expert at NMIMS in Mumbai, noted that Asian markets are so large and segmented among many types of consumers that home grown brands will always be in demand.
Still, she said the future is bright for U.S. companies in the emerging consumer markets of Asia, where economies grow at near double digits and identification with American brands is becoming deeply engrained in the culture, especially when products adapt to local preferences.
“Coke, which is a quintessentially American brand, has completely ‘Indianized’ itself,” Kamdar said. Following the advice of local executives, the beverage maker introduced a smaller bottle with pricing that appealed to the large population of lower income and rural consumers. The company also included Bollywood movie stars in its advertising.
With nearly one third of its 1.2 billion people younger than 15, India, like China, represent an enormous source of future sales, and profits, for American brand makers that connect this expanding consumer base.
Ferng, who is planning her next trip to Taiwan, says she will have to stock up on her family’s favorite items. In addition to the vitamins and cosmetics, Godiva chocolates are on the list this year.
“I don’t know if Godiva is now a hit in Taiwan, but my parents are sure asking for it.”