From chocolate and dumplings to toothpaste, consumer goods companies are adapting to new spending habits as incomes rise in emerging markets while protecting profits in places where they can be volatile.

Packaging toothpaste into tiny tubes or moving more manufacturing locally, consumer firms are cutting prices and costs to make their wares more affordable and accessible to people able to buy their products for the first time.

The key, executives say, is to challenge thinking and processes that have driven growth in developed markets.

“If I want to successfully conquer India ... I can’t do that with a plant in Hamburg,” said Stefan Heidenreich, head of Beiersdorf, whose products range from Nivea to the high-end La Prairie creams. “It sounds relatively simple, yet we were for years and years in a very centralised mode.”

Nivea plans to open a factory in India in 2015, to make creams in smaller, cheaper packs, products with different scents and whitening creams, which are popular in Asia.

Consumer companies have long been seen as a good investment as they should grow with the new middle classes which are clawing their way out of poverty thanks to higher growth in many Asian, African, Latin American and post communist economies.

Consultancy EY reckons the middle class - which it defines as people earning more than $10 a day - will grow by three billion in the next two decades, with almost all the growth coming in emerging markets.

Currency volatility and changes such as a curbs on gift-giving in China to crack down on corruption or a drop in economic growth in Brazil can suddenly squeeze earnings.

Despite the risks, makers of everyday products such as food, soap and shampoo are spending time and money to win new buyers who they hope will be long-term shoppers and secure future revenues.

One way they cut costs is by producing the goods locally, using local ingredients and labour. That allows them to pass on lower prices to consumers, gain market share and reduce the effect of foreign exchange fluctuations as costs and prices are in the same currency.

“That is the holy grail for growth in emerging markets - Getting your cost structure down in a way that you can hit the lower price points in a profitable way,” said Morningstar analyst Philip Gorham.

Diageo, the maker of Johnnie Walker whisky and Smirnoff vodka, ships kit in to set up small distilleries in Africa to make what it calls “mainstream” spirits such as Gilbey’s gin that cost less than half of its international brands thanks to lower overheads, labour costs and input prices.

“Our target with mainstream spirits is very different to whom we would target with our premium brands,” said Chris Goddard, Diageo’s innovation marketing manager for Africa.

“Strategically, it’s about aspirational brands and fantastic-tasting liquids, but ultimately at really accessible price points,” he told Reuters in an interview.

In its emerging market push, Diageo launched a $1.9 billion bid last week to nearly double its stake in United Spirits , India’s biggest spirits company.

Another way of cutting prices is simply using smaller packages, giving buyers the opportunity to try a new product without spending too much. Colgate-Palmolive Chief Executive Ian Cook cited small, 10-rupee tubes of toothpaste for large gains in household penetration in rural India.

Squeezy Chocolate

In markets with hot climates and inadequate refrigeration, selling perishable foods can be tricky, again challenging companies to think differently about their products.

Companies including Nestle, Hershey and Mondelez International have all worked on heat-resistant chocolate bars. However, Hershey Chief Executive John P Bilbrey told Reuters that a better solution might be to sell chocolate in a squeezable sachet that would be much less messy than a half-melted chocolate bar.

“If you think differently about it, you don’t have to deliver it in a bar,” Bilbrey said, adding that doing research and development in local markets dramatically increases the chance of new products succeeding.

Hershey recently agreed to buy a controlling stake in Chinese confectioner Shanghai Golden Monkey, increasing its scale in China and expanding its sales of home grown, mass-market products.

With only about 14 percent of Hershey’s Chinese product array priced at levels considered “premium” or “super-premium,” Bilbrey said Hershey is largely insulated from the government clamp down on corruption that has hurt sales of consumer goods from Swiss watches to cognac to ice cream cakes.

U.S. food maker General Mills had a shock last year when, three weeks before China’s Mid-Autumn Festival, it learned that state-owned firms would not take part in the annual ritual of handing out cakes, a tradition that accounted for 30 percent of sales of its Haagen-Dazs’ luxury “mooncakes”.

Chris O’Leary, head of General Mills’ international unit, said his team switched quickly to deliver the cakes to its more than 100 Haagen-Dazs stores, sold the mooncakes to a new set of individual consumers and reduced the percentage drop in sales to a low single-digit rate.

“We weren’t able to grow, but we did not have a disaster on our hands,” O’Leary said.

He said the company’s success in China depended on its array of products, including some, such as Wanchai Ferry frozen dumplings, that appeal to commuters and workers with less time to cook from scratch. “Maybe they (make their own) on Sunday, but Monday through Friday, they can’t.” (Reuters)