Growth

**Growth**:

## Market Share Gains

- Consistent market share accretion is attractive, especially when you can identify a reliable “share donator.”

- Gains become harder as share grows (easiest customers first) and less impactful for larger players (1% gain doubles a 1% holder’s reach, but only adds 2% for a 50% leader).

## Geographic Expansion

- One of the most challenging strategies; failed attempts can damage the original franchise.

- Past success in multiple markets increases odds of repeating it.

- **Unilever case** – derives ~60% of revenue from emerging markets. In India (Hindustan Unilever):

  - Brands like Sunlight soap (1888) considered home-grown due to longevity.

  - Direct coverage of 3M+ outlets, Shakti program with 70k+ women + 48k men distributing in rural villages.

  - Powerful distribution gives faster new product launches, better consumer insight, continued share gains.

- **What travels well**: premium brands (global media/travel), vertical-integration store operators.

- **What doesn’t travel well**: unique local distribution systems, localized scale advantages, favorable regulation (e.g., grocery retailers, hospitals, airlines struggle to globalize).

## Pricing, Mix, and Volume (Financial breakdown of revenue growth)

- **Price-driven growth** (pricing power) – rarest and most valuable: each extra dollar of price goes straight to pre-tax income. Requires customer insensitivity (luxury, “farm fresh” labels).

- **Mix-driven growth** – e.g., adding premium packages. Valuable, needs modest extra cost, but inferior to pure price growth.

- **Volume-driven growth** – least valuable: increases working capital and capex. Best for asset-light, high-margin, or high-operating-leverage businesses (pharma, software).

## Cyclical Market Growth

- Double-edged: strong growth in expansions, sharp reversals in contractions.

- Example: US hotel cycle after 2008 – Marriott’s EPS tripled from trough, share price up nearly 6x.

- Focus on: (1) companies that deliver real earnings growth *through* the cycle (peak-to-peak), (2) understanding specific cycles to avoid downside.

## Structural End-Market Growth

- Supposedly permanent trends (urbanization, aging, disease prevention). Be skeptical – many “structural” trends turn out cyclical.

- Cautionary examples: US golf (players fell 18% while population rose 6%); China’s consumer appetite for cognac/gambling reversed.

## Persistence of Growth

- Research (Little, Credit Suisse HOLT) shows earnings growth is weakly persistent, almost random year-to-year. High growth rates rarely sustain.

- But a significant minority *do* sustain, especially in the 10–15% earnings growth range (not hyper-growth).

- **Key link**: return on capital is highly persistent and reliably predicts future earnings growth. Companies with stable, high returns (e.g., CFROI) offer better growth predictability.

- Conclusion: forecasting growth is not entirely random – well-positioned companies with high, stable returns can buck the statistical trend.