Dr. Bob Froehlich, Vice Chairman of DWS Scudder
Monday, February 19, 2007PAUL KANGAS: So can individual investors profit from the coming demographic changes? One who answered with an unequivocal "yes" is Dr. Bob Froehlich, vice chairman of DWS Scudder and the author of "Investment Megatrends." Midwest bureau chief Diane Eastabrook asked Froehlich why he regards demographic trends as some of the best tools available to long-term investors.
DR. BOB FROEHLICH, VICE CHAIRMAN, DSW SCUDDER: Demographics are very predictable. Once you realize how many people are born in the given year, you watch as they progress and you understand the trends. It takes a little longer time to make money off of them, and that's why most investors, they want to get rich right now. And so for people that want to get rich quick, what do they look at? The next economic release, the next earnings report. But if you want to accumulate wealth in the long run, there is probably no better thing to look at than demographic trends because they don't go away.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: We've been talking a lot about baby-boomers, but what about generation X? You suggest that this is the first generation to be raised by working moms. What sort of investment trends might they raise?
FROEHLICH: Well, I think one of the things that they've influenced in a big way is, if you look at the food industry, I mean on Wall Street, we sort of laugh, it's not the industry that people raise their hand and say let me follow. They want to do healthcare and they want to do technology. No one ever raises their hand to do the food industry. Yet generation Xers, they so drove that industry. Think about it. They were raised by working moms. That means they had meals on the run and so what did they have to figure out? They don't even know what the oven is used for, for gosh sakes. Their meals were in microwaves, and they go right past the basic cooking material to the salad bars, to the pre-cooked food and so we've turned the way we prepare food upside down. A fascinating statistic to me is, 50 years ago, if you can imagine this, the average home-maker spent an hour-and-a-half preparing dinner. Last year, I think the number is like 16 minutes. And so that industry has already changed upside down. I think we'll continue to push that envelope in a big, big way and I think that's all based on generation X. They turned that industry completely upside down to fill the needs that they have.
EASTABROOK: Can you suggest any companies that consumers might invest in?
FROEHLICH: I think one of them that really is focused in a great way is H.J. Heinz Company (symbol: HNZ). They have focused on saying you have to move from just sort of this basic philosophy of preparing food to having it now, having it ready, having it healthy. And so I think that they're very, very focused on what is the future buyer of food going to be.
EASTABROOK: We've been talking a lot about investing in the U.S., but are there some mega trends that are going on overseas and how do investors take advantage of those trends?
FROEHLICH: I'm very excited about the demographics in the United States, very excited about the baby-boomers. Yet the trends outside the United States, especially if you look at China, the magnitude is five and sometimes 10-fold. I think if you look at demographics, especially if you look at the consumption of the younger generation, even though in the U.S., you know, we have a great consumption base, it's going to be the young demographics in China that are really going to replace the United States over the next decade, as the largest consumer base in the world. They're not just going to change China. They're going to change the entire world based on what they buy, based on what they feel is the popular trends.
EASTABROOK: Many investors think that in order to take advantage of the growth trends that are happening right now in China, you have to invest in Chinese stocks. But you suggest that you can take advantage of those trends by investing in American companies like Yum Brands and Avon Products.
FROEHLICH: The interesting thing with YUM Brands (symbol: YUM) is they get you in the store and it's really Kentucky Fried Chicken, but they also own Pizza Hut, which isn't very popular yet in China. It's in the same store. They also own Taco Bell, which is also in the same store. If you think about this strategy, the Chinese people, the meat they like to eat is chicken. So you get them in the store for this Kentucky Fried Chicken and then once you get them in there, you're talking about Pizza Hut. You're talking about Taco Bell and it is all sort of based on this icon of Colonel Sanders and it is a wonderful business model. I think it's going to do extremely well.
EASTABROOK: Thanks, Dr. Froehlich. We've been talking to Dr. Bob Froehlich, vice president of DWS Scudder and author of "Investment Megatrends."
KANGAS: Incidentally, Dr. Froehlich and DWS Scudder hold positions in HJ Heinz and Yum Brands stock.
