Consumer Staples Summary

Reference Fisher Investments on Consumer Staples

Difference between Consumer Staples and Discretionary

Staples – Inelastic (necessity)

Discretionary – Elastic (income or price affects consumer demand)

Consumer Staples Sector Drivers

  • Economic
  • Political
  • Sentiment

Economic Driver

  • GDP Growth
    • Consumer Spending – Personal Consumption Expenditures (PCE) and what the consumers are spending on. Higher PCE, +ve for Consumer Staples
    • Business Spending
    • Government consumption and investment
    • Net exports
  • Interest Rates – Affects some companies on borrowings
  • Currency – Market of companies
  • Inflation
  • CPI
  • PPI (Cost of materials)
    • Crude, Intermediate Goods, Finished Goods (affect consumer staples company differently)

Political Drivers

  • Taxes
  • Trade Policy

Sentiment Driver

  • Elastic/Inelastic Preference
  • Brand Value

Consumer Staples Industry and corresponding sub-industries

  • Beverages
    • Brewers
    • Distillers & Vintners
    • Soft Drinks
  • Food Products
    • Agricultural Products
    • Packaged Foods & Meats
  • Tobacco
  • Household Products
  • Personal Products
  • Food and Staples Retailing
    • Drug Retail
    • Food Distributors
    • Food Retail
    • Hypermart & Super Centers

Food Industry Drivers

  • Population Growth
  • Wealth
  • Shifting Consumer Preferences
  • Demographic Shifts
  • Foreign Markets
  • Supply Drivers such as weather, competition for resources, and technology advancements

Beverages Industry Drivers (Non-Alcoholic)

  • Population Growth
  • Wealth
  • Innovation
  • Shifting consumer preferences
  • Distribution

Beverages Industry Drivers (Alcoholic)

  • Population Growth
  • Wealth
  • Innovation
  • Shifting consumer preferences
  • Demographics
  • Foreign Markets
  • Consolidation

Tobacco Industry Drivers

  • Price Increases Offset Volume Declines
  • Pricing and Mix
  • Foreign Markets
  • Litigation

Household & Personal Product Drivers

  • Brand Equity
  • Price
  • Demographics
  • Foreign Markets
  • Innovation. Firms operating in these industries spend a lot on R&D in the form of consumer learning to develop new products

Food & Staples Retailing Drivers

  • Demographic Trends
  • Convenience
  • Location
  • Private Label
  • Generics
  • Relatively noncyclical

Challenges in Consumer Staples

  • Finding ways to grow in mature industries
    • Innovation for organic growth
    • Merger & Acquisition but need to check whether there’s synergy
  • Dealing with volatile input costs
    • Hedging
    • Pricing
    • Product Formulations (use less expensive alternative)
    • Restructuring (e.g. JIT inventory)

Consumer Staples in Emerging Markets

  • Matching EM Needs (e.g. packing less for single serve)
  • Different Natural Resources Standards
  • Distribution
  • Direct Sales Networks
  • Building Distribution to match rapid growth
  • Advertising
  • Market Penetration Strategies

Useful Consumer Staples Sector Resources