Shopping carts (with wheels and without)

Garry Laurence

Global Equities Portfolio Manager

Consumer Staples

They’re the brands we use every day, they’re the colourful staples that compete for our attention on the supermarket shelves, but they’re also part of an investment sector with major potential.

The consumer staples sector captures companies selling everything from toothpaste to chewing gum, from chocolate bars to fish-fingers. Garry Laurence, portfolio manager of the Perpetual Global Share Fund, has been on the road looking for the best performers in the sector – and especially for ones that are under-priced.

“I went to a consumer staples conference in the US… there’s a pickup in excitement around revenue growth for consumer staples companies as they look to re-invest the savings from the Trump tax cuts back into new products and innovation.” Garry Laurence says. (See the attached video interview).

One such company is US-based Mondelez. It’s the world’s second largest confectionary maker and it owns brands like Cadbury, Oreo, Toblerone and Milka. We all recognise these brands, but what might be surprising is how broadly they’re sold — they’re well-loved across the US, but also in Europe and India. In fact some 76 per cent of their revenue comes from outside the US, with 35 per cent coming from emerging markets.

In India, Cadbury is the number one chocolate brand. It may have only a one per cent market share in the US, but it’s much larger in other markets. It’s a great company with considerable brand power. Its growth potential remains strong on the back of new products like the Milka-Oreo chocolate bar.

More than chocolate bars

Nomad Foods is another high quality company and owns some well-loved consumer staples brands. In Europe they own the Birdseye brand, as well as Findus and Iglo which sell frozen vegetables, fish fingers and frozen chicken.

The company is currently in a consolidation phase after a flurry of acquisition activity. Gains have been made in streamlining the overall product offering to focus on the most valuable labels.

Consumer staples seen as recession proof

While many sectors find themselves rising in good times but suffering in a downturn, the consumer staples sector tends to be counter-cyclical. Chocolate bars and frozen dinners are things we buy no matter the over-riding economic conditions. In some circumstances we may even end up buying more as belts are tightened and we forgo more fancy options and instead opt for the cheap-and-easy.

e-commerce

The whirlwind of ecommerce has caused widespread digital-disruption, but when you dig into the numbers, it appears this strong growth may just be getting started.

The sector is maturing, however globally 90 per cent of sales are still coming from bricks & mortar stores. Most interesting is that in China the shift is stronger, with 20 per cent of sales being online.

The next 5 – 10 years are poised to see continued strength in this online retail trend.

The Perpetual Global Share Fund owns stakes in big names like Alphabet (owner of Google) and EBay; and in China the fund is enjoying the success of the giant online retailer VIPshop.

Gaining exposure to the upside of this trend can also be achieved indirectly. Companies like FedEx are seeing strong gains as they adapt their logistics services to facilitate the delivery of all these goods.

In the US, FedEx sits next to UPS as the one of the two key players in the market.

 

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