Consumer Staples: An Absolute Necessity

Stocks across the globe are classified under different sectors. The most widely used sector classification such as the MSCI GICS consists of 11 different sectors. The first among the GICS classification is the consumer staples group. In this blog, let us take a deep dive into the first of the industry classifications.

The consumer staples comprise companies that make key and essential products such as food and beverages, alcohol, hygiene products, household goods, and lifestyle products. It is one of the oldest sectors in the stock markets and some of the companies in this segment have been in operation for over 100 years.

The consumer staple group is further divided into three major industry groups, namely, ‘food, beverages and tobacco' ‘food and staples retailing', and ‘household and personal products.'

Food, beverages, and tobacco: 

Food is an important category and, the companies operating in this space are also main participants in the global food supply chain. Food companies include branded foods, packaged foods, cereal companies, chocolate makers, oil and agricultural commodity manufacturers, and packaged meat product makers.

Some of the prominent players include:

General Mills is one of the largest packaged foods makers in the US. The firm makes breakfast cereals under brands such as Cheerios, Cocoa Puffs, and Trix. It also makes baking goods under the Pillsbury brand. General Mills had over $17 billion in revenues in 2020.

The Kellogg Company, commonly known as Kellogg’s is an over 100-year-old company and makes a variety of popular breakfast cereals. Some of its top brands include Corn Flakes, Froot Loops, Nutri-Grain and, Special K.

Mondelez International is a large US company engaged in multiple food products such as snacks, biscuits, chocolates, candy, and groceries. Some of the top brands of Mondelez are Nabisco, Oreo, Cadbury, Trident, Tang, and Toblerone.

Source: Morningstar

Some of the other major food companies are Hershey’s, Tyson Foods, Campbell Soups, Archer Daniels Midlands, and J.M. Smucker.

Beverage companies include firms that make soft drinks, alcoholic beverages, and energy drinks. The major players in this business are:

Coca-Cola is the largest beverages company in the world and is known for its Coke, diet Coke, Fanta, Sprite, and Dasani bottled water. Coca-Cola has operations all over the world.

Diageo is one of the largest alcohols and spirits companies in the world. Based in London with a listing in NYSE, Diageo owns some of the top alcohol brands including Johnny Walker, Vat 69, Cardhu, Captain Morgan, Guinness, and Tanqueray. Diageo has a presence across the world and had over $14 billion in 2020 revenues.

Anheuser-Busch Inbev is the largest beer producer in the world and was formed by the merger of Anheuser-Busch with the Belgian brewer InBev. The company owns over 600 beer brands across the world. Some of the most popular brands of Anheuser-Busch Inbev are Budweiser, Hoegaarden, and Becks.

Source: Morningstar

Other major beverages companies are Keurig Dr. Pepper, Ambev, Monster Beverage, and Molson Coors Holdings.

Tobacco is a controversial industry with a history of litigations against them. Since tobacco products are addictive and are known to cause health issues, tobacco companies are shunned by many investors in recent times. Nonetheless, in the longer run, tobacco companies have had one of the best total returns in the sector. Modern tobacco companies have also branched to other areas such as e-cigarettes, and smokeless tobacco such as chewing tobacco. The industry has also consolidated over the years with just a handful of companies controlling almost the entire world market for tobacco.

The largest tobacco companies in the US are:

Altria is a holding company and makes and sells tobacco products in the US. The firm also has stakes in e-cigarette maker JUUL, the cannabis company Cronos Group, and owns the famous Marlboro brands of cigarettes.

Philip Morris International spun off from Altria, sells tobacco products outside the US. PMI is also focusing on smokeless products and e-cigarettes.

British American Tobacco, Japan Tobacco, and ITC are other major companies in the world.

Source: Morningstar

Food and staples retailing: There are a few pure food retailers. However, most of the food retailing happens through large general retailers and supermarket companies. This being a much broader topic, and a business model that has evolved a lot over the years, it merits a separate blog. Some of the names in this space include Amazon, Walmart, Target, BJ’s, and Costco.

Household and personal care:

Hygiene and household personal products is a sector that is home to some of the largest conglomerates in the world. Some of the businesses in this area include consumer products such as grooming and skincare, cosmetics, baby & women’s hygiene products, household products such as detergents, soaps, and cleaning agents.

Among conglomerates, the largest are:

Unilever, headquartered in London, is a prominent maker of household goods, beauty and personal care, and home care products. The firm has subsidiaries all over the world and generated over $55 billion in 2020 revenues.

Colgate Palmolive is another major conglomerate operating in this sector. This firm too is involved in multiple businesses including oral hygiene, pet nutrition, personal care, and home care products.

Procter & Gamble is the third top conglomerate with business interests in beauty, home care, fabric care, shaving products, and baby hygiene products. P&G generated over $70 billion in revenues, during 2020.

Source: Morningstar

Other businesses in this segment are:

Estee Lauder is a leading cosmetics company and makes skin-care, makeup products, fragrances, and hair-care products. Headquartered in New York, the firm generated over $14 billion in 2020 revenues.

Clorox is a maker of cleaning products for home and professional use. The firm also makes water filtration systems and laundry products. Clorox was a major beneficiary of the Covid pandemic as many of its products are used in disinfecting living spaces.

Church & Dwight, established in 1846, is a major maker of household and personal care products including cat litter, detergents, antiperspirants, oral care, and reproductive care products. The firm has operations in Australia, Europe, and China.

Source: Morningstar

The pandemic and its effect on consumer staples companies:

The pandemic had both positive and negative effects on the consumer staples sector. On one hand, the pandemic wreaked havoc on supply chains, and the market for raw materials for many staples companies was impacted. Stores ran out of toilet paper and breakfast cereal and restocking took much longer. The increase in raw material costs also forced many staples companies to increase the prices of their products. On the other hand, Companies benefited from increased sales as well. The market for cleaning products and disinfectants increased manifold. The sale of ready-to-eat foods and comfort foods also increased as the work-from-home crowd stocked supplies. Some of these trends could be here to stay as the world moves towards a more hybrid working model, and that bodes well for the sector.

Investment options:

Hundreds of large and mid-sized consumer staples companies are listed in the major stock markets with several smaller-sized names also available. Directly buying stocks is one way of investing. However, with such a large variety of companies in the market, ETFs are a more efficient means of getting exposure to the consumer staples sector. Some of the ETF options include Consumer Staples Select Sector SPDR (XLP), Consumer Staples Vanguard ETF (VDC), Fidelity MSCI Consumer Staples ETF (FSTA), iShares US Consumer Goods ETF (IYK), and iShares Global Consumer Staples ETF (KXI).

Source: Morningstar