A number of trends have emerged as financially stretched consumers look to make savings. Shoppers have started trading down to lower priced items, which has provided a boost to firms in the private label sector such as Northern Foods. Consumers have also opted for items that can be stored for longer to avoid wasting as much food. This has provided a boost to the canned and frozen segments of the market, which includes Heinz and The FoodVest Group. However, even as consumers become more price conscious, they are still looking to treat themselves occasionally, which has provided a boost to firms that offer ‘affordable premium’ products, such as chocolate and alcohol. We therefore expect premium chocolate producer Lindt and alcohol producer Diageo to continue to perform favourably during the slowdown.
Meanwhile, shoppers are also changing where they shop. In the US the main beneficiaries have been big-box retailers, such as Wal-Mart, that allow consumers to buy in bulk and also cut down on car journeys. However, in much of Western Europe, a different pattern has emerged due to the prominence of discount retailers such as Lidl and Aldi, which offer comparable prices but in more convenient locations. Another key change in behaviour is the trend towards eating and drinking at home, rather than at coffee shops, restaurants and bars. This change has provided a boost to a broad spectrum of food and drink firms including those that cater to the breakfast market, such as Kellogg and suppliers of coffee for home consumption such as JM Smucker. This change has also benefited retailers, with operators gaining market share in the alcohol sector and selling more upmarket ready meals that recreate the restaurant experience at home.
We have also examined which attributes a firm should have if it is to successfully navigate the economic slowdown. Firms that have invested heavily in innovation, including Danone, Nestlé and Heinz, are expected to be more successful during the slowdown as their products are less easily replaced by private label alternatives. In addition, with the financial crises making credit harder to come by, we have identified the firms that have been prudent over the last few years and have not expanded too aggressively. This includes Nestlé and Unilever, which both boast a strong balance sheet and should be less affected as debt becomes more expensive to service.
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