Consumer Staples Sector Struggles as Niche Products Reign King

It has been a rough go of things so far in 2018 for a variety of big consumer food products.

Market leaders Campbell Soup (CPB), Hershey (HSY), General Mills (GIS), and Pepsi (PEP) are all experiencing a downturn in business as they fail to adapt to changing food trends.

Overall, what is known in the financial world as the consumer staples sector is trending downward in the S&P 500, already down 13 percent for the year and on the path to finishing at a decade low. Exasperating the problem is a combination of factors including the rising costs of oil, steel, raw materials, and freight. Escalating global trade tensions brought on by President Donald Trump’s threat of tariffs on essential items needed to produce consumer staples are not helping the cost of doing business.

The rise of smaller niche food products is pushing the larger consumer brand names out of the market space in alarming numbers. According to Jim Brenna with Boston Consulting Group, these small competitors ate up market share and now lead the pack in overall consumption. The proliferation of digital advertising makes it easier for the more boutique businesses to reach their target market in a more cost-effective manner.

The larger corporations can no longer rely on their big supply chain, exclusive name recognition, and large advertising budgets to muscle the smaller entries out of the market. The traditional solution to this problem is for the big corporations to eventually buy out the smaller niche companies. However, as these acquisitions raise corporate debt levels and influence profit levels, investors are becoming more hesitant to buy into this practice.

Upstart niche companies are continuing to capitalize on consumer trends including all-natural products and renewable mail-order subscription boxes. Classic stalwarts such as Clorox and Proctor & Gamble are losing valuable market share to trendier alternatives like The Honest Company, Seventh Generation, and Dollar Shave Club.

It does not take a financial expert to spot these trends. On Friday’s market closing bell, Campbell had plunged 12%, ringing in its worst trading day since 1999.

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