Thursday, 19 February 2009

Branded staples - going, going gone

A week or so ago I commented that the consumer staples sector, as tracked by XLP, an exchange traded fund, was behaving poorly considering that it has traditionally been seen as a defensive play and likely to show relatively better performance during economic downturns.
A recent visit to my local supermarket provided plenty of evidence as to the reason for the lack of strength of the sector. There were various types of tomato ketchup on display and certainly not the most prominent was Heinz, chocolate bars are no longer the domain of Cadbury and Kleenex is not the type of tissue that was most in evidence. Generics are replacing branded products as price sensitive shoppers are spending more judiciously.
I began to think of how the goodwill attached to many product brands, as a result of the billions of dollars worth of advertising and marketing spent over many years, is starting to evaporate. Consumers seem less willing to pay for the supposed premium brands any longer - perhaps there are deeper cultural reasons at work as well as the necessity of saving money.
When major brands in the financial world are seen to be virtually worthless and when established businesses are falling like dominoes there is less belief in the sanctity of the traditional household names. If the labels can no longer be trusted then why pay a premium to buy Heinz 57 if all you want is some ketchup to put on your hamburger?

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