Since it’s Thursday, let’s throwback to this time last year when most of the country was shut down, gripped with fear and scrambling for everyday items like Clorox and toilet paper. The crush of demand for these items was so shocking it drove stock prices and EPS of companies like FLO, KHC, and STZ to all-time highs.
According to a study done by Oracle, in March of 2020, key pantry loading categories peaked in the second and third weeks of March and continued to stay well above YAG (year at a glance) levels. What’s more, prepared foods saw a high surge during peak pantry-loading but increased and sustained demand for home cooking foods as well as baking.
Cut to now, these numbers have sustained despite states opening up their businesses and people feeling intense FOMO re: travel, food, folks and fun.
Based on consumer sentiment, the natural inclination is to assume consumer discretionary as a sector would take a hit due to the strong demand for travel and leisure. But the opposite is happening. In fact, stocks that have been trending in our TracStarIQ have also had the most momentum recently, including Colgate Palmolive (CL), Costco (COST), and Coca-Cola (KO).
This runs counter to the storyline, or at least under it, that money wants to flow into entertainment and leisure. In fact, what we see alongside a selloff in technology, is a move into both ‘opening up’ stocks (IE airlines) and consumer staple companies.
Who’s sheltering in place despite restrictions being lifted? The Boomers and Gen X of course!
Surprisingly, Boomers dominated online shopping growth with 5.7x as many consumers shopping online for CPG-related products in 2020 than in 2019.
According to the Oracle study, online shopping was more concentrated in higher-income groups within the Boomer cohort, with 24% of Boomers earning $100-150K in income. At the same time, Gen X experienced 4.7x growth in new online shoppers. What they were buying was even more insightful: into 2021, Boomers increased their purchase of existing products, like alcoholic seltzers (172%), soda (140%) and chocolate candy (142%), but also opted for new products, like sugar-free cookies, breakfast biscuits, and cheese puff snacks. Gen Xers increased their purchase of existing products, like dry yeast (134%) and fruit pectin (49%), but also opted for new products, like variety pack chips, soda, and caramel dip.
Bottom line, if you are betting on Boomers and Gen Xers to sustain day drinking while making sourdough bread and home-made meals, your outlook is moving in the right direction.
KEY TAKEAWAYS:
- Consumer staples as a sector is only going to become more prevalent.
- The bifurcation of retail continues but shopping habits have changed as well as consumer habits.
- “Sheltering in place” isn’t specific to the pandemic. Because of changing habits, people are leaving their houses less and less despite re-openings, vaccines and ease of travel restrictions.
- Hard seltzer is wildly popular amongst Boomers and strangely good.
- Demand for products like packaged goods, snacks and bottled drinks will continue to increase.
QUESTIONS TO ANTICIPATE FROM CLIENTS:
- What type of dividends to consumer staple stocks offer? Will yields be higher since top line growth seems to be increasing?
- Will market conditions like a rotation into tech have a sharper impact on long term yields if I decide to hold any of these stocks long term?
- What would be something that would have an yields if these stocks seem to thrive under the worst conditions (the pandemic).
- If I didn’t want to invest in a stock what are the ETF plays that are similar?