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Unstable Consumer Staples

06/03/2015

It has been a decade since I took my father to the World War II Memorial on the Mall in Washington, DC.  I remember we discussed the fact that 6,000 members of the Greatest Generation were dying each day.  It was hard to get our heads around the idea of a generation suddenly shrinking so rapidly.

Now, there is increasing discussion about the babyboomer generation, that is also shrinking.  The speed of that shrinkage has now begun increasing more quickly.  Interesting, that discussion seems to have started and is still centered in the stock analyst community.  For example, babyboomers eat cheese from Kraft, corn flakes from Kellogg’s, soup from Campbell’s, and carbonated soda from Coke.  Later generations, particularly the millennials, increasingly avoid such foods.  Importantly, they are willing to dedicate a larger portion of their income to eating healthy, non-processed, organic foods.  This has huge implications for companies like Kraft, Kellogg’s, Campbell’s, and Coke.  While those companies are aggressively buying more natural food producers, it must be worrisome to them that the consumers of their main products are now dying, not unlike the cigarette manufacturers.

Portfolio managers refer to companies such as Kraft, Kellogg’s, Campbell’s, and Coke as consumer staples.  This means consumers will always buy their products, regardless of the economy.  For example, people will buy toothpaste and toilet paper regardless of the economy.  But, looking at consumer staples from a generational standpoint reminds us that those companies will not survive without evolving their product mix.

For an individual, Ronald Reagan once described Alzheimer’s as the “long good-bye.”  For a generation, General Douglas MacArthur once said “old soldiers never die, they just fade away.”  It will take a long time for the enormous babyboomer generation to fade away, but it has begun.

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