Consumer Staples Sector Analysis

Consumer Staples
The Consumer Staples Sector comprises companies whose businesses are less sensitive to

economic cycles. It includes manufacturers and distributors of food, beverages and tobacco
and producers of non-durable household goods and personal products. It also includes food
& drug retailing companies as well as hypermarkets and consumer super centres.

S&P 500 Consumer Staples Historical Data

Date Price Open High Low Volume Chg%

Aug
202 745.38 739.25 757.76 730.55 1.25B 0.90%
1

Jul
202 738.72 722.47 743.21 715.58 2.24B 2.37%
1

Jun
-
202 721.62 728.10 734.48 706.08 2.52B
0.53%
1

May
202 725.46 714.58 735.28 712.86 2.35B 1.65%
1
Date Price Open High Low Volume Chg%

Apr
202 713.69 699.18 723.68 693.03 2.50B 2.03%
1

Mar
202 699.46 654.41 711.65 644.47 3.42B 7.71%
1

Feb
-
202 649.39 660.00 682.92 649.09 2.45B
1.50%
1

Jan
-
202 659.25 695.33 695.97 659.03 2.88B
5.32%
1

Summary Highest Lowest Difference Average Chg. %

757.76 491.31 266.45 652.73 30.78

S&P 500 Consumer Staples

Sector Performance
 Business Model Analysis
❖ Principal business activity

➢ Providing food and staples retailing, food/beverage/tobacco, household and personal

products to customer

❖ Product/service provided

➢ Hypermarkets, supercentres and pharmacies, food, beverage and tobacco products

➢ Detergents, soaps, diapers, cosmetics and perfumes

❖ Consumer demand analysis

➢ non-cyclical, defensive sector, low-growth YOY

➢ Inelastic demand as these goods are bought during recessions and booms

➢ Low beta value

❖ Raw material/Supplier analysis

➢ High number of suppliers

➢ Predictable demand gives suppliers confidence

❖ Profitability analysis

➢ Good dividends, solid profit margins, low volatility mostly because there are many
industry giants

➢ Often price wars between companies, could lead to lower margins in the future

➢ Inflation resistant with predictable growth

 Demand and Supply
These types of companies have historically been characterized as noncyclical in nature as
compare to their close relative the consumer cyclical sector.
Unlike other areas of the economy, even during economically slow time the demand for the
product made by consumer staples companies does not slow. some staple, like discount
foods, liquor, and tobacco, see increased demand during slow economy time. In line with the
noncyclical nature of the demand for their products, the demand for these stocks tends to
move in similar patterns.
Consumer staples tend to have a low-price elasticity of demand. This means that the demand
for these product does not change much as their price go up or down. There are no substitutes
for the products themselves however there are many options to shop for slower prices among
suppliers this gives the suppliers of staples little room to raise prices or increase demand for
their products.
Suppliers do, however, have the ability to differentiate their products by the taste,
appearance, or results of using their products. This leaves the producers of staples in the
crosshairs of the main costs that go into making their products: commodities.
 Porters 5 forces
Bargaining Power of Buyers:
 There are many buyers in consumer staples industry.
 The bargaining power of buyers is high because there are many options available in
market.
 The buyers are cost sensitive, the cost of switching from one brand to another is low.

Bargaining Power of Suppliers:

 There are many suppliers available.
 The prices by supplier are low as they supply in high quantities to main players in
business.
 Bargaining power of suppliers are low in consumer staples industry.

Threat of New Substitute:

 The threat of new substitute in this industry is high.
 The products can be easily replicated and made available at low costs.

Competition of Rivals:
 The competition is high between the rivals of this industry as the products
differentiation is less for example: Coca cola, Pepsi, Thums up etc.
 Brand name, goodwill is very powerful in this industry because that is what drives the
major sales of their products.

Thereat of New Entrants:

 To enter and sustain in this industry the capital requirement is high.
 To be a competitor in this industry you require brand name, Economies of scale,
customer loyalty.
 The thereat of new entrants is low in consumer staples industry.
 SWOT Analysis of Consumer Staples
STRENGTHS
1.Low operational costs.
2.Presence of established distribution networks
in both urban and rural areas.
3.Presence of well-known brands in FMCG
sector.
4.Deep roots in local culture & great
understanding of consumer needs.
OPPORTUNITIES SWOT
1. Untapped rural market
2. Rising income levels, i.e. increase in
purchasing power of consumers
3. Large domestic market- a population of over
one billion.
4. Export potential
5. High consumer goods spending
WEAKNESSES
1. Lower scope of investing in technology and
achieving economies of scale, especially in small
sectors
2. Low exports levels
3. Counterfeit Products. These products narrow
the scope of FMCG products rural and semi-
urban market.
THREATS
1. Removal of import restrictions resulting in
replacing of domestic brands.
2. Slowdown in rural demand.
3. Tax and regulatory structure.