Staples refer to a set of essential products used by consumers. But what products make up this sector category? Products such as food and beverages, household goods and hygiene products, along with alcohol and tobacco.
Essentially, the products that everyone needs along with products people can’t do without, regardless of the macro-economic situation.
In a primary investigation using reports from McKinsey, IBIS and trading economics, we compared the performance of major industry sectors across the following two-year period downturns - 1973 – 1975, 1980 – 1982, 1989 – 1991 and 2000 – 2002. We found that the Consumer Staples Sector outperformed all others during this period.
This sector also outperformed the S&P500 during the last three recessionary periods.
Despite our business Tapestry not being defined as a staples business, we have positioned ourselves in the staple sector within information technology. Supermarkets and grocers have strong exposure to the staple marketplace. These industries, supermarkets and grocers supply an average of the following product categories:
All Supermarkets and Grocers = 95%
SMEs (independent groups and small business), Supermarkets and Grocers Australia = 88%
All Convenience Stores = 82%
During financially hard times, we also expect people will substitute high-cost goods for lower-cost goods. For instance, customers will substitute meat products for cheaper meat items or processed meats, spreads and breads, fruit and vegetables and processed foods. All of these substitutes occur within the Supermarket and Grocers category, regardless of the substitution affect which is made for categories which are disputably not staples.
There are multiple consumer behaviour changes which happen when aggregate demand shifts left, due to inflation or discretionary spending changes. However, these sales will still occur in the industry sector which we are exposed.
Despite being in a high-risk sector ourselves (information technology), our customer base is in the least affected business sector during economic hardships. Overtime, the volatility in the consumer staples share price has declined, and is a safe haven for investment. As consumer behaviour changes when aggregate demand falls, which economically haven’t yet fully swung into affect, the supermarket and grocers who are highly exposed to staples are not affected greatly.
Harnessing Real-Time Data to Forge Category Champions in the Retail Landscape
Harnessing the Untapped Potential of Retail Data with Retail+
Strategising AI Investments: The Interplay of Public and Proprietary Data
5 Key Ways Retailers Can Boost Margins by taking ownership of and leveraging their data
How A/B Testing Helps Retailers Make Data-Driven Decisions and Increase Sales
Is AI a Race to the Bottom: Where to Invest for Competitive Edge?