The Broad View
The universe of consumer staples — the everyday things we all use — is enormous. Toothpaste, soap and shampoo help us stay clean, while disinfectants, wipes and detergents do the same for our homes. We drink coffee and grab prepackaged snacks on the go and treat minor ailments with over-the-counter medicines.
That sheer ubiquity can make staples easy to overlook. But their importance to everyday life was cast in high relief early in the pandemic, when many critical items, ranging from canned goods to bathroom tissue, flew off the shelves faster than manufacturers could produce them.
Though those shortages have largely been addressed in recent months, the COVID-19 pandemic continues to have an outsize effect. Household cleaners and medical supplies such as masks and gloves have seen strong growth as consumers have sought to limit their exposure to the coronavirus. With restaurants and bars on lockdown, food and beverage sales have soared. Consumers have been willing to spend on those goods, and they’ve turned to name-brand products rather than take chances on cheaper, unknown alternatives.
To be sure, such a large sector isn’t a monolith, and COVID-19 has affected individual companies differently. For example, the forces propelling take-home alcohol sales are also punishing bar suppliers. Similarly, the pandemic is still weighing on economies around the world. Vital emerging market spending has dropped sharply, and unemployment is still stubbornly high in many developed markets. With no clear end to the pandemic in sight, it’s difficult to predict how long these headwinds could persist.
Still, changes to consumer habits are heartening for the sector and could prove long-lasting, says Saurav Jain, a Capital Group analyst who follows European household and personal care products. “I think the desire to purchase more hand sanitizer and surface cleaners will last for some time,” he says. “We’ve seen it before: In Hong Kong, after the epidemic of SARS in 2003 there was a permanent shift in hygiene-related behavior.”
As consumers shift their spending, they’re embracing some old stalwarts of the consumer staples sector.
For example, millennials and Generation Z have not only learned how inexpensive eating at home can be, they’ve cottoned to classics such as cold cereals, yogurt and frozen food, notes Capital Group analyst Archana Basi, who covers food and beverages in North America and Europe.
“We’re seeing younger people rediscover healthy and convenient foods,” she says. “And they’re cheaper than eating out. With the recession, these habits may continue even as lockdowns ease.”
Of course, those meals at home come with dirty dishes. “You’ve seen dishwashing detergent sales surge,” Jain says. There’s been more demand for cleaning products, partly driven by sanitation concerns around the pandemic but also simply as a consequence of people staying home more.
The primary beneficiaries of these new trends have been large, well-known brands, Jain says. “For many people, this is not a time to save a dollar or two on something that they’re not sure about. They really want the trust that accompanies decades of branding.”
Furthermore, those famous brands are often owned by the companies best positioned to respond to the pandemic, further reinforcing their dominance.
“Even the biggest brands are struggling to cope with demand,” Jain says. “But obviously the smaller brands are struggling more.”
The habits that consumers are adopting in this work-from-home world may have a lot of durability. In recent years, Basi notes, food processors created more nutritious and flavorful offerings, including some catering to restrictive diets. Many of those products struggled to find an audience — until pandemic lockdowns gave consumers a solid reason to try them.
“People have seen that frozen doesn’t have to mean bland,” Basi says. “It’s opened their eyes to some food that they might have seen as old-fashioned.”
During the pandemic, many companies found that letting their employees work from home was a success. Not only did many workers prefer it, Jain says, but it wasn’t a drag on productivity, as some managers had feared. Indeed, a number of companies saw employee productivity increase. That could mean more workers spending more workdays at home — probably not five days a week, but more often than they did before the pandemic.
“I don’t want to go too far down the track, but I think it’s a permanent shift,” Jain says. “People are more likely to be working from home than before.”
All in all, in the midst of a stormy year, consumers have found utility and perhaps some comfort in some of the simplest goods available — the staples of everyday life. That newfound appreciation could help provide a stable runway for long-term growth.