AJ Bell press comment – 15 December 2022
- An investment of £5,000 10 years ago in household brands Coca-Cola, Nestlé and Kellogg’s (since 2012) would see a return of 130%, 148% and 82% respectively
- Premier Foods – responsible for products including Ambrosia creamed rice, OXO cubes, Homepride sauces and Mr Kipling cakes – has generated a 69.5% total return
- Investors in UK meat producer Cranswick would have seen £5,000 become a whopping £24,058, a 381% total return
- Purveyor of Hellman’s mayonnaise, Magnum ice creams and Marmite spread, Unilever, also performed well, with a 141% total return on a £5,000 investment
Rising prices at supermarket checkouts have been unavoidable in 2022, with the latest ONS inflation figures showing food prices have risen by a whopping 16.5% in a year.
Staple products like processed meats, dairy, breads, cereals, soft drinks and fruit and vegetables make up significant proportion of most shopping baskets. With many of those products coming from major listed food and beverage companies, AJ Bell looks at returns delivered by the ‘supermarket stocks’ and the road ahead for those firms.
Companies such as Coca-Cola, Nestlé, Unilever, Premier Foods, Kellogg’s and Cranswick, have all generated significant investment returns over the last 10 years, with a £5,000 investment in 2012 seeing handsome returns across the board.
Nestlé and Kellogg’s saw returns of 148% and 82%, worth £10,782 and £7,321 respectively, while the same investment into Unilever would have generated total returns of £12,055 (141%).
A £5,000 investment in Coca-Cola 10 years ago would have given a strong return of 130%, but lesser-known Cranswick – the UK’s leading producers of meat and ready-to-eat meat products in supermarkets – would have seen investors’ returns of 381%, or £24,058, on a £5,000 investment made 10 years ago.
Premier Foods investors would have seen a 69.5% total return, turning a £5,000 investment into £8,475.
Daniel Coatsworth, Shares Magazine editor and AJ Bell stock market analyst, comments:
“Companies like Unilever own brands which households around the world desire when they fill up their baskets. They are seen as must-have items and shoppers are happy to pay a bit more for products like Magnum ice cream in the belief that they are higher quality than cheaper alternatives.
“The brand powerhouses have significant distribution power, meaning the products are readily available to buy and they often get good positioning on the supermarket shelf.
“Products that are bought week in, week out create a steady stream of income for the brand owners, money which can be used for marketing, product innovation, operational efficiency improvements and to pay dividends to shareholders.
“Investing in these businesses is not without risk. The current cost-of-living crisis means some shoppers are buying more supermarket own-label products for affordability rather than taste reasons, yet this might only be a temporary phenomenon and one that disappears when we come out the other side of a recession.
“Some of the consumer brand companies have suffered from slow growth in the past, so investors should not expect a big profit surge each year. Instead, the attraction for investing in these types of businesses is their ability to generate lots of cash than can be reinvested back into their business to make them even more competitive in the future. They are very much long-term investments rather than a quick win.”
Coca-Cola
“The company is a master at clever marketing and constantly finds new ways to keep its brand front and centre when shoppers are thinking about which drink products to buy.
“Coke Zero is quickly becoming the casual drink of choice for millions of people around the world, and evidence of how the company has been able to tap into its marketing expertise and leverage on the existing Coke brand strength to turbocharge a product that was only launched in 2005.
“Next year will see a big push for Jack Daniel’s and Coca-Cola ready-to-drink cans in the US as part of the latter’s portfolio innovation. It is also pushing hard to have greater amounts of recycled packaging and offer different product sizes – something that should play to its strengths if shoppers in a recession still want to buy its products but can only afford a smaller amount.
“Coca-Cola is expected to generate $42.73 billion revenue in 2022, $43.96 billion in 2023 and $46.35 billion in 2024.”
Kellogg’s
“Kellogg’s is set to split into three public companies by the end of 2023. It will retain the core global snacking business while spinning off the North American cereal operations and a smaller entity which sells plant-based foods.
“The global snaking business is home to such names as Pringles, NutriGrain, Pop Tarts and big cereal brands including Corn Flakes, Frosties, Coca Pops and Special K. The North American cereal arm contains likes of All-Bran, Rice Krispies, Apple Jacks and Froot Loops.
“Each business unit should benefit from a tighter focus and be more agile with business decisions.”
Nestlé
“Nestlé has an advantage over many consumer brand giants in being a major player in multiple product areas.
“Rather than simply specialising in drinks or snacks, it is big in multiple food and drink categories, ranging from chocolate with Kit-Kats, noodles with its Maggi brand, coffee with Nescafé, pet food with Purina, and baby formula under the SMA name.
“The company recently set out new margin and earnings growth targets which were above market forecasts at the time.
“Analysts estimate it will make CHF95 billion revenue in 2022, rising to CHF99.25 billion in 2023 and CHF103.72 billion in 2024.”