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Urbem's 'Megatrend' Series: Healthy Living

The healthy living megatrend has been having a profound impact on the ongoing cultural shift in consumer behaviors globally, transforming multiple facets of consumer-related industries and creating a broad spectrum of business opportunities for the long run.

Nowadays, the meaning of "health" goes far beyond physical matters and embraces spiritual and mental balance as well. Take the phenomenal rise of Lululemon Athletica (NASDAQ:LULU) as an example. The leading player in the yoga apparel niche explicitly describes its products as "healthy lifestyle inspired." According to Harvard Medical School, three out of four Americans believe in the benefits of yoga. Scientists back them up with studies showing that yoga can not only improve flexibility and cardiovascular fitness but also reduce stress and anxiety. Between 2012 and 2016, yoga participants increased by nearly 50% in the U.S., and related spending rose by more than 80%, creating one of the fastest-growing industries in the country. No wonder Lululemon saw a remarkable surge in annual revenue from $269 million in fiscal 2008 to $3.288 billion in fiscal 2019 while still maintaining an enviable return on invested capital every year, as indicated below.


It seems that the good days for Lululemon are far from being over, as the yoga apparel market is still fragmented and is expected to grow at an annual rate of 6% through 2023.

In addition to recreational activities, consumers also aim to achieve their well-being goals through a healthier diet - most notably, "back to nature" and "no to sugar." Here, the megatrend plays the role of tailwinds for some businesses and headwinds for others. Less healthy offerings, such as fast food and sugary drinks, may need to prepare for a secular decline or some significant growth risks.

In the meantime, we have observed increasing emphasis and investments on product line extension among food and beverage conglomerates to take advantage of the megatrend and fuel growth. For example, the Coke Zero Sugar line has been a primary growth driver for Coca-Cola (NYSE:KO) for many quarters now. Also, as an indirect play in this space, we like Rational AG (XTER:RAA), the intelligent cooking technology provider for professional kitchens to prepare healthier meals. The business increased its annual sales from EUR186 million Euros (approximately $205.5 billion) in 2003 to EUR778 million last year, with its annual return on invested capital always above 40% (see below).

The holistic and preventative approach to healthy living among consumers also means a long-term sustainable source of growth for many other domains. For instance, there could be an increasing demand in skin care products from Estee Lauder (NYSE:EL), pest control services from Rollins (NYSE:ROL), Brita water filters from Clorox (NYSE:CLX), or Waterpik flossers from Church & Dwight (NYSE:CHD).

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Rational AG, Clorox, and Rollins.

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This article first appeared on GuruFocus.