How Millennials are pushing the rise of private-label brands
Private-label brands used to be dismissed as lower quality or cheap. But not anymore. Goldman Sachs Managing Director Jason English explains that millennials, who are now the ones forming households, don't share that same stigma. English, who covers consumer staples stocks, says it presents a problem for companies who bank on having well-known brands.
When it comes to his coverage, English is not favoring General Mills (GIS), Campbell Soup (CPB), or J.M. Smucker (SJM), because they have "underperformed" and "their businesses are really going to be challenged." As for stocks he likes, "we want more global-facing businesses," English says, highlighting Mondelez (MDLZ) and Colgate-Palmolive (CL). English also likes BellRing Brands (BRBR) saying the company is "absolutely on fire."
Video Transcript
- Jason how is all of this feeding through into store or generic brands? Are we seeing that trade-down effect?
JASON ENGLISH: We are seeing it, Julie. And we can debate, is this a sign of overall consumer weakness or is this a sign of a secular trend that was in place before COVID? I would argue it's the latter. I grew up and my generation grew up in an era where private label was kind of cheap knockoff product.
The younger generation, the millennial generation, is now forming households and pushing the largest basket down the grocery aisle grew up in a very different environment, where private label doesn't have the same stigma. Meanwhile, retailers have really made it a priority to push their own brands to engender loyalty within the store.
Those dynamics were disrupted during COVID primarily because of supply. Those disruptions are behind us and we're now seeing once again the secular trend of the rise of store brands or retailers own brands or private label, whatever you want to call it, that trend is back and it's back and forth, which makes it even harder.
If you're one of these branded guys operating in the center store, the consumption is shrinking there. Consumers. are sharing stomach to perimeter fresh, real foods. And then within those categories, you're losing share to the retail brands. It has a compounding effect that makes the businesses even more challenging.
- And so Jason, we've been looking through of course, your coverage list just to see where you're a little bit more bullish. And perhaps on the other end of that spectrum, very bearish. So what are some of your top picks as of right now as you look across the environment, think about what we've seen from the consumer over the course of back-to-school season, and even what that's projected to look like as we get into the holiday season?
JASON ENGLISH: Yeah, good question. So you mentioned I've got a bearish bent. I probably have more celebrating to find with most sell side analysts out there. So we have a lot of conviction in some of our sells that are suffering from all these dynamics they talked about, particularly US-centric centers for food companies like General Mills, like Campbell's Soup, like Smucker's, they've underperformed. I think their businesses are really going to be challenged. I see no catalysts for relative rerating or outperformance going forward. So we remain very comfortable there.
On the flip side, we want more global-facing businesses. Emerging market consumer is holding up really well, especially in Latin America. Pockets of Southeast Asia, there's real growth there. So I want some more global reaching companies who can tap into that growth I'm going to lean into Mondelez, the snack food, the maker of Oreo, Cadbury, et cetera, really thriving in this environment. And I expect it to continue to thrive.
And on the personal care side of my coverage universe, we're going to lean into Colgate at least amongst our large-cap. We got some nice small-cap names to mid-cap names with some really good product cycles. One in particular would be BellRing Brands, where they make protein shakes after nutrition. It's absolutely on fire, more capacity, costs relief on the comp.
So I've got names I like but at the same time, the other side, I got some companies with some real pressures that I would look to avoid.
