The consumer products industry is classified as a global industry and the reason is that this sector is made up of companies that are involved in the manufacture and processing of products such as foods, household items, tobacco and beverages. The companies that manufacture consumer items are characterised as non cyclic by nature.
One of the biggest lure for investors in this sector is that consumer items and consumer durables sell even when the economy is slowing down. Due to the nature of these items, their demand does not wan even in the toughest of times. In theory, the demand of these products grows and plateaus, but does not really fluctuate much. There are certain stables like tobacco, alcohol and discount foods, the demand of which only continues to rise especially when the economy is experiencing a slow down.
The demand of these kind of consumer products is non cyclic and therefore moves in such a pattern. This sector has been known to always have a low correlation with the overall market and therefore even in the volatile times, this sector experiences the lowest volatility rates, thus making it one of the safest industrial sectors to invest in.
The supply and demand of consumer staples
When you consider the law of supply and demand, you will realize that culturally, the role that these consumer staples play in our daily lives is much to crucial for the equilibrium to be disturbed. There is a constant demand for new and improved consumer staples. This demand does not diminish over a period of time, as new players continue to enter into the markets, increasing the choices of products for the consumers. As the consumers become choosier, the market automatically eliminates those who are left behind. This is essentially how supply and demand works in this particular sector. The non cyclical nature of these consumer products, and their demands, keep the earnings of the companies that manufacture these, high.
There is a low elasticity in the prices as well. Since the demands of these products do not change much over a period of time, showing only slight fluctuations at best, these products continue to sell even if their prices see slight changes. Since there is a vast market for these products, and there is an even supply to meet those demands, there are separate price segments in which companies operate. This makes things easier for both the consumers and the manufacturers.
Suppliers of the products can simply differentiate their products by the appearance and the end result of their use. The consumers can choose the products and by those means, the suppliers by their price range and the corresponding affordability.
When you are writing your investment report for your investors, it is best to include the details of the products that you are planning to manufacture or market, correlating them with actual figures of demand and supply, ranging for at least the past five years. To make your case even stronger, you can include how demand is not diminished even in the times of economic turmoil. This can definitely help impress the investors, letting them know how much you have researched your area and how deep your knowledge about your product vis-à-vis the market is.
Profit Forecasting
When writing an investment report on your consumer products, do make sure that you spend some time forecasting your profits and how the investor benefits from investing in you. You can mull on how to reduce costs, prices and differentiate your products from others’.
Most companies in this business, reduce costs to grow their profits. This is usually the only way to increase your profit margins. You can suggest a growth path for your investor’s investment by using specific cost reduction techniques such as horizontal or vertical integration of products, buying larger quantities in bulk prices and hedging techniques which allow you to create larger profit margins.
What really works in your favor is the low elasticity in the demand. This means that when the demand is more, you can increase your price and your sales will not be affected. Price differentiation is a very delicate topic and you need to understand when to increase the price or when to reduce it to maintain optimum sales.
One strategy for product differentiation is to market it differently. All companies marketing consumer products try to get hold of a unique selling point in their product which differentiates it from the others. If you are able to convince your investors that there is a unique selling point to your products, there is a greater likelihood of getting the investment that you seek.
Investment Opportunities
When you are preparing an investor report, always make sure that you have an entire section dedicated for investment opportunities. Usually, compared to other industries, the business of consumer staples is low tech. There is also low elasticity in terms of prices, demand and supply in this segment and therefore it becomes all the more difficult to excite an investor into investing in your company.
It is important to dwell on the fact that this industry offers slow and steady growth, which means that the profits are usually steady. Consumer durables and items promise structured patterns when it comes to profit. Their relative stability is just right and therefore it is easier to entice investors who are looking for stable returns on investment.
Investment in consumer staples and items usually allows investors to diversify their portfolio. Since they already have a stable return on investment secure with the consumer items industry, they can become more adventurous with their other choices of investment. Most investors make several different investments to ensure diversity. Adding investment to the consumer items industry is one of the easiest ways to make sure that money continues to flow in even when the going gets tough. Since there is not a very high correlation of this sector with other sectors, there is also no danger of slowdown in one sector to affect the market for consumer durables. This is one of the safest, most low risk investment opportunities.