Aberdeen University Trading and
Investment Society
Consumer Goods and Services Sector Overview
21/10/13
Structure
• Consumer Goods and Services Sector
• Market Overview
• Food and Beverage - David Hart
• Travel and Leisure (Airlines) - Hilary Lee
• Personal and Household Goods - Peter Hickling
• Stock recommendations with SWOT analysis
• Stocks on our watch list.
Consumer Goods and Services Sector
Consumer Goods and Services Sector
Food and Beverage industry
Overview
•
The global organic food and beverages has
gained popularity across the globe over the
past few years while moving from niche to
the mainstream.
•
This was part of a larger trend of declining
relative commodity prices. In rich countries,
food has become such a modest share of
total consumer expenditure that consumers
can spend a large share of their total food
budget on food services
•
The majors in international supermarkets
such as Whole foods market, Tesco, Walmart
are increasing the range of organic food
product lines with an increasing focus on the
introduction of private label organic
products at lower prices to increase the
accessibility for consumers.
• Over the next five years, the world organic food and beverages market is est. 9.4% CAGR (2012-2016). This will be due to
further initiatives taken by the government in creating awareness among the masses and a subsequent increase in the
organic production capacities globally.
• Low food prices have enabled consumers to purchase high-priced specialty foods, organic foods, and store-prepared
meals. It has also allowed consumers to spend far more on many non-food items. Indeed, food retailers have struggled to
offer higher value products in order to continue growing.
Causes of increased food prices
1.
2.
3.
4.
Increased consumer demand
Increased industrial demand
Declining agricultural land use and efficiency
Increased oil prices
Impact of higher food prices
1. Trade
2. Subsidies
3. Inflation
The future of food prices
• With the exception of bio-fuel subsidies, the factors that have
caused a steep rise in food prices are not short-term phenomena.
• Strong global economic growth, rising incomes in emerging
countries, elevated petroleum prices, and climate change are not
likely to go away anytime soon.
• Subsidies for bio-fuels are dependent on the whims of governments,
particularly the U.S. government. If food price inflation were to
become a serious political issue in the United States, political
support
The food and beverage industry 2012: A taste of things to come
• Consumers want choices. And the food and beverage industry as a whole is prepared to respond to
consumer demand, with certain dynamics between manufacturers and retailers being played out to
address that.
• Retailers reward product differentiation and innovation because new products offer the best growth
opportunities for them, in both existing and emerging markets.
• Manufacturers, likewise, can become more competitive by innovating and launching new products
and segments that, for instance, are not easy to replicate via private label alternatives. And in the
food service sector, there is an extremely valuable innovation opportunity for the manufacturer
because it is a viable alternative to retail.
Food and Beverage: Stock recommendation
Stock recommendation: Tyson Foods Inc. (TSN)
Tyson Foods, Inc. and its subsidiaries produce, distribute and market chicken, beef, pork, prepared
foods and related allied products. The Company operates a totally integrated poultry production
process.
•
Strengths
• Increased consumer demand
• Increased industrial demand – restaurants, catering etc.
• Increased disposable income – buy more meat products
•
Weakness
• Inflation may cause some consumer to look to other alternatives- especially emerging
markets.
•
Opportunities
• Larger trend of declining relative commodity prices. In rich countries, food has become such a
modest share of total consumer expenditure that consumers can spend a large share of their
total food budget on food services.
• Supermarkets increasing the range of organic/non organic food product lines with an
increasing focus on the introduction of private label products at lower prices to increase the
accessibility for consumers.
•
Threats
• Media scandals - meat scandal of 2012. Emerging market - hygiene issues in some
manufacturing plants.
Watch List
Travel & Leisure (Airlines)- Overview
• According to Forbes, 68% of the economic growth in the next
decade will be situated in emerging markets and often there is
a significant growth in the upper class population.
• Emerging markets have attracted plenty of new tourism. With
increased disposable income for a growing middle class.
SWOT Analysis
Stock recommendations: Delta Air Lines, Cathy Airlines and China South Airlines
Strengths:
• Over the next decade, the IMF forecasts that the 8 largest emerging markets will account for more
than half of global GDP growth.
SWOT Analysis
Strengths:
• IMF: the Philippines have an economy worth $284bn, with GDP expected to rise to $451bn by
2018.
• New route will help to boost trade for European and northern American countries in South East
Asia.
• E.g. Emirates Airline has expanded more flights from Dubai to 5 fastest economic growth counties
in South East Asia.
• Lower cost structures and the capability to provide better services.
• E.g.: Emirates and Qatar Airways entrenched Qantas out of business. Emirates and Singapore
Airlines managed to make more than $1 billion in profit.
Weaknesses:
• Suffer from such as corruption, bribery, complaints of cheap labour and even potential terrorist
attacks in emerging countries.
• Less restriction in terms of human rights, labour law.
• Cultural perspectives, rituals and product usage vary around the world and when new economies
emerge, they may have different expectations than ones in which a business is established.
SWOT Analysis
Opportunity:
• Frequent
flights
attracting
people across Europe, North
America play a vital role in a
company’s expansion of their
revenue
Threats
• Traditional airlines loss focus to
main their brand name due to
driving more effort to make
operational gains
• JD Power & Associates 2011 North American Airline Satisfaction Study: Smaller
airlines companies are more skilled in wielding their brands, differentiate
them with traditional airlines in order to sustain their business.
• High fuel costs since 2011 will fluctuate the cost of the flights that customers
require to pay according to International Air Transport Association (IATA)
Personal and Household Goods
Consumer Electronics
•
Expected growth of 7% in the next 3 years
4 main market categories
1. Home audio equipment
1.expected revenue of 20 billion by 2015
2. fuelled by:
technological advance
innovative products
top quality new generation devices
3. market expansion in Asia Pacific's, middle east, Latin America
2. TV and video market
1. 40% growth by 2015 from 2010 (exceed 250 billion dollars by 2015)
2. TV 86% of overall market
3. Asia Pacific 35% of market
3. Flat panel Display
1. expected revenue of 103 billion by 2015
2. demand pushed by:
1.purchasing power
2. rising employment rates
3. increasing income
4. increasing functions
4.Games/home entertainment market
1. console software 23 billion dollars revenue (major plays Microsoft (xbox), Sony (play station), Nintendo all 3
companies seeking to product differentiate.
2. console games take up 90% of this market.
Consumer electronics
Stock recommendations: Netflix and
LG Corp
• Strengths
•
•
•
•
steady growth expected in the next few years across the markets (expected at about 7%) 40% growth expected in TV
and Video market.
Equities were hit by the recent recession therefore throughout the market they are at a 10 year low, with recent trends
depicting growth.
With growth in emerging markets in Asia Pacific's, middle east, Latin America these markets are creating new demand
for luxury goods due to these countries population urbanisation and rising income.
Market value for all firms, tend to follow constant trends (with the exception of major market shocks) with very little
long term fluctuation (in the case of most firms this being growth)
• Weakness
•
•
for most firms growth rate in equities is relatively low
continued value in these markets is determined by continuous investment and growth in technologies, so dividend
rates are typically quite low in this sector.
• Opportunities
•
•
With new emerging markets across the world this raises opportunities for firms over the next few years to expand their
sales into these regions. This also creates new spaces in the different markets for new firms to enter, or firms to
diversify their business.
With firms taking different tracks with the development of new technologies this provides the opportunity to back a
standard changing technology (I.e the example of Blu-rays and DVD´s)
• Threats
•
with the rapid pace of technological advancement, firms that do not re-invest will fail to the ever increasing demand for
newer and better technology, so when looking at equities: the company needs to have a high level of reinvestment in
technological research, and in addition, be the right choice (I know that is badly worried but, it is like the example of
blu-ray vs dvd etc. )