Our outlook for consumer defensive stocks

In the battle between consumer product firms and retailers, has the competitive edge shifted?

Erin Lash, CFA 2 October, 2013 | 6:00PM

Highlights
Consolidation in the retail space has been a disruptive force, but consumer product firms still wield a meaningful amount of influence over retailers.
Consumer product firms must up their game or risk losing out to private-label offerings.
Amazon is a potential source of disturbance in the struggle between CPG firms and retailers.

Consumer product firms and retailers have a symbiotic relationship, with both groups continually attempting to strike the right balance between sales and profitability amid increased competition. Consumer product firms need the distribution and shelf space afforded by retail outlets, and retailers still depend on branded products to drive consumer foot traffic since most lack the desire and financial wherewithal to be fully vertically integrated. Consumer product firms have historically had the upper hand in pricing negotiations with retailers because of their sheer size and the strength of their brand portfolios. However, we believe retail industry consolidation and direct marketing enhancements have shifted some power away from consumer product firms over the past several years.

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About Author

Erin Lash, CFA

Erin Lash, CFA  Erin Lash, CFA, is a director of consumer sector equity research for Morningstar.

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