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Jon Markman

SuperModels3/6/2009 12:01 AM ET

Coke? Oreos? That's so last year

In this recession economy, Americans are choosing cheap and generic over brand-name goods. That's bad news for stocks you may believe are solid and safe.

By Jon Markman
MSN Money

In prosperous times, with jobs booming and wages rising, shoppers strolling down the aisles of their local supermarkets don't think twice about grabbing a pack of Bounty brand quilted paper napkins at $4.98 for 200. But in the current mess, are you kidding me? Grocers report that customers in record numbers are going for the generic house brand, priced at up to a dollar less.

Multiply this scene by a few hundred million, and you can see why consumer products manufacturers are suffering more in the recent slump than they have at any other time in the past several decades. Procter & Gamble (PG, news, msgs), the maker of dozens of the nation's leading branded goods, such as Bounty, is seeing some of the steepest sales declines in its history, and efforts to stem the tide by boosting advertising and cutting prices are having only limited effect.

The troubles faced by Procter & Gamble, Oreo-maker Kraft (KFT, news, msgs) and others are emblematic of a radical shift in the habits of consumers worldwide, as cheap has become chic. Much of the change is necessary, as many families have less money to spend, but a mood shift has mysteriously taken hold through both the mass media and new social networking, leading even well-off consumers to cut conspicuous consumption of everything from branded paper towels to rockin' cars.

Safe no more

The Puritanical roots of middle America emerge at times like these -- causing us to huff that it's about time -- yet it may be more than a little callous to just brush off the business plans of hundreds of the nations' most prosperous companies. And at any rate, institutional investors are accomplishing that brush-off all by themselves without waiting for the announcement of first-quarter results. That is something private investors need to keep in mind if they plan to hold onto these shares -- many of which have been handed down from generation to generation in middle-class families with strict instructions from grandpa: Never sell.

In the past six months, Procter & Gamble shares, which were largely oblivious to the pain suffered by the rest of the stock market until the autumn, have fallen like a stack of paper towels sideswiped by a 5-year-old, slipping from a peak of $72.50 to just a hair over $46. Much of the decline has come very recently, as the stock -- previously a bomb shelter for cautious investors -- has plunged 24% since New Year's Day.

Many of its fellow consumer goods manufacturers, whose sales are typically so steady that they are known as "staples" to investors, have also tumbled this year in contravention of most conventional wisdom. Paper goods maker Kimberly-Clark (KMB, news, msgs), maker of the Kleenex and Scott brands, has seen shares plunge 28% since October; Coca-Cola (KO, news, msgs) is down 26%, Pepsico (PEP, news, msgs), maker of Frito-Lay snacks as well as its eponymous cola, is down 32%; and Johnson & Johnson (JNJ, news, msgs), maker of Band-Aids, is down 30%, with much of that coming in the past week. Ditto for the branded food makers that were also once believed to be immune to downturns. Cereal kings General Mills (GIS, news, msgs) and Kellogg (K, news, msgs) are down 23% and 30% since October, while HJ Heinz (HNZ, news, msgs) is off 36%.

Collateral damage from this new parade of parsimony is not limited to the manufacturers. Costco Wholesale (COST, news, msgs) reported Wednesday that its fiscal second-quarter profit fell 27%, due in part to a decline in nonfood sales. And Berkshire Hathaway (BRK.A, news, msgs), the investment vehicle of Warren Buffett, reported this week that earnings had been crushed this quarter in part by the decline in the value of its huge investments in brand giants Coca-Cola and General Electric (GE, news, msgs).

Video on MSN Money

Food © Randy Faris/Corbis
Brand names vs. store brands
One family discovers how to save up to $3,000 by buying generic foods over brand names, with, Today show correspondent Janice Lieberman and CNBC's Carmen Wong Ulrich.

Why is this happening so fast?

An important side effect of troubled times occurs when consumers start wondering what truly makes them happy and discover that material things may not be near the top. If the answer doesn't make them suicidal, then consumers typically realize that contentment is not all about spending an extra dollar for the status of branded paper napkins that offer a little extra quilting. In similar eras in the past, it's turned out that consumers downshift into lower consumption modes quite rapidly and with remarkable ease, and even start to pride themselves on developing an upside-down view of luxury.

In this new world, says the Amsterdam research firm Trendwatching in a recent report, luxury becomes more aligned with scarcity than with mere expensiveness, especially when consumers start to look for ways to be unique. A new meme of Bohemianism may emerge too, as the concept of frugality is mixed with rebellion against the previous system of consumption. A longing for all things local, ecologically friendly, empathetic and eccentric may also emerge as people seek opportunities both to make themselves happy without products that were formerly emblematic and to justify their new anti-establishment decision making.

Continued: For Bounty, it's mutiny

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