For Bounty, it's mutiny
While the likes of P&G and Starbucks (SBUX, news, msgs) may suffer when thrift overtakes ostentation, the new world will have many unexpected winners as well. One will be smaller manufacturers like Bill Molt, who runs the family-owned Pacific Paper in Tacoma, Wash.Pacific Paper is known in the industry as a "converter"; it buys 3-ton rolls of paper and puts them on a machine that embosses, perforates and plastic-wraps them for use as paper towels or napkins that can be sold to stores as generic national-brand equivalents. In the Pacific Northwest, the largest house brand at groceries is Molt's Western Family, and his napkins sell for as much as 25% less than Bounty or Scott brands.
"Bounty is a great product, but people are getting smarter with their money and they're saying if they can get a product that's just as good but they don't have to pay for all the marketing, then why not," Molt told me in a phone interview. "The big companies can drop prices or do extra advertising for a little while to try to knock us down, but in the long run they can't touch us because of their cost structure." He's looking to expand this year, as business looks strong.
When you read between the lines of the outlooks for Molt, Costco and P&G, you can see the first threads of a new fabric of American life being woven, one day and one purchase at a time. At a time when jobs are being lost in the United States at a clip of around 600,000 per month and the income of even those with jobs is falling half a percent a month, the end game now is about a realignment of the consumer, bank and national balance sheets to levels that will allow families, executives and policymakers to pay off debts, rebuild savings and live within their means on less credit.
More from MSN Money
Although the shares of Kimberly-Clark, Kraft and Starbucks will stabilize before too much longer, they are very unlikely to recover much of their lost ground as the world finds a new equilibrium next year at around 1.5% annualized GDP growth over the next half-decade, which is less than half the growth rate witnessed from 2002-07.
This environment may be favorable to low-frills retailers such as Family Dollar Stores (FDO, news, msgs) and McDonald's (MCD, news, msgs), and defiant innovators like Apple (AAPL, news, msgs) and Amazon.com (AMZN, news, msgs), but not very many others, as margins are stripped to the bone and marketing costs pare back the value of marketing gains.
As an investor, I'll take one black coffee with a generic napkin in a plain paper box to go. I'll stick with my view that stocks should still be avoided, as the economy will fall over the next nine months at least and share values will follow. But if you must own equities, stick with the companies like McDonald's, Family Dollar, Amazon, Apple and Hershey that have shown the greatest agility in managing the most unpredictable part of the cycle, which is behind us. While they won't rise the most coming out of the bottom -- that'll be the province of the most damaged stocks -- they will be the least aggravating at the many twists and turns that still lie ahead.
At the time of publication, Jon Markman did not own or control shares of companies mentioned in this article.
Video on MSN Money
Brand names vs. store brandsOne 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.
< previous | 1 | 2 |
Rate this Article
High