1. UK Consumer Goods Sector Landscape

The Consumer goods sector encapsulates a list of companies related to products & services purchased by individuals and households rather than manufacturers. Moreover, the sector includes companies from industries such as food production, clothing, beverages, automobiles, electronics, and packaged goods. Furthermore, the Consumer Goods sector can be broadly classified as durables and non-durables sector, whereas the overall sector can be broken down into several industries. Technological advancement is fueling up the consumer goods industry.

With reference to the data from the ONS (“Office for National Statistics”), the UK retail sales volume had shown partial recovery in February 2021 as it had witnessed an increase of 2.1% for the month as compared to the 8.2% drop shown during January 2021. Moreover, the sales fell by 3.7% in February 2021 as compared to February 2020. The non-food stores were the largest positive contributor to the growth shown during February 2021. The sales volume for department stores and household goods stores rose by 16.2% and 16.1%, respectively, during February 2021 as compared to the prior month. Furthermore, the household goods sector had reported a 5.1% growth in the volume of sales during February 2021 as compared to February 2020.

Meanwhile, the Clothing retails had reported the largest drop in sales volume during the month as the sales volume dropped by 50.4% in February 2021 as compared to February 2020. Overall, the retail sales volume had shown a decline of 6.3% for the three months to February 2021 as compared to the prior three months. According to the market researcher, Springboard, the number of people heading out to shops across the UK grew by 8.5% for the week ended 03 April 2021 as compared to the prior week.

Key Trends in the Consumer Goods Industry

• Optimized Reality – Retail and CPG Companies will leverage digital technologies and data analytics to bundle product services and tailor experiences to personalize demand chains from merely maximizing supply chains.
• Ethical Impact – Ethics driven approach is likely to prevail across the value chain. Retails and CPG manufacturers are now opting healthier choices and environmentally friendly raw materials.
• Reimagine the Stores and Channels – The Covid-19 pandemic and digital advancements have compelled Companies to increase their online presence. Companies are now competing on customer experience and privileged insights than merely on price and product.
• Leveraging Ecosystems – Vertical and Horizontal integrations and collaborations can create new products and services. Companies can create exponential value and address new markets at multiple levels.

Risk Exposures to the Consumer Goods Industry

• Supply Chain Uncertainty – The Covid-19 pandemic and Brexit restricted the movement of goods and services and impacted the prices of raw material, which eventually impacted the cash flows. The prolonged state of restrictions can affect inventory and operating cost.
• Economic Downturn – The macro-economic uncertainties has significantly impacted the consumer disposable income and the purchasing power, which can reduce the demand for discretionary products.
• Increased Taxes – As a remote working environment brought obesity in focus, soaring demand for alcoholic drinks and junk food soared. Many governments have increased taxes on such items which can influence online players and overall consumer goods industry.

 Benchmark Index Performance

Based on the last one-year performance, the FTSE All-Share Consumer Goods index has outperformed the FTSE 100 index but underperformed the FTSE 250 index. The FTSE All-Share Consumer Goods index generated a return of about 47.56%; however, the FTSE 100 generated a return of around 24.71%, and FTSE 250 produced a return of around 48.51%.

Figure 1: One Year Benchmark Index Performance

(Source: Refinitiv, chart created by Kalkine Group)

SWOT Analysis

Consumer Goods Sector Outlook

With reference to the report from Grand View Research, the global food & grocery retail market size is expected to grow at a CAGR of 5.0% from 2020 to 2027. Moreover, the increased disposable income because of accelerated economic growth has increased the spending on consumer goods products. Furthermore, the rising number of middle-class consumers and growing brand awareness among them have been fueling up the industry for food and grocery retail in developing countries, including India and China. The Consumer Products industry has entered 2021 with confidence. Meanwhile, the boom in online sales and optimism around accelerated economic recovery in the UK would further boost the consumer goods industry. Overall, the growth of emerging markets would continue to outstrip that of the developed markets by a wide margin.

2. Investment analysis and stocks under discussion (MRW, CWK, SBRY, GNC)

After gaining insights into the consumer goods sector, we would look at the business model of four consumer goods players listed on the London Stock Exchange.

A. WM Morrison Supermarkets PLC (LON: MRW)

(Recommendation: Buy, Potential Upside: 14.80%, Market Capitalization: GBP 4.37 billion)

WM Morrison Supermarkets PLC (LON: MRW) is a United Kingdom-based Company, which deals in retail supermarket stores and associated activities.

                                                                                                                                                                                    

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 14.80% over the closing price of GBX 183.30 (as of 06 April 2021).

B. Cranswick PLC (LON: CWK)

(Recommendation: Buy, Potential Upside: 22.78%, Market Capitalization: GBP 1.91 billion)

Cranswick PLC (LON: CWK) is an FTSE 250-listed food processor Company. It supplies fresh and value-added food products to the UK grocery retailers and food services.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 22.78% over the closing price of GBX 3,700.00 (as on 06 April 2021).

C. J Sainsbury PLC (LON: SBRY)

(Recommendation: Hold, Potential Upside: 9.32%, Market Capitalization: GBP 5.33 billion)

J Sainsbury PLC (LON: SBRY) is an FTSE 100 listed Company, which operates and manages a chain of supermarkets in the United Kingdom.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 9.32% over the closing price of GBX 242.00 (as on 06 April 2021).

D. Greencore Group PLC (LON: GNC)

(Recommendation: Hold, Potential Upside: 13.92%, Market Capitalization: GBP 818.30 million)

Greencore Group PLC (LON: GNC) is the FTSE 250 listed Company, which manufactures convenience food in the UK. The Company has a total of 16 manufacturing sites in the UK.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 13.92% over the closing price of GBX 159.50 (as on 06 April 2021).

*All forecasted data and peer information have been taken from Refinitiv, Thomson Reuters.

*The "Buy” recommendation is also valid for the current price as covered in the report as on 07 April 2021.

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