Mixed performance in 2024; growth continues to be driven by pricing and international markets. Excluding Coca-Cola, major listed packaged food and non-alcoholic beverage (PFNAB) companies experienced a decline in volume/mix in 2024, citing weaker demand, economic uncertainty, and a shift towards cost-conscious purchasing given heightened inflation and high interest rates. However, most companies managed to sustain net organic revenue growth as price increases offset weaker volumes. International markets outperformed the US, where companies successfully passed on higher prices. Looking ahead to 2025, the outlook remains mixed. Some companies project mid-single-digit revenue growth, while others, like Kraft Heinz, anticipate low-single-digit growth or continued declines.
Providing a value proposition remains critical amid consumer caution. Despite easing inflation and a strong equities market, US consumers remained cautious on consumption in 4Q24. The University of Michigan’s Consumer Sentiment index declined to 67.8 in Feb 2025, down from 71.1 in January, marking the lowest in seven months. Additionally, trade-down behaviour persists across income groups as highlighted in a McKinsey report, leading to continued gains by private-labels and prompting brands to adjust pricing strategies. For example, PepsiCo has shifted from value packs to an absolute price-point strategy, entering the sub-USD2 category for the first time to cater to value-conscious consumers.
The widening valuation gap between the consumer staples and tech sector presents an attractive time to diversify into consumer staples. Historically, major market events—such as Covid-19 (2019–2021), the global financial crisis (2009–2010), and the dot-com bubble (1999–2000)—have coincided with a widening valuation gap between consumer staples and the tech sector. Currently, consumer staples trades at a c.40% discount to tech, well above the historical median of 11% discount. We believe this gap may narrow through mean reversion, presenting an attractive upside for consumer staples. Among packaged food and beverage companies, we believe investors could overweight those demonstrating strong executions and underweight those facing volatile cocoa input costs and weaker executions.
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