Trojan Fund Europe

In February, we attended the Consumer Analyst Group of New York (CAGNY) conference, hearing over 30 consumer staples companies pitch their investment cases. Recent years have been challenging for staples. Cyclical factors – including post-pandemic normalisation and cost inflation – explain much of the pressure, but structural change is also apparent. Weight-loss drugs and health & wellness were recurring themes at CAGNY. With around 12% of US adults reporting use of GLP-1 drugs, packaged food companies are seeing tangible volume pressure. Management teams are walking a difficult tightrope: reformulating portfolios, coping with weak or negative volumes, and managing elevated cost bases.

A tough operating environment tends to expose a sector’s relative strengths and weaknesses, making category positioning and management quality even more important. We have greater confidence in the demand drivers behind personal care, beauty and wellbeing categories, reflected in portfolio holdings such as Unilever and L’Oréal. Both management teams delivered confident presentations and continue to demonstrate more resilient growth than many peers.

In a month where markets were preoccupied with AI and technological disruption, staples too emphasised the pace of change. Unilever spoke in detail about the dramatic change in modern product marketing. ‘Big bang’ broad campaigns like national TV spots are increasingly less important. Unilever today works with an “army” of c.300,000 influencers across social media channels. Marketing cycles are dramatically shorter – content may only remain relevant for days – with rapid iteration and data-driven adjustments to messaging, scripts and featured products occurring in near real time. We think large staples incumbents, with vast consumer datasets and learnings, have strong advantages in this world.

A consistent and more cautionary message across CAGNY was that the consumer, especially in the US, is struggling. Affordability pressures are evident even in everyday products, and some food and beverage companies are now cutting prices. We are mindful that consumer spending is the bedrock of the US economy, accounting for as much as 70% of GDP.

While February seemed to be all about AI, March has seen attention shift to the dramatic developments in the Middle East. The market environment feels distinctly febrile, and we remain cautiously positioned.