Consumer Staples Sector

One of the ten sectors of the Global Industry Classification Standard (GICS), “Consumer Staples” refers to a sector of the economy made up of essential products such as food, beverages, tobacco, and household items. These products are “staples” in as much as consumers are unable or unwilling to cut them out of their budgets regardless of their financial situation.

One of the ten sectors of the Global Industry Classification Standard (GICS), “Consumer Staples” refers to a sector of the economy made up of essential products such as food, beverages, tobacco, and household items. These products are “staples” in as much as consumers are unable or unwilling to cut them out of their budgets regardless of their financial situation.

Because of the nature of consumer behavior regarding consumer staples, the demand for these products tends to stay relatively constant regardless of price, and the stocks for businesses in this sector are always in demand, regardless of the condition of the rest of the economy. This condition of detachment from the performance of the rest of the economy is “non-cyclical” performance. Of course, some parts of the sector, such as makers of either discount or luxury food and drink products do tend to move more in concert with the economy as a whole.

The Effect of Consumer Staples on GDP

Although Consumer Staples make up a large and ever-present portion of the economy, they account for only about 10 percent of the Gross Domestic Product (GDP). Staples tend to have a low elasticity in price resulting from increases or decreases in demand. The demand for these products changes little regardless of changes in their price. This is because there is no substitute for a consumer staple product itself.

However, there are methods for companies in this sector to compete. The best way is for the manufacturer to find ways to reduce costs. This means suppliers of staples are rarely able to raise prices without an increase that occurs across the entire industry. They are also not able to increase demand for their products, though they can differentiate. This typically occurs by focusing on qualities like taste, appearance, or results of using the maker’s product versus a competitor’s products.

Consumer staples producers frequently rely heavily on the rise and fall in commodities. Thus, consumer staples producers often invest heavily in commodities in an effort to hedge their own risks resulting from the rise and fall of their supply chain. These investments also help to moderate the commodities market, making it possible for the producer to maintain stable pricing and quality controls.

Investing in Consumer Staples

Consumer staples often produce slow and steady growth, making them an excellent option for investors seeking low-risk opportunities. These stocks are an excellent balance to riskier investments in a well-diversified portfolio. Examples of industry leading consumer staple companies include tobacco giant Phillip Morris, personal and medical product makers like Proctor & Gamble and Kimberly-Clark, and cleaning and hygiene product makers like Colgate Palmolive and Gillette.

Many investors like buying stocks in the consumer staples sector individually. However, a number of mutual funds and exchange-traded funds (ETFs) specialize in this sector, allowing investors to buy stocks in much of the sector simultaneously. Other funds use consumer staples to diversify their holdings in an effort to moderate the risk of higher yield but riskier investments as well as to produce stable long-term returns.