Consumer staples makers’ bonanza year of price increases coupled with falling input costs is set to come to an abrupt end in 2023 according to Credit Suisse.
Input costs have fallen by 16% since April notes the broker but over that same period pricing has been ‘significant’ leading to margin expansion pretty much across the board.
Some of the tailwinds will roll into the coming year, helped by solid emerging markets demand, but European consumers are hurting and those fat margins are driving a surge in own label sales, with market shares of these well above pre-pandemic levels in many cases.
“Even if a recession does not materialise, we see much lower Staples growth in the second half 2023 as pricing rolls off (strong pricing and low elasticities proved a material boost to growth in 2022).
“In summary, we see risk to volumes in the first half of 2023 and risk to organic sales growth in the remainder of the year and 2024 (the risk of price rollbacks has increased)."
Reckitt Benckiser is potentially the main casualty, said Credit Suisse, which has downgraded to 'neutral' due to growing headwinds in all its three divisions.
Top picks remain Haleon for its ‘macro-insensitive’ portfolio, Unilever for its emerging market exposure and the tobacco companies Imperial and BAT for low-risk earnings and cash generation.