This is a topic I have already written many weeklies about. I haven’t counted them, but it might be the one with the most publications — very likely when adding my twitter posts and comments. Directly about certain struggling, popular consumer stocks and on a higher, aggregated level about the sector as such. I do not get tired of pointing towards what went wrong, but especially cautioning my readers to not fall for seemingly “cheap” consumer stocks. There are deep structural shifts that better not be ignored. Today, I am expanding on this topic, after having studied two eye-opening third-party consumer reports that manifest my negative view about these value traps.

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Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.

Summary and key takeaways from today’s Weekly
– Private labels are on the rise and increasing market share, winning on quality, price, and loyalty. But there’s more to it.
– Big brands lost their emotional moat — promotions no longer work. 
– Accordingly, “defensive” consumer stocks are structural value traps, and not historically cheap.

Consumer companies offering food, beverages, personal or household hygiene products (and other everyday essentials) for long have been among the most popular stock investments.

What could go wrong?

Predictable, stable business models together with uninterrupted and even rising dividends were a winning formula to sail through the stock market in an unspectacular, but seemingly safe way. Investors who saw themselves as conservative or defensive built their portfolios around these stocks for low drawdowns and passive income via dividends.

I am deliberately writing the above in the past form. My longer-time readers know it — I have a negative view on the FMCG (fast-moving consumer goods) sector.

It is not because I just hate these stocks for no reason or view them as too boring. Quite the opposite, I’d be happy to have a positive opinion about them. Unfortunately, this is not possible for various reasons I have laid out in past weeklies. And while dividends still flow, drawdown protection hasn’t worked out over the last years.

The negative performances proved me right in my skepticism.

This time, a new perspective is added, strengthening my stance — though I would describe it more as realistic, based on observations and common sense.

The good news: all my paid members received my next research report with a food company that does not cope with many of the known negatives. It might even benefit from financially challenged consumers due to them down-trading on an essential staple. All the while, it’s stock trades cheaper than those of clearly struggling, popular names despite a much stronger balance sheet.

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Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.

Why Historical “Defensive” Valuations Are Now Worthless

I must honestly say: I am surprised that many investors, based on my observations on twitter, partly also from other platforms, still treat pretend defensive consumer stocks as if they were indeed misprized.

My readers know that, if at all, the misprizing was before when these stocks traded for premium forward earnings multiples north of 20x and unattractive dividend yields — while ignoring rising total debt and cost of debt, but also collapsing margins and volumes.

One of my prime examples in this regard remains General Mills (ISIN: US3703341046, ticker: GIS).

I mean it is NOT a coincidence that the ticker trades at a level it did in 2008 — almost two decades ago.

It is not “stupid Mr. Market”.

At its high in 2023, almost exactly three years ago, GIS had a PE ratio of 20x and a very low dividend yield of 2.5%. Such a multiple can only be justified if the business is indeed stable and when it shows decent growth.

Today, the dividend yields 7.5% or three times that — a clear warning sign, and nothing to celebrate.

Unofficially, (my view) most investors are sitting on fat losses, being too proud or afraid to admit they were wrong and too optimistic, having bought these stocks primarily based on past performance and historical dividend series instead of future business prospects.

Officially, and often portrayed as such on social media, the bull case is mainly based on comparisons to much higher stock prices and earnings multiples of the past. Or situations like before the dotcom crash where tech stocks went through the roof while defensive assets were left for dead, before outperforming in the subsequent years through a recessionary environment.

Reads like a playbook or script for today.

The problem: this anchor bias misleads investors into believing that only because certain stocks once upon a time traded higher, even much higher, these are now the reference points the tickers seemingly need to get back to. Or that historical precedent is about to repeat. Not to mention that this is still the consensus view to a large degree.

If the business environment were still the same, one could share this view. Maybe.

However, personally I do not like such historical comparisons, because they are obviously backward-looking and often flawed (picking only the bullish-supportive arguments), while the market prices future expectations. And most often, the market is right.

So simple in theory, but so damn hard in practice.

In the past, I have not only written analyses about multiple consumer stocks (unable to find the value others claimed to see), but also high-level weeklies like what I called “The erosion of brand values” (see here), fragile, aggressive balance sheets (see here) or low birth rates leading to a shrinking pool of future consumers (see here).

These weeklies alone — in my biased view — give a relatively holistic overview about what went wrong and why the negative trend has not changed, yet.

The bad news: It could even worsen. My skepticism got more support.

The spark for today’s episode was the following article.

It is from the German version of Epoch Times.

In English, the headline reads “changes in the supermarket: the crisis of big brands”, fitting very well into what I have been discussing over several years now. The article discusses latest consumer trends and the known shift to private-label brands by consumers. But it is more surface-level.

What’s more interesting is the primary source they built their article upon.

YouGov is one of the world’s largest consumer intelligence firms, running continuous, high-frequency shopper panels across Europe. Their German version tracks millions of actual purchases, not just claimed attitudes.

Two relatively fresh reports deliver the clearest evidence yet that the playing field has fundamentally shifted:

• “Auf schmalem Grat: Das Marktgeschehen 2025 und die Aussichten auf 2026 für FMCG und LEH” (“On a narrow ridge — the market development 2025 and the outlook for 2026 for FMCG and food retail” — see here)
• and ”Ohne Seele keine Liebe! Wie Marken aus der Preisspirale herauskommen und zu Gefährten der Menschen werden” (“No love without soul! How brands escape the pricing spiral and become soulmates” — see here)

While especially the second headline sounds a bit philosophical (I translated it maybe a bit too freely), both reports are very interesting and telling. They can be downloaded by registering for free on their platform.

The Epoch Times piece simply popularised their data and made a decent kick-off for further research.

The primary sources are far more damning.

In a nutshell, before we dive deeper:

The first report discusses questions and aspects like the pricing- (not volume-) driven sales growth, how and where consumers save money, the product quality aspect, much higher growth and outperformance of private-label brands and how that influenced market shares and promotional activity as well as a structural return of demand growth being unlikely.

My longer-time readers are familiar with most of these topics from my older weeklies.

Number two, and here it gets more interesting, the author links the waning demand for branded products with an emotional connection that lost its bond.

In the same token, promotional activity becomes a permanent feature (almost desperate), while not even achieving the desired effect of stimulating volume growth on a high-enough level.

Consumer demographics play a role as well in the changing landscape of brands.

Stock prices don’t lie. The numbers are brutal for most big brands. 

Of course, there are positive exceptions like Coca-Cola (ISIN: US1912161007, ticker: KO) or some Church & Dwight (ISIN: US1713401024, ticker: CHD) brands.

But broadly speaking, in 2025 private labels (“Handelsmarken” or “Eigenmarken” in German, below in light-blue) grew sales by +4.9% while manufacturer brands (“Herstellermarken”, i.e. branded products, below in purple) managed just +1.8%.

It might sound like “not so bad” in a tough environment.

But first, the growth rate was below inflation for brands.

Second, volume (second column) tells the real story: private labels gained +1.9% while big brands lost –2.8%.

The difference of 3% for private labels, respectively even 4.6% for big brands, came from pricing. In other words, private label benefitted from both drivers, volume and pricing, showing real expansion, while branded only saved their face (if one can say so) through much more aggressive price hikes — sacrificing volumes.

Over the last years, private-label market share climbed from 41% in 2021 to 47% in 2025 — and the trend shows up. The more so, as the cost-of-living pressure is likely to intensify again, given the geopolitical turmoil.

Interestingly, that’s not just budget shoppers trading down.

Premium private labels are the fastest-growing segment with +11.2%, outpacing even premium manufacturer brands (+3.6%). And, mid-tier private-label offerings are the second-strongest growing category with +6.4%, noticeably outpacing all branded subgroups.

You will likely have noticed that there are not just entry-level private-label brands to catch the most price-sensitive shoppers, but also either “organic”, “deluxe” or “premium” or similar offerings by private labels. This increases the pressure on branded competitors even more — which as said above, practically only “grow” through aggressive pricing.

Is the private-label growth story really just due to lower prices?

Shoppers who can afford the “real thing” — the big brands — are nevertheless switching over to retailer brands in categories that matter less to them.

Quality perception has changed.

While it might still matter which shaving cream, tooth paste or hair shampoo one uses, the glass cleaner or toilet paper does not have to be branded anymore. Especially if there are more milliliters or roles for in total a lower price included.

The same for food and beverages, and the more so, if ingredients are favorable and bottles or boxes larger.

The old “pay more for the name” (and the producer’s advertising and marketing budgets) equation has broken, because consumers refuse to pay for something intangible they have no direct benefit of.

Even more telling: 15 of the 17 biggest manufacturer umbrella brands lost buyer reach in 2025. And this was not a statistical outlier or just an unlucky year — but a progression of a year-long trend.

YouGov’s analysis is merciless – these brands have become interchangeable.

The reason?

They — the big brands — no longer own the emotional or functional moat they once did.

Maybe it was embarrassing in the past to use non-branded products, especially for younger people. Or desired effects were less pronounced than expected like how long a scent lasts, how good a sauce, spice or chocolate tastes (lower-quality ingredients or at least the perception thereof), how creamy a yogurt is, higher durability or cleaning power, etc.

What certainly also applied was the “use what you know” factor — marketing and brands. A relict of the past in many cases.

Brands and even entire companies come and go (see here).

That’s why the lack of clear differentiation and emotional advantages forced the opposite of what big brands were once known for — perpetual promotions instead of pricing power.

However, even promotions no longer drive incremental penetration. YouGov analysed 2,765 manufacturer brands with at least 1% household penetration: the correlation between higher promo share and higher penetration is a negligible. In plain English, discounts keep existing buyers (that weren’t targeted in the first place) from leaving, but they no longer win new ones on a representative scale.

The era of “try cheaper and re-buy at full price” is largely over.

Today, it’s more searching for the biggest bang for the buck, which lowers brand loyalty and incentivizes to switch brands when the price is not right.

Younger consumers have already made the leap. Overall 57% of Germans still say brands matter when buying groceries. Split by generation: Gen X + Boomers = 44% and Millennials + iBrains (I have never heard that before…) = 72%.

Isn’t this contradictory, confirming that younger generations favor known brands?

They do, but not like you might think.

Crucially, according to the YouGov report the young don’t automatically equate “brand” with Nestlé, Beiersdorf, Persil, Ritter or whatever legacy brands (and their products) that their parents or grandparents were used to or brainwashed with.

They increasingly see strong private labels, especially if “organic” or “premium” within this category (the best-in-class growth rates prove this) and partially even the retailers and discounters themselves as real brands worthy of loyalty. For them, the price gap is the only remaining differentiator – and they are ruthless about it, because they grew up this way.

Noticed the many loyalty programs of discounters or drug stores? They strengthen this relationship. Today’s strong consumer brands for many (and growing) are private labels that are sold exclusively — usually a premium feature — in the owner’s stores.

Producers of branded products on the other hand do NOT have exclusive distribution retail channels. There are no Procter & Gamble / Pamper’s, Mars, Nestlé, Coca-Cola or Beiersdorf / Nivea stores. They rely on established third-parties, and are on top forced to share profits, while being constantly compared to much cheaper alternatives.

There are rare exceptions like for example the Swiss chocolate maker Lindt & Sprüngli (ISIN: CH0010570759, ticker: ). But you will have noticed the huge backlash about their aggressive pricing policy — despite heavily falling cocoa prices — and as a result, full shelves and high unsold inventory.

In other words, and this will be the most painful for investors who still live in the glorious past, this bear market in consumer staples is not cyclical inflation fatigue.

It is a structural re-pricing of value-for-money, quality perception and emotional relevance. The old defensive thesis for consumer staples “people will always pay for trusted brands” rested on two assumptions that no longer hold:

• big brands delivered meaningfully superior quality,
• and they owned an unassailable emotional connection.

Both have eroded.

Shoppers, especially the younger ones who also watch much less tv and accordingly brain-washing commercials, now see retailer brands as equal or even better on performance while clearly and indisputably delivering superior price.

Personally, I can confirm that, as I have once written about my favorite chocolate brand being a private-label discounter offering. I also belong to the group who does not see any reason to buy branded toilet paper. One discounter even has a very decent gin in a good-looking bottle with one color fading into another (not saying it’s the best, but clearly competitive, scored big on Falstaff rating).

There are also some studies proving that brands influence consumers’ preferences. Or the other way around, in blind beer tastings, most consumers seem to be unable to pick their favorite beer. This study below is from 2012, but I recently also heard about a newer one.

Meanwhile, many manufacturer brands have under-invested in noticeable innovation and standout features (or private label has closed the gap). Instead, they chose to chase short-term promo volume — which does not even work, but only postpones the damage.

YouGov’s two reports pose the uncomfortable questions investors should be asking: How do brands escape the pricing spiral? What does it take to become a “Soul Brand” again – a true companion consumers identify with rather than a transactional guest in the household that gets dropped for a cheaper price?

The answer is not more discounts, because it’s a race to the bottom they cannot win.

Brands that fail to become Soul Brands will keep ceding shelf space, volume and pricing power. And if they’re too aggressive with pricing, retailers aren’t afraid anymore to drop them off the shelves altogether.

Retailers and their premium private labels will keep eating their lunch.

What is needed is relevance, differentiation and genuine emotional expression. Most legacy players are still playing the old game, kicking the can down the road, hoping for a miraculous turnaround out of nowhere.

On the other hand, and this is what I have been pointing towards often, is that the current economic environment with many job losses, persistent inflation, and high confusion and insecurity, forces consumers to flip around every euro twice, as we’re saying in Germany. This enforces the trend.

One of the most-recent examples is Campbell’s (ISIN: US1344291091, ticker: CPB), formerly known as Campbell’s Soups. I wrote a twitter post, after they once again, showed underwhelming results that confirmed the operating downfall.

Shares did not crater is the only good news, but it fits well into the big picture.

But long-term, well…

Bottom line for investors: Seemingly defensive consumer stocks are not “cheap like never before”. They are optically cheap because their moats have crumbled and the competitive landscape has been redrawn by sophisticated private-label programs that now win on both quality and price — and market share.

Accordingly, stocks of branded-consumer companies got repriced to the new reality.

Historical multiples under different circumstances that ignore this tectonic shift in consumer behavior (not to mention high debt loads) are worse than useless – they are dangerous. The data is not anecdotal. It is empirical reality. Investors who do not derive their investment decisions from charts or astrological rituals, but from everyday and real-life observations, could have seen it coming.

My readers who paid attention to that were able to watch the slow bleeding from the outside. Times have changed.

This time’s indeed different.

I want to close this weekly with a positive note:

All my paid members received my next research report featuring a food company that is competing very well. It has a clean balance sheet, is growing, and could even benefit from consumers trading down, despite itself selling branded products. Nonetheless, the valuation is very undemanding.

Conclusion

Private labels are on the rise and increasing market share, winning on quality, price, and loyalty. But there’s more to it.

Big brands lost their emotional moat — promotions no longer work. 

Accordingly, “defensive” consumer stocks are structural value traps, and not historically cheap.

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Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.

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