At AXIAM, we invest in companies that own great brands. We know that once a brand becomes established and sought after, consumers tend to purchase that brand on an ongoing basis. This repeat purchase behaviour occurs because consumers learn to understand and trust what brands promise and deliver. Whether the product is a bar of Dove soap from Unilever, a bottle of sparkling water from San Pellegrino (owned by Nestle) or eat a Big Mac from McDonald’s, they have a preformed emotional response they are looking to repeat by consuming the product. Our investment thesis holds as long as consumers continue to purchase and use the brands we own. It is, therefore, essential to watch for any shift in consumer behaviour away from those brands.
Branded Products vs Instore Brands
One area to watch is the rise of store brands. These are the brands that are owned by retailers like Walmart, CostCo, Amazon and Woolworths. These instore brands often compete with CPG (consumer packaged goods) brands from Procter & Gamble, KraftHeinz and Unilever to name a few.
Warren Buffett spoke extensively at the 2019 Berkshire Annual meeting about how he underestimated the power of store brands.
The Kirkland Brand is plastered on everything from Cashew Nuts to Car Tyres and consumers trust that the Kirkland brand will deliver quality and value.
Buffett goes on to say that:
And Kirkland spends a lot less on advertising than the CPG companies, including Coca Cola, do because CostCo owns all the shelf space in the warehouse stores.
Not even leading global brands are immune. Heinz is synonymous with tomato sauce.
Aldi’s Bramwell’s Tomato Ketchup, their in-house ketchup, has won several blind taste tests against the global market leader Heinz Ketchup. Being priced in some instances at less than half the price of Heinz, the Bramwell’s brand is competing with the market leader. Many Aldi stores now only stock the Bramwell’s brand and have removed Heinz Ketchup from their shelves.
Retailers and brands always struggled to get the upper hand to get the product to the consumer. Retailers have traditionally fulfilled the role of intermediary between brands and consumers. Retailers have gained some power (Amazon, Walmart and Costco) relative to brands in the last ten years.
Why are Retailers and Ketchup important for AXIAM clients?
Due to the long-term perspective of our investment philosophy, we aim to buy companies that own great brands and never sell. We watch consumer behaviour and focus on brands that are known, loved, sought after and used daily. We will review our investment thesis in a brand if consumer preferences change and the brand does not stay relevant to their consumers. Our clients will also be aware that we own the world’s largest retailers, which own their own brands.
At AXIAM, we have spent many years growing wealth with an investment strategy inspired by the wisdom of great investors like Warren Buffett. We buy shares in companies that pay regular, increasing dividends, because they own great brands that are known, loved and used around the world daily and we keep them for a long time. Sign up for our newsletter, or contact our fund management team to invest.