1. Industry Primer – Consumer Goods
Tuesday, October 4th, 2016
Presented by: Blake Klasios & Govind Sharma

2. McMaster Investment Council
Agenda
Consumer Goods Sector Overview
Performance
Porters 5 Forces
Key Metrics and Terms
Canadian Market
Tuesday, October 4th, 2016
McMaster Investment Council

3. I
Consumer Goods Sector

4. Consumer Goods – Differentiation
Products that are purchased for final consumption by the average consumer and are the end result of production and manufacturing (ie. What a consumer will see on the store shelf)
Durable Goods
Non-Durable Goods
Consumed over time (3+ years)
Furniture, appliances, sports equipment, jewelry
Consumed immediately (< 3 years)
Food, Clothing, Motor Oil
Services
Tuesday, October 4th, 2016
McMaster Investment Council

5. Consumer Goods – Discretionary vs Staples
Consumer Discretionary
Consumer Staples
Products that are non-essential to the lives of consumers
Cyclical (Tend to slump when economy is doing poorly and do well when economy is growing)
Include
Restaurants, High-end apparel, Jewelry, Sports activities, Vacation
Products that are essential to the lives of consumers
Non-Cyclical (in demand regardless of what is happening in the economy)
Include
Food, Basic clothing, Shelter
Tuesday, October 4th, 2016
McMaster Investment Council

6. II
Performance

7. Performance – Benchmark
Consumer Sectors vs S&P/TSX
Tuesday, October 4th, 2016
McMaster Investment Council

8. Performance – Valuations
Consumer Discretionary (CD)
Canadian CD valuations have been more cyclical
Impacted by valuations on Magna and Thompson Reuters, who are less consumer oriented
CD industry P/E is ~17x
Consumer Staples (CS)
Canadian CS companies continue to acquire and expand globally
Many CS companies are diversifying business into other markets (real estate)
CS industry P/E is ~ 25x
Tuesday, October 4th, 2016
McMaster Investment Council

9. III
Porters Five Forces

10. Porters Five Forces – A look at Loblaws
Threat of New Entrants
Low threat of new entrants
Entrants need invest a large sum of capital, have food contracts in place, and compete against extremely low prices set by rivals
Power of Suppliers
Moderate power held by suppliers
Suppliers must pursue a cost leadership strategy when competing for food contracts
Limited suppliers provide organic/multicultural products increasing the bargaining power in these spaces
Power of Buyers
Low power held by buyers
Consumers face minimal choice and even less so based on region
Availability of Substitutes
Low availability of substitutes
Alternatives to grocery stores are fast food companies and restaurants which are neither healthy nor economically feasible options
Degree of Rivalry
High degree of rivalry
Competing against Metro, Sobeys, Walmart, & Costco
Tuesday, October 4th, 2016
McMaster Investment Council

11. IV
Key Metrics & Terms

12. Key Metrics – By Sub-Sector
Retail Stores
Restaurant/Fast Food
Sales Floor Performance Metrics
Sales per sqft, Avg sale per customer, cost per sq ft
Same Store Sales
Measure year-to-year change in sales in a fixed base of stores
Production Efficiency
Track manufacturing efficiency of items produced for sales
Store Unit Growth
Preferred single digit growth (3-5%) in units, also compared with competitor growth
Geographic Growth
Track revenue growth by geographic region to determine if market share is being gained or lost
Company vs. Franchise
Split the company based on franchise and restaurant income
Grocery
Same Store Sales
Measure year-to-year change in sales in a fixed base of stores, a good company will have improving sales/sq foot growth
Revenue Mix
Look for growing revenue in all product lines with the most emphasis on store branded items (ex. Presidents Choice)
Branding and Positioning
Prices and margins will be determined by a companies brand power and ability to charge a premium
Tuesday, October 4th, 2016
McMaster Investment Council

13. V
Canadian Market

14. Canadian Market – Companies
Consumer Discretionary
Consumer Staples
Tuesday, October 4th, 2016
McMaster Investment Council

15. Thanks!