Consumer Products

Consumer Stocks Being Reshaped by Changing Tastes of Millennials

Companies are learning to change their offerings and operations to be geared toward millennials. Those companies not making changes may be jeopardizing their operations in the years to come. After all, each new generation becomes the next big wave of consumers. Argus has featured several of its stocks in the coverage universe that are being reshaped by millennials.

Their view may be geared toward the next generation of investors rather than just consumers, but the preferences and trends being set here are hard to ignore. The consumer staples group actually has some of the best growth rates for investors.

Millennials are demanding a new menu of healthy, organic and natural fares. This has many established companies such as Starbucks Corp. (NASDAQ: SBUX) and Constellation Brands Inc. (NYSE: STZ) adapting to new ways to get millennials as their customers. Companies such as Hain Celestial Group Inc. (NASDAQ: HAIN), WhiteWave Foods Co. (NYSE: WWAV) and Monster Beverage Corp. (NASDAQ: MNST) are growing much faster than the old consumer staples warhorses. Accordingly, they have become some of the hottest stocks in the market.

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Between 1970 and today, there was a major transformation in companies. They shifted from a largely domestic customer base to a global customer base. At the same time, the overseas conquest included exporting some brands, but it was principally driven by acquiring local assets and absorbing them into global go-to-market models.

The baby boomers were such a mighty demographic force that they overshadowed the follow-on Generation X. While there was some second-generation overlap, many boomers competed for jobs with Gen X rather than parented them. The biggest part of the boomer cohort bore the children known as the millennials, those born between 1982 and 2000.

The Argus report makes a distinction between generations:

Boomers, in their younger days, openly fought with their “greatest generation” parents over politics, race, feminism, the Vietnam War, sexual mores, and drugs. But over time, their fire died down. Boomers, for all their early rebelliousness, grew up on Classic Coke and Big Macs, and never really questioned where their jeans and sneakers were coming from. Millennials are staging a subtler but more sustained rebellion. They don’t decry their parents’ beliefs, mores, or tastes; they simply have not adopted them. Without the protest-march fanfare of young boomers, Millennials have quietly extracted elements of the 1960s and 1970s counter-cultural ethos, including “back to the land,” “sustainable,” and “green.”

Millennials have grown up in the digital age, which has granted them insight into the real world never experienced by prior generations. Constantly immersed in the real-time news cycle, millennials insist that their workplaces use resources sparingly, practice sustainability and treat workers fairly. In short, millennials are completely at home in the consumer economy, but they are reshaping it to produce the goods, products and services they want.

More than 92 million millennials were born between 1982 and 2000. Considering this age spread, their purchasing power is still emerging. According to the Argus research, millennials have $300 billion in direct purchasing power, mostly representing older millennials established in their work and families. They also have an additional $500 billion in indirect purchasing power, representing spending by their mainly boomer parents.

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Hain Celestial

Hain is a play on continued strong demand for natural and organic foods, given its well-known brands including Celestial Seasonings, Earth’s Best, Terra, Health Valley and other brands. The company’s fast-growing customers include natural and organic grocers such as Whole Foods Market and Sprout Farmers Market, along with distributors such as United Natural Foods. Equally important, Hain is gaining shelf space with traditional grocers ranging from Kroger’s to Wal-Mart Super Centers.

Hain Celestial was given a price target of $74 by Argus. Shares of Hain were down 0.7% at $65.18 midday Thursday, in a 52-week trading range of $40.84 to $66.35. The stock has a consensus analyst price target of $66.22.

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