The Illusion of Choice in Consumer Goods

One of my favorite charts shows a listing of eleven consumer goods companies, and the brands that they own. It reinforces my belief that strong brands grow dividends.

You can view this chart from here:

Source: Quartr.com

This illustration shows these massive companies that control large portions of a given segment of the market. While the sheer number of brands creates the illusion that there is unlimited choice, the reality is that just a few brands control what you buy on a regular basis. It looks like there is a lot of competition, when in reality just a few companies control a lot of the brands we purchase. The sheer reach of brands is fascinating. 

This is understandable, given the fact that many companies own brands that target different segments. Many of these companies have established relationships with retailers for shelf space. Many of these retailers value these brands, because consumers expect to see them, and want them. It is a mutually beneficial relationship.

This of course is a result of creating new brands from scratch, as well as decades of consolidations through mergers and acquisitions.

As an investor, I like looking at companies with solid brands that consumers buy on a recurring basis. I also like the consumer goods companies, because they sell goods that consumers would buy even during a recession. I like companies with large brands that have a dominant position, because I believe that a successful company that has been successful for a long time would likely continue being successful in the future.  Having scale is helpful in procuring the lowest per unit costs, as you have centralized marketing, purchasing and distribution. The more successful you get, the more you stack the odds in your favor.

The companies listed in this chart represent some good ideas for further research. They are not automatic buys of course. When I evaluate companies, I generally like to look for:

1) A track record of annual dividend increases

2) Growth in earnings per share over the past decade

3) Growth in dividends per share over the past decade

4) Dividend sustainability

5) Good entry valuation

I like the stability for some of their business models. These companies do well in a slow but steady way, and navigate near term economic turbulent nicely. While past performance is not indicative of future results, I believe that several of these companies would still be dominant in the next 50 years. If you are reading this in 2074, please let us know how this prediction turned out.