European food stocks defy tariffs and uncertainty
Despite tariffs, inflation and uncertain consumer sentiment, the food sector remains stable. European food stocks are proving resilient - especially where companies are serving trends such as sugar reduction, protein products or local production.
Since the US President's so-called "Liberation Day", investors have increasingly turned their attention to US consumer confidence. Concerns about a recession - triggered by the Trump administration's latest tariff escapades - could prove to be a self-fulfilling prophecy if many consumers adjust their purchasing behavior due to uncertainty about their future income situation.
Changing consumer behavior forces manufacturers to rethink
The massive price rises of recent years are increasingly posing financial challenges for low-income households in particular. It is therefore hardly surprising that suppliers of comparatively inexpensive food are suffering from the reluctance of this consumer group to buy. For example, the largest US fast food chains are currently experiencing greater losses than many expected. Increasing price sensitivity is forcing many food and beverage companies to increasingly offer cheaper packaging formats. While higher-income households tend to prefer larger bonus packs - for example in club format or online - lower earners often reduce their consumption to the essentials and opt for smaller packaging units. Accordingly, the focus is shifting more towards positioning in the entry-level price segment.
Manufacturers of chocolate and snack products have recently been particularly active in this context. They are confronted not only with a more price-sensitive customer base, but also with a sharp rise in cocoa prices. In order to compensate for the higher raw material costs, retailers have recently largely accepted the price adjustments demanded by manufacturers. The decisive factor will now be the extent to which consumers actually accept these price increases - especially after Easter. So far, the elasticity of demand for chocolate products has proven to be at least limited.
Coffee manufacturers burdened by import duties and raw material costs
The coffee category is also generally less price sensitive. However, the extent of the price adjustments currently required due to higher raw material prices is likely to have at least a temporary impact on purchasing behavior here too. Experience shows that consumers need a certain amount of time to get used to a new, higher price level. High-priced coffee chains such as Starbucks are most likely to feel the effects of this development in the form of falling customer frequency.
If the announced US import tariffs on Vietnamese Robusta coffee are actually implemented, additional price pressure is likely to arise - US coffee roasters are then likely to tighten the price screw again. Taking into account the usual hedging strategies in the industry, chocolate and coffee manufacturers are unlikely to see a recovery in gross profits until 2026. Investors in this segment will therefore have to be patient. However, should the US government unexpectedly issue exemptions for cocoa and coffee beans, the risk of further earnings disappointments should fall accordingly.
Apart from coffee and chocolate production and the spirits industry, the food and beverage industry has so far been much less affected by the tariff dispute than other sectors. Food is mostly produced locally or is still covered by the Canadian-Mexican trade agreement USMCA. Accordingly, European food companies such as Nestlé or Unilever with production sites in the USA are only affected by the new additional tariffs to a limited extent.
Growing market opportunities for natural and sugar-free alternatives
More attention should be paid to the planned legislative initiatives of the new US Secretary of Health and Human Services, Robert F. Kennedy Junior (RFK Jr.). Although he has so far held back with specific initiatives, he intends to launch the first measures to promote a fundamentally healthier diet in the near future. Particular attention will be paid to reducing synthetic food additives - above all the use of artificial colors such as Red3, Red40, Yellow5 and Yellow6.
As natural colorants are less common in the USA than in Europe - mainly due to their shorter shelf life and stability - there is a considerable need for reformulation for food and beverage manufacturers there. Additive manufacturers specializing in natural ingredients, some of which are listed on the stock exchange, are particularly likely to benefit from this.
Pressure to reformulate hits beverage manufacturers - supplement products on the rise
Another key concern of RFK Jr. is the reduction of sugar consumption. For example, there are currently discussions about excluding sugary soft drinks from the US "SNAP" assistance program for low-income groups. The companies concerned point out that they have already significantly reduced the sugar and calorie content of their products in recent years. Nevertheless, further reformulation efforts to further reduce the sugar content are evident. Sugar-free beverage and food options are continuously gaining market share, and not only in the USA.
Despite declining consumer confidence, the market for dietary supplements is remarkably stable. This is also confirmed by a recent market study by McKinsey: over 80 percent of respondents plan to maintain or even increase their spending on health-promoting vitamins and dietary supplements. In particular, over-the-counter preparations to strengthen the immune system and gastrointestinal health are increasingly in demand.
The demographic trend is also supporting growth in related areas: The demand for medical drinking and tube feeds continues to increase. Added to this is the growing prevalence of so-called "weight loss shots", which is spurring interest in protein-rich dairy products and functional protein drinks - to support muscle maintenance. According to surveys, yogurt consumption has tripled in households where such products are used. In addition, the US Food and Drug Administration now allows yogurt to be advertised as beneficial for diabetics. As yoghurt has so far been much less widespread in the USA than in Europe, the new interest in these products could be more than just a short-term trend. Danone has a particularly strong position in this segment.
Customs risks and loss of purchasing power: those who produce locally have an advantage
The extent to which the US tariff dispute will lead to a weakening of global demand can hardly be reliably estimated at present - not least because it is unclear with which countries the US government will ultimately conclude viable trade agreements. What is clear, however, is that in countries such as China, India, Vietnam and Bangladesh, a decline in US exports could have a negative impact on employment - and thus further weaken purchasing power.
In such an environment, the main beneficiaries are likely to be companies that produce high-demand foods locally. In China, for example, demand for baby food is currently rising again - regardless of the customs issue, but boosted by a higher birth rate following the so-called Dragon Year. In India, on the other hand, the use of refrigerators is steadily increasing - with the result that consumption of ice cream has almost quadrupled in the last ten years.
From the perspective of international investors, however, there is a problem: growth in these markets is often driven by locally anchored companies that are virtually impossible to invest in. Indirect participation is therefore usually only possible via the globally positioned food additive industry. Against this backdrop, it is not surprising that the leading suppliers of additives in regions outside the established markets achieve growth rates that are twice as high as the global average.
Tariffs, interest rates, demand: opportunities for food stocks
A recession in the USA can no longer be ruled out. However, food remains an indispensable basic need. Instead of expensive restaurant meals, many consumers are likely to opt for inexpensive meals at home. The weak sales trend at the beginning of the year is largely due to unfavorable calendar and weather effects - including the calendar shift of the Easter holidays. Many food and beverage companies are therefore expected to see a gradual improvement in their business performance as the year progresses. In view of the potential negative impact of US customs policy, European stocks appear comparatively less risky - however, it is important to keep a close eye on currency relations and the respective country exposure.
Interest rate cuts on both sides of the Atlantic could provide an additional tailwind for the long-neglected food sector. Segments that benefit from structural growth - such as the rising demand for protein products or the growing need for food additives among local customers in South East Asia - are particularly promising.
Note: Marketing advertisement - All information published here is for your information only and does not constitute investment advice or any other recommendation. The statements contained in this document reflect the current assessment of DJE Kapital AG. These may change at any time without prior notice. All statements made have been made with care in accordance with the state of knowledge at the time of preparation. However, no guarantee and no liability can be assumed for the correctness and completeness.