What are Consumer Goods? Understanding the companies and categories.
If you live on earth, you’ve purchased consumer goods. After a manufacturer takes raw ingredients and processes them into a final product, any item purchased and utilized by a consumer is considered a consumer good. Flour, plastic cups, alcohol—all consumer goods.
Suppose you want to view things from an economic lens. In that case, everything you buy and consume within three years is considered a non-durable consumer good. Everything that you purchase and use for more than three years is regarded as a durable consumer good. Deli meat, pencils, and cleaning supplies? Non-durable consumer goods. Clothes dryer and microwave? Durable consumer goods. I mostly write about non-durable consumer goods companies and the strategies they use to make money. I’m not particularly unique. When most people talk about consumer goods, they’re talking about the nondurable kind.
Classification is always somewhat flexible. Newell Brands is a major consumer goods company with over $14 billion in annual revenue. One of Newell Brands’ keystone brands is Rubbermaid, and Rubbermaid storage containers will last well over three years. However, most people still consider the Georgia-based company a consumer goods manufacturer. If you can buy it at Walmart, Target, or Amazon, it’s probably a consumer good.
Given that you purchase consumer goods every week the companies who make them are incredibly powerful. When thinking and analyzing those companies, it’s helpful to break them into distinct categories, where NAICS codes come in.
NAICS Codes and Categorization
One of the standard ways to categorize and organize consumer goods companies is through the North American Industry Classification System—NAICS codes for short. NAICS codes are a joint classification system developed by the US, Mexico, and Canada. It’s an attempt to organize a variety of economic activities into a hierarchy. The top of each hierarchy is incredibly broad, with more granular detail in each subsequent level.
Here’s an example of how you could classify General Mills.
Like the Newell example above, General Mills is a massive company that crosses many categories. Not only does General Mills sell Cheerios, but it also sells Pillsbury (3118 – Bakeries and Tortilla Manufacturing) and Hagen-Dazs (3115 – Dairy Product Manufacturing). For this reason, when you’re comparing and analyzing General Mills against other companies, it’s probably best to compare companies at the Sub-sector or Industry Group level.
Who are the major consumer goods companies?
The consumer goods industry is immensely profitable and competitive in America. It generates about $654 billion each year and accounts for 34 companies on the Fortune 500. The table below contains the 34 consumer goods companies on the Fortune 500 list, along with their corresponding subsectors, revenue, profit, and net profit margin.
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Judged by revenue, the top ten are dominated by food, beverage, and tobacco manufacturers. Branded homegoods giant P&G is the only company to reach the top 10 (coming it at #1).
But metrics matter. Suppose you sort the table by net profit margin (how much profit is generated by each $ of revenue). In that case, chemical consumer goods companies occupy three of the top ten. Ask yourself, why the sudden change?
There are many correct answers to the question above, but I hope that after reading this article, you now understand what consumer goods are and why categorization is important when analyzing the major companies.
Photo by Nathália Rosa on Unsplash