Resurrecting American manufacturing

Resurrecting American manufacturing

by Pininvest Analysis

Consumer Staples, a troubled partnership on

  • constituents
  • 20.6% 1y performance
  • 12.5% volatility
Check the investment theme exit_to_app

As told by Charles Fishman, in a 2004 report, the Vlasic pickles floating in this aquarium-like gallon jar became something of an attraction at Walmart, showcased on pallets at the front of the stores and selling in considerable volume from day 1

The jars soon made it impossible to sell anything but the Walmart jars… at Walmart where all their other clients could buy the pickles at the famed ‘everyday low price’ and lower than what they used to pay themselves

Vlasic 1 gal. pickles jar
Vlasic 1 gal. pickles jar

The story did not end well for Vlasic, which, as an independent company, went bankrupt in 2001 after losing part of their traditional client base, effectively growing sales at no profit margin and proving incapable of responding effectively to Walmart procurement requirements (including inventory management and speed to market)

Digging more deeply and looking beyond the accusations leveled at Walmart for dictating impossible terms, this is about innovation, brands and the future of domestic manufacturing

  • Innovation is – or at least should be – the life blood of manufacturing – for consumer staples and for everything else. *By bringing new products to market, products the consumers will actually like, the industry will do its job in the value chain, just like Walmart does with its unflinching focus on better value for the US consumer. When a manufacturer, blinded by impressive volume, ignores this imperative, who is to blame ?
  • Brands are the manufacturer’s most valuable asset, achieved by often decade long marketing effort. But brands should be viewed in a sense as a ‘common good’ shared with the large distribution networks, simply because they are valued – and expected - by the consumers visiting the stores. Brands are so many things – image, quality, service and indeed innovation – and commonality of interests with the distributor may indeed break the conflicted price deadlock
  • Domestic US manufacturing, today in 2018, is again a public – as well as political – conversation, as it was in the late 1980s at Walmart, confidently advertising its “Made in USA” commitment…In sharp contrast however, the distributors will soon be held to account : the transfer of their orders overseas, and the resulting destruction of American jobs, will endanger their image like nothing else. To be branded as ‘unamerican’ by the Administration and by the general public is a badge – historically loaded – no distributor today will want to wear

There is only a little anticipation in our current prognosis

To resurrect American manufacturing, consumer goods brands will need to

  • streamline (they already have mostly)
  • invest in top-of-the range production capacity (have they really?),
  • innovate (they did but never went far enough)

and to share this commitment with the distribution networks

As an illustration, we will discuss Newell Brands in a follow-up note