How to invest as the shine wears off consumer brands

Consumer brands with no labels - man brushing teeth — (Image credit: Adam Stower)

The household- and personal-goods sector sits at the heart of everyday consumer spending.

It covers the staples people buy week in, week out – from laundry detergents and cleaning products to toothpaste, shampoo and skincare products.

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For decades, this made household-and personal-goods companies a cornerstone of “quality” investment portfolios.

Returns were predictable, cash flows dependable and growth steady. Investors came to view the sector as a safe haven – dull, perhaps, but reassuringly resilient.

Today, the sector is grappling with three distinct challenges.

First, the rise of alternative private-label products, such as Amazon Basics, is steadily eroding the pricing power of established consumer brands as customers trade down.

Second, growth in key beauty categories, including skincare, is slowing.

Finally, companies are contending with a rising regulatory burden, not least tougher requirements to reduce the environmental impact of their products and supply chains.

Not all firms will be able to deal with these challenges and some are better placed to do so than others.

Consumer brands hit by the rise of private labels

The first challenge is a steady decline in consumers’ loyalty, caused by the narrowing gap in product performance.

In the past, companies such as Procter & Gamble (maker of Oral-B and Head & Shoulders) and Reckitt (Strepsils and Durex) benefited from a strong brand advantage.

Shoppers believed that cheaper alternatives, sometimes called private-label goods, simply did not work as well.

Recent data shows that this belief has largely disappeared, especially in categories where performance can easily be compared, such as cleaning products.

In the UK grocery market, private-label products now account for more than 40% of sales by value, while unit shares exceed 47% in basic categories such as bleach and toilet paper.

The shift is even faster in the US, where consumers are even more accustomed to buying non-branded versions.

This move towards cheaper products is no longer just a short-term reaction to higher prices. It reflects a lasting change in behaviour.

Surveys show that households have tried cheaper brands and found little or no difference in quality compared with leading consumer brands.

As a result, store-brand volumes in cleaning and laundry products have consistently grown faster than branded alternatives in recent years.

The rise of discount retailers such as Aldi and Lidl has reinforced this trend.

These shops strip out the branded tax, which is the portion of a product price used for advertising and can make up as much as 30% of the sales price.

Aldi now has 13,500 stores worldwide and is still expanding rapidly, with a plan to open 600 in the US alone in the next two years.

With greater coverage from the discount chains, pressure is mounting on national consumer brands to defend their higher prices.

Online retail has accelerated this shift further. Amazon Basics has become a serious competitor by using search data to spot categories where customers feel branded products are overpriced.

Once consumers discover that a low-cost dishwasher pod works well enough, for example, they are unlikely to choose a brand at all. For price-conscious shoppers, paying about 50% more for a small improvement in a basic product no longer makes sense.

As innovation becomes easier to copy, new product formats are quickly replicated by private-label producers, weakening the traditional advantage of brand-led research and development.

The shift to “recession glam”

The second challenge is a clear slowdown in the trend that powered the prestige beauty industry for more than ten years.

This is largely driven by weaker demand in China. Until recently, China had been the main engine of growth for ultra-premium brands such as La Mer, the hugely expensive skincare label owned by Estée Lauder.

In 2024, the Chinese beauty market shrank by 2.2%, marking a shift towards what some now call “recession glam”.

Consumers seem to be placing greater emphasis on value and practical results rather than luxury and a brand’s image. Growth is no longer driven by higher prices, but by volumes and products that deliver visible benefits.

The sharp decline in travel-related retail has exposed another weakness.

In China, duty-free sales on the popular tropical holiday island of Hainan fell by around a third in 2024 after government action clamped down on the reseller market.

Notably, this came despite higher numbers of visitors. The total number of items purchased fell by more than 35%, suggesting shoppers are prioritising experiences over luxury goods.

At the same time, domestic Chinese beauty brands, known as C-Beauty, are gaining ground by offering effective products at a fraction of the price. Chinese firms such as Proya have grown almost fourfold in six years by appealing to value-conscious consumers who care more about ingredients and performance than brand prestige.

Younger consumers are also questioning the value of paying extra for luxury beauty products. Only 14% of US shoppers now believe that higher prices mean better quality.

Social media has encouraged a strong “dupe” culture, where influencers compare $100 luxury serums with $15 alternatives from the high street.

This has supported the rise of so-called “dermaceutical” brands, which focus on clinical testing rather than luxury packaging.

While the wider prestige market struggles, global dermo-cosmetics sales are expected to exceed $75 billion by 2030. In today’s beauty market, status is less about owning a luxury product and more about proof that it actually works.

The eco-efficiency paradox

The third challenge is a growing clash between what environmental policy demands and what corporate economics can realistically support.

What began as voluntary sustainability pledges is rapidly becoming hard regulation. As a result, the basic cost of doing business is rising.

In the UK, plastic-packaging taxes continue to rise at rates above inflation.

Manufacturers will be forced to compete for a limited pool of recycled plastic, driving a bidding war for materials that are already scarce. The inevitable result is structurally higher input costs, with high-quality recycled resin frequently trading at or near record prices.

These pressures extend far beyond packaging. Meeting new sustainability standards often requires a complete redesign of the production process itself.

Retooling a single production line can cost tens of millions of dollars, locking global players into multiyear capital-expenditure programmes.

Procter & Gamble, for example, expects restructuring costs of up to $1.6 billion through 2027 as it attempts to adapt.

Many of the greener alternatives are simply more expensive to make, which is lowering profit margins.

At the same time, companies are losing their ability to offset these higher costs by charging a premium. Aggressive anti-greenwashing laws in the UK and EU now ban vague claims such as “eco-friendly” or “sustainable” unless they are backed by detailed, third-party verification.

These problems are being compounded by retailers. Supermarkets are launching their own “sustainable” private-label ranges, often priced well below branded alternatives.

The price gap that once protected premium consumer brands is narrowing fast, further undermining margins and loyalty to the brand.

Taken together, these forces suggest that the old investment case for household-goods giants is breaking down.

As private labels close the quality gap and consumers’ behaviour shifts, investors must now distinguish between companies that are managing decline and those reinventing themselves.

The winners will be determined by strategy, not scale. To preserve their quality investment status, the industry’s largest players are being pushed to re-engineer their products. That often means moving away from commoditised home-care products and towards more specialised categories, such as hygiene, dermatology and science-led beauty products.

These are areas where efficacy, regulation and intellectual property still provide barriers to entry.

In today’s market, it is not size alone, but agility, scientific credibility and the ability to navigate increasingly complex regulations that are becoming the true drivers of long-term value.

The giants of the consumer brands sector

Procter & Gamble is the largest firm of its type in the world and is navigating a period of slow growth.

In the fiscal year of 2025, net sales remained unchanged at $84.3 billion, with organic sales growth of just 2%; some way below the 4%-5% it reliably generated in the past.

The firm is working to protect its 22% operating margin through a $3.2 billion annual productivity drive designed to offset the rising costs of retooling its operations to meet stricter regulations. The company also faces a $400 million bill from new tariffs.

Nonetheless, it has a diverse set of products spanning multiple segments, making it dependable. This translates to a high free cash-flow yield that supports a good dividend. The investment case for Procter & Gamble remains one of defensive stability rather than high growth.

Unilever is similarly refining its focus through its “Growth Action Plan 2030”, which prioritises 30 so-called power brands spanning food and personal goods.

The largest brand by sales is Dove. The company has long been a leader in social programmes and is particularly focused on reducing the use of plastic.

The firm has admitted it will miss several milestones in its plans to cut plastic and is facing threats from new product launches and private labels, but it is investing heavily in marketing to differentiate its products.

The beauty brands

L’Oréal enters 2026 as the clear outperformer in the sector, with like-for-like sales growth rising. This success is driven by its dermatological beauty unit, which has become the primary growth engine for the group and includes brands such as Maybelline and Garnier. It has sought to mitigate the slowdown in the key Chinese market with brands such as SkinCeuticals.

The company has a dominant position in high-tech fragrances and professional haircare, where profitability is high and well-defended. It has also been actively marketing its sustainability credentials.

Beiersdorf is following a similar path and growing well through its dermatological businesses, Eucerin and Aquaphor, and a new generation of epigenetic serums. The emphasis has shifted from cosmetic anti-ageing products towards “skin longevity”, tapping into science that aims to preserve skin function at a biological level rather than simply masking the signs of ageing.

Its luxury segment initially came under pressure in China, but it has recently returned to growth while concerns over the long-term outlook for the Chinese market remain.

By tilting its portfolio towards faster-growing segments, Beiersdorf has defended its mass-market stronghold while scaling higher-margin, premium lines.

Ultimately, Beiersdorf sits in the shadow of its much larger rival, L’Oréal. It has a less balanced product set and is much more dependent on Europe and China.

The turnaround stories

Reckitt is simplifying its portfolio. Last year, the company sold most of its essential home division to private equity. The divested business included brands such as Air Wick and Cillit Bang. The move allows the group to focus on consumer health and hygiene, where it believes its brand value is stronger.

This strategic retreat from commoditised home-care categories will allow it to focus on “power brands” that maintain higher profit margins, such as Lysol and Durex. A £1 billion pound share buyback programme is intended to support the shares in the meantime.

Estée Lauder is also attempting a recovery after a near 90% decline in the shares between 2022 and 2025. The group’s “Profit Recovery and Growth Plan” is designed to rebuild margins through operational efficiencies. It also marks a strategic shift away from the aspirational middle class and towards luxury brands such as La Mer. It is also promoting brands on Amazon to capture younger, value-conscious shoppers.

The specialists

Colgate-Palmolive continues to dominate the global toothpaste market, with more than a 40% share. It has consistently been one of the best-run businesses in the sector and uses analytics to sharpen its prices to counter the threat of private-label brands.

Organic growth has been 1.2% in recent years and the company is relying on its “Strategic Growth and Productivity Plan” to generate gains in a sluggish North American environment.

Kimberly-Clark is executing a high-stakes pivot to drive growth by focusing on its core baby and feminine-care categories, where the brand value is strongest.

It is selling lower-margin segments to target a gross margin of 40% and an operating margin of up to 20% by the end of the decade. However, near-term profitability remains under pressure and its products are among the most threatened by cheaper alternatives.

Henkel, the German owner of Persil, has achieved increased profitability by merging its consumer brands divisions. The company’s focus on its top-ten brands has stabilised organic sales growth, even as it navigates a challenging global market.

The Henkel family still retain absolute control over the business despite not owning 50% of it. Additionally, the large adhesive division, which includes brands such as Pritt-Stick and Loctite, is threatened by cheaper alternatives.

The British contenders

PZ Cussons has struggled for many years. It relies heavily on the Nigerian economy, which is suffering badly. Management has been proactive in reorganising the portfolio to the more profitable brands, but the shares are very cheap as investors have grown weary of turnaround plans.

Meanwhile, McBride has emerged as a major beneficiary of private-label products. It produces these on behalf of third parties, such as supermarkets. By beating its net debt target and reinstating dividends, McBride enters 2026 from a position of strength having struggled for many years.

The best consumer brand stocks to buy now

For UK investors, Unilever (LSE: ULVR) looks a good bet. It rarely has a misstep and is proactive about ensuring that the portfolio of brands it owns are the most profitable. It also has a large food division so that the exposure is to more than just Dove.

For those willing to look outside the UK, Procter & Gamble (NYSE: PG) is a diversified punt on the theme without having to take any specific views on the disparate parts of the sector. L’Oréal (Paris: OR) has a tremendous history of value-creation and looks to be in a good place, although there is a risk of cheap Chinese alternatives eroding its market share.

Estée Lauder (NYSE: EL), having had a terrible run for a few years, looks to be regaining its mojo. Should this continue, the shares could soon look very cheap. PZ Cussons (LSE: PZC) has frustrated investors for years, with continued poor performance. Yet there are a few decent brands with the potential for recovery. Like Estée Lauder, it could prove to be profitable should the turnaround yield results. Finally, McBride (LSE: MCB) has long been a bit of a dog, but the relentless rise of private-label products together with a much better balance sheet makes the business look very interesting.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Jamie is an analyst and former fund manager. He writes about companies for MoneyWeek and consults on investments to professional investors.