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Stock Strategist

These Wide-Moat Firms Are as Strong as Ever

Why the power bases of firms like Coca-Cola are shifting, not eroding.

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Consumer-products companies have always faced change, but the intensity of change seems to have ratcheted up over the past few years. Perhaps the single largest switch has been the transformation of the U.S. consumer landscape from a "push" to a "pull" economy, in which consumers take greater control of their purchasing decisions. Word of mouth (greatly amplified by the Internet) and retailers' need to create a differentiated, consumer-centric shopping experience have changed merchandising strategies, which now align with the products that consumers "pull" rather than the traditional "push."

While these changes have forced a reallocation of marketing funds and will likely lead to continued acquisition activity, we think that traditional wide-moat consumer-products firms such as  Coca-Cola (KO),  PepsiCo (PEP),  Procter & Gamble (PG),  Anheuser-Busch (BUD),  Campbell Soup (CPB),  McCormick (MKC)Wrigley (WWY),and  Hershey (HSY) will retain their long-term competitive advantages. This will be due in part to legacy brand equity built in the golden age of the push economy, but much more importantly it will come from distribution and scale advantages that remain as strong as ever. With the landscape and rules of the game in constant flux, we think that Morningstar's moat ratings are particularly valuable to consumers when considering the competitive threats to a consumer-products manufacturer.

Matthew Reilly does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.