Why Cheap Toilet Paper Sets Off Alarm Bells Among Some Investors
Companies selling everyday goods say lower-income consumers are struggling, but better-off households are spending freely
4 min
Sellers of everyday consumer goods are experiencing a growing divide in their customer base between the more and less affluent. How they respond depends in part on where their products sit in the pecking order.
Both packaged-food companies and makers of household goods such as cleansers and paper towels are describing a bifurcation whereby higher-income consumers are spending freely, but those with lower incomes are feeling increasingly pinched by the cumulative impact of years of inflation.
“I think there’s certainly been much more bifurcation of the market, and it’s been creeping up over time. I wouldn’t say it’s been a sudden change,” Bank of America analyst Anna Lizzul said in an interview. Companies that are more exposed to low-income consumers “have mentioned the word bifurcation many times over the last 12 months,” she added.
Yet things appear to have come to a head recently. For food companies in particular, discounts and promotions are now back on the table after years of price increases—a significant concern for their investors. General Mills , during its latest quarterly earnings conference call, said it would step up coupon offerings in the current fiscal year and described the intensity of promotions in the industry as back to pre-Covid levels. The company’s stock fell 4.8% in response.
But for those targeting better-off households, the imperative is to keep investing and innovating to continuously improve their products, justifying still-higher prices in a process referred to as premiumisation.
This has long been the strategy of Procter & Gamble , which tends to occupy the premium tier of the categories in which it operates, from Gillette razors to Bounty paper towels. “The consumer within our categories, the consumer that represents our consumption base is actually holding up very well,” P&G Chief Financial Officer Andre Schulten said at an investor conference in June.
Most consumer-staples companies, however, have products targeting various income levels. General Mills, for instance, boasts organic Annie’s mac and cheese and high-end Blue Buffalo pet food among its brands. Kimberly-Clark competes with P&G at the high end in many categories, while also offering value-tier brands such as Scott toilet paper and paper towels.
The premium tier of products “continues to grow very, very robustly,” Kimberly-Clark Chief Executive Michael Hsu said on the company’s first-quarter conference call in April. “That all said, clearly, I would say, middle- to lower-income households look like they are becoming more stretched.”
“I think the growth driver for us over the long term is by making products better, premiumising, elevating our categories. But we want to serve the value-oriented consumer as well, too,” Hsu said.
Compared with P&G and Kimberly-Clark, Clorox stands out as more exposed to low-income consumers thanks to the categories it plays in, such as cleansers that face more competition from private-label goods, said Bank of America’s Lizzul. This is the case even though Clorox too often occupies the higher end of those categories, such as with its Glad-brand trash bags.
The company “is returning to pre-COVID levels of promotion to support a return to volume growth,” she wrote in a recent note. While much of that promotion spending will go to things such as displays as well as discounts, she still sees it having an impact on pricing and sales mix in the near term. Many other companies in the household-goods space are preferring for now to spend on stepped-up marketing and other investments in their brands instead of discounts, she said.
To be sure, lower-income American households are in aggregate still better off than they were before the pandemic, even accounting for inflation. Goldman Sachs forecasts that real, inflation-adjusted incomes for the bottom 20% will rise 1.8% this year. They also expect the top 20% to earn 2.7% more. At the same time, cash cushions built up during the pandemic have declined. The percentage of Americans who say they have enough cash to cover an unexpected $400 expense fell to 63% in 2023, equivalent to 2019 but down from 68% in 2021, according to Federal Reserve surveys.
Among those living paycheck to paycheck, there have been other shocks as well. Notably, the expiration of higher pandemic-related Supplemental Nutrition Assistance Program benefits in March 2023 hit the food budgets of certain households by hundreds of dollars a month. Speaking on an earnings conference call in April, Nestlé CFO Anna Manz said that benefit change plus years of cumulative inflation had together reduced the purchasing power of lower-income American households by about 50% as of the first quarter.
“Now those are the consumers that predominantly buy in the frozen-food category, which is why we see a continued ongoing impact there,” Manz said. The Swiss food company owns frozen brands such as DiGiorno, Stouffer’s and Lean Cuisine. In its first-quarter earnings report , it said real internal growth, its measure of underlying sales volume, fell 5.8% year-to-year in North America, “primarily driven by a decline in frozen food.”
Yet even here, the company expects product innovation to be part of the solution. “There’s a lot to come, particularly on frozen actually, which is a high-innovation category. Consumers like seeing new stuff coming through; they want new meals,” Manz said.
Over time, premiumisation is a fundamental growth driver for all consumer-staples companies. The unit volume growth of diapers, for instance, is essentially just a function of birth rates. Only by making them better over time and charging more for that improvement can companies really drive revenue growth.
When lower-income consumers are feeling pressured, however, that long-term imperative might conflict to a degree with near-term necessities. So while it is understandable that companies often say they prefer to invest in marketing and innovation, many will also capitulate on price.
Investors could punish them for that.
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From early financial mistakes to hard-earned habits, five high-performing leaders share how they spend, invest and think about wealth.
9 min
Five minutes doesn’t sound like much. But it’s enough time to tell whether someone really understands money or just talks about it. Because once the gloss is stripped away, what’s left is instinct. The early mistakes. The bad calls. The quiet pivots that no one brags about but shape everything that follows. Making money is one thing. Living with it, and not mishandling it, is another. Here, five executives talk about what they got wrong, what they’ve learned, and how they now actually spend, invest and think about wealth.
Andrew Raso: Founder, Online Marketing Gurus
Self-made millionaire Andrew Raso grew up in an ethnic household with a father in construction. Investing was not a priority, he recalls.
The co-founder and CEO of Online Marketing Gurus, a digital marketing platform that generated more than $30 million in revenue in the 204/25 financial year, admits he’s had to learn about handling money as his wealth has grown.
“If I had my time again, I would change my spending habits and would probably be a lot more wealthy as a result,” the Sydneysider tells Kanebridge Quarterly.
Raso, in his mid-30s, says that his biggest lessons have come from his losses.
Buying the wrong property and copping the losses upon sale. Feeling FOMO when buying crypto and making a purchase that lost money.
“I’ve learned a lot from the errors that I’ve made,” he says.
Raso admits that he gets more of a thrill out of working than watching money hit his bank account.
“I’ve had the cars, I’ve had the property, I’ve had the watches. Once you’ve had them, they’re not that exciting, but the process of earning money is pretty cool.”
What he won’t forget is being $45 million in property debt a few years ago.
“I’d never want to be in that position again,” he says.
“My investing strategy is a lot safer these days. I’m very cautious. I’d prefer to invest in things that don’t take as long to be realised so my family can be financially secure.
“Once you have a house paid off and a few investments, it then becomes about enjoying your money, rather than hoarding it. Giving back gives me a much bigger kick than spending these days.”
Daniel Wessels: CEO, Jacaranda Finance
Fintech founder Daniel Wessels knows only too well that money remains a taboo topic in Australia with many people.
He points to consumer surveys that reveal people are more likely to talk about their sex life with friends than their finances.
It’s a major concern for the man who founded Jacaranda Finance in 2013, which has helped countless people lift their credit scores and get their finances back on track.
“If people aren’t learning money habits at school and they aren’t discussing it with their friends, learning new strategies and better habits is difficult,” says Wessels, who is based in Brisbane.
He wants to see more people take the time to proactively understand where and why they are spending money.
“Everyone needs to have a financial strategy and a plan to measure if it’s working,” he says.
The father of two young children admits his week can be pretty fast-paced. Pomodoro clocks, sleep optimisation techniques and saying ‘no’ keep him on task during the week.
“I used to think I was fairly decent at managing time, but the whole game changed when we had kids,” he says.
“Now, I’ve got to get out of the house at a certain time and leave the office at a certain time for daycare pickup. I’ve got to be really specific about my tasks to maximise my week.”
Before he had a family, he loved heading out to one of the trendy new restaurants popping up in Brisbane.
But that happens less these days. He’s saving to build his forever home but admits that price rises have resulted in rising costs.
“It’s such a big project with so many variables that change quickly,” he says.
These days, Wessels likes to optimise his professional and personal life. “With only a finite amount of money, time and energy, you’ve got to be really good at deciding what you want to be good at,” he says.
He calls this ruthless prioritisation. He has a very specific focus on activities that prioritise health and wealth, adding experiences into the mix more recently. This has meant the addition of micro-holidays to his annual calendar.
Wessels works with a couple of financial advisers. That said, he also does his own due diligence before agreeing to investments.
“One likes private equity investments that pay cash every month and another prefers to focus on the NASDAQ Stock Exchange for buying shares because he’s bullish about that.” he says. “They’re each experts and really good at what they do.”
Jim Penman: CEO, Jim’s Group
He may have invested a lifetime building a franchise juggernaut that is reportedly a $1 billion a year empire, but Jim Penman insists he’s a frugal guy who prefers to spend time planting a tree in his garden than contemplating his wealth.
What started out as Jim’s Mowing back in 1989 became Jim’s Group. Today, there are 5,700 franchisees across Australia and New Zealand in the business that has become ubiquitous for being the local handyman company that households could rely on.
He may have built a successful business empire, but the Melburnian insists he’s stingy when it comes to money.
“I wear my clothes even today until they wear out. I’ve always had a very lean and mean attitude. I live a simple life. My personal needs are very modest and my finances are simple,” he says. Jim reveals he’s usually in his garden these days and rarely eats out or takes holidays.
He is also running for state politics in the November Victorian election.
“I’m not particularly money focused. I could tweak the franchise contract to put more fees in and double my profitability, but that’s not my goal or my aim. To be honest, I often make decisions that go against my financial self-interest,” he says.
Jim purchased his first brand new car three years ago, opting for an electric Volvo.
“Being rich is not my aim and it never has been. People think I’m a lot richer than I am. They think I’m a billionaire, which is kind of ridiculous,” he says.
In fact, he insists he carries debt, which is common for anyone in business. “If I wanted, I could pay it off in 18 months.”
While his competitors were spending on fancy office space, Penman was running his franchise from his basement, keeping business costs low. “When I started out, I didn’t have any concept of how big this business could be. But there has never been a plan to grow franchisee numbers.
“Our attrition rate is far more important, and how to reduce complaint rates and drive more enquiries through new software.”
He believes people these days worry too much about impressing others, which leads to spending on superficial things.
“I would rather than offer people advice on how to be happy, rather than how to become rich. It’s important to have a good income so you can support yourself. But life is more about purpose.”
Jim doesn’t bother with stocks or bonds. He only invests in his own business. “My rate of return on my business is substantial. I could buy back a regional franchise when they come on the market and get a 20-25 per cent annual rate of return, plus capital gains. There’s nothing like that available in the investment space.”
Nicola Beswick: Founder, White Rabbit Advisory
Rabbit Advisory founder.
A clothing allowance provided by her parents and then a part-time job during high school was the first taste of financial freedom for Nicola Beswick.
She quickly became a spender rather than saver, but she’s changed her tune over the years.
The founder of financial advice firm White Rabbit Advisory left behind a successful career in intellectual property law a year ago to become a financial adviser because she realised the potential that financial education could have on someone’s life.
Her journey began after coming across the book Rich Dad Poor Dad some years ago, which opened her eyes to the power that money could have on her life. This marked a time when she became serious about her finances.
“Financial education and investing over time can have a huge impact on a person, and that book got me thinking about money and financial education in the first place,” she says.
Nicola says years ago, her father was diagnosed with multiple sclerosis. When dealing with the devastating news and an uncertain future, her father discovered he was eligible to receive an income protection payout.
“This was the stone that rippled his pond and mine. A new complex world of finance opened up and I discovered my calling – helping people plan for a financially secure future.”
She hasn’t looked back. “Commercial law was very transactional. I don’t regret quitting at all. I’m much happier now helping people get their finances in order. Financial planning helps people change their lives. That was a really big driver for me.”
The Melburnian admits she’s learned plenty of lessons along the way as she embarks on the process of building wealth. She uses superannuation as an investment vehicle, favouring its tax advantages.
“I also built a nest egg outside of super, because you never know when the rules will change,” she says.
She prefers to set a financial goal and save up for something specific over time than rush out and make a purchase.
“It’s a really powerful thing to wait before making a purchase,” she says.
Her current financial goals involve renovating her heritage-listed home. “We will keep the façade and gut it to rebuild. That’s a major expense for us on the horizon.”
While holidays are rare, she will spend on overseas trips on occasion. “I’m terrible at taking time off. I’m always working.”
Sam Riley: CEO, Drova
Sam Riley was in his 20s when he set out to amass enough money to be able to retire by the age of 40 if he wanted to.
“The goal was always to be doing something by 40 that kept me engaged enough that I didn’t actually want to retire because I was happy,” he says.
An entrepreneur at heart, Sam started a juice and espresso bar when he was 21, which didn’t work out. His next venture was a technology business, Ansarada, an ASX-listed company he ultimately sold nearly two years ago for $250 million.
The sale set him up for life, but he’s not one to rest on his laurels, launching into the complex world of artificial ntelligence with his next technology play, a company called Drova.
The technology startup simplifies risk, compliance and resilience for small businesses. Sam believes it’s got potential to become a tech juggernaut in time.
Having early financial success has meant he has the luxury of slow mornings and working in short bursts throughout the day, problem solving, experimenting with what works and figuring out how to harness AI.
“I favour a more sustainable approach to working these days. More frequent breaks. Making sure not to deteriorate my capacity,” he says.
It was a hard slog. He admits he touched the fringes of serious burnout when he was younger, which he works hard to avoid these days.
“Every business venture has exposed a gap in my skills that I’ve worked to close. Whether that’s marketing or managing people, closing those gaps along the way is how you get more effective at generating wealth,” he says.
The secret to his success has been finding ways to bolster value in the corporate world, finding ways to bring more to the table. Sam admits he spends too much money on travel, food and niche vinyl audio equipment, like turntables. He prefers to invest in experiences rather than things.
But it can get expensive. Like a recent trip to Antarctica to stay in a lodge for a week. “The thing is I didn’t like having these experiences on my own, so I have to bring family or other people and then pay for them.”
Sam describes his investment portfolio as balanced. While he continues to invest in entrepreneurial ventures, he admits he has a safe foundational platform to his investment approach.
“Over the years, I’ve added a lot more dividend stocks and protective assets like gold and silver, and some index funds.
“When I was younger, I didn’t appreciate the value of being safe and boring in the investment world.”
He says a lot of his investments used to be leading edge and visionary. “Some of them work, and some of them don’t. I didn’t really have much balance in my portfolio. I still invest in entrepreneurial things, but am much more conscious of taking a more even-handed approach,” he says.
This article appeared in the Winter 26 issue of Kanebridge Quarterly, which you can buy here.
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