With the price of the average weekly shop going up by more than 10% this year, is there a way for investors to play the rise in spending on ‘essentials’ by owning shares in the companies which make the products we all buy?

Shares has analysed the typical UK shopping basket to see what conclusions could be drawn.

WHAT IS IN THE ‘OFFICIAL’ BASKET?

The ONS (Office for National Statistics), which prepares much of the UK’s economic data including the consumer price index, has constructed a shopping basket of items which it says represents people’s shopping habits.

By measuring the monthly and yearly price changes in the items which go into the basket, it can work out how quickly inflation is rising or falling.

Altogether there are some 730 items in the basket, and the ONS collects 180,000 separate prices from 140 locations every month to compile its price index.

The level of information which is included is truly mind-blowing, as the changes to the basket show.

For example, at the start of this year meat-free sausages were added to the basket to expand the range of ‘free-from’ products, along with pet collars to reflect the popularity of pet ownership and surface wipes to represent the demand for antibacterial products following the pandemic.

At the same time, men’s suits were taken out of the basket due to fewer people dressing up to go to the office, while doughnuts and coal were also removed, presumably because we’re all consuming less of both.

Clearly, we can’t look at 700-plus different items, so we need to narrow the list down.

WHAT IS IN THE ‘TYPICAL’ BASKET?

Kantar Worldpanel, which provides monthly updates on the performance of UK supermarkets in terms of sales and market share, collects data from till receipts covering more than 70,000 items, which is even more detailed than the ONS survey, but unfortunately for our purposes it doesn’t have figures for a ‘typical’ basket.

However, by comparing this year’s till rolls with last year, Kantar estimates UK consumers will pay almost £700 more for their groceries in 2022 than they did in 2021, even allowing for the fact more of us are shopping at discounters like Aldi and Lidl and buying more own-label and frozen products to reduce our bills and food waste.

According to spending data from the ONS, the current average weekly food bill for a UK household, excluding alcohol but including non-alcoholic drinks, has risen to £114 which equates to nearly £4,300 per year.

Shares has narrowed the basket down to the five categories which take the biggest bite out of our weekly budget: processed meat, fresh fruit and vegetables; soft drinks; bread, rice and cereals; and milk and yoghurts.

Together, these account for over £43 of the weekly shopping basket or more than a third of take-home grocery spending.

From this, we can make an educated guess as to which brands the typical shopping basket might contain and which companies are set to benefit from the increase in spending.

Coca-Cola (KO:NYSE) 

Price: $63.80 – Market Cap: $275 billion

The global soft drinks market is dominated by beverages firm Coca-Cola (KO:NYSE), whose non-alcoholic offerings span everything from Coca-Cola, one of the world’s most famous brands, to household favourites such as Fanta, Oasis, Schweppes and Sprite.

Although the company was incorporated 130 years ago, it has kept up with changing tastes and as well as soft drinks it owns the Costa coffee brand and energy drink Powerade.

Last year Coca-Cola generated global revenues of $38.7 billion, and after a stronger-than-expected third quarter organic sales are seen rising by between 14% and 15% this year despite a 7% currency headwind.

Coca-Cola’s shares trade on the US stock market but they can easily be bought by UK investors. A $5,000 investment into Coca-Cola’s shares 10 years ago would be worth $11,510 today including dividends, a 130% total return.

Premier Foods (PFD) 

Price: 104p – Market Cap: £900 million

While the strain on household budgets may be a headwind for some branded food products, Premier Foods (PFD) continues to increase its market share thanks to a portfolio including some of the nation’s best-loved products combined with tasty product innovations.

The maker of quintessentially British goods like Ambrosia creamed rice, Bisto gravy, Homepride cooking sauces, Mr Kipling cakes and Oxo cubes has demonstrated it has genuine pricing power which protects its margins from rising input costs, with shoppers prepared to pay that little bit extra for its cupboard-fillers.

The group’s other brands include Batchelors, Homepride, Loyd Grossman, Sharwood’s and the recently acquired Asian ingredients label The Spice Tailor. A £5,000 investment in Premier Food’s shares 10 years ago would be worth £8,475 today including dividends, a 69.5% total return.

Kellogg’s (K:NYSE) 

Price: $73.40 – Market Cap: $25 billion

Fancy investing in a company that owns some of the most iconic breakfast and snack products in the world? Many products from US food producer Kellogg’s (K:NYSE) are a must-have for millions of people in their weekly shopping basket.

Its shares are listed on the New York Stock Exchange and can be bought and sold on the big UK investment platforms. Someone who invested $5,000 in Kellogg’s 10 years ago would have seen the value of their investment turn into $9,090 including dividends, an 82% total return.

In June, the company announced it would separate into three public companies. It will retain the core global snacking business while spinning off the North American cereal operations and a smaller entity which sells plant-based foods.

The global snaking business is home to such names as Pringles, NutriGrain, Pop Tarts and big cereal brands including Corn Flakes, Frosties, Coca Pops and Special K. The North American cereal arm contains likes of All-Bran, Rice Krispies, Apple Jacks and Froot Loops.

The advantages of breaking up the company mean each division can be more focused on what they do best. It allows for greater freedom
to innovate rather than simply being part of a giant conglomerate.

Typically, when a company splits into multiple parts, investors holding shares in the parent company are given free shares in the demerged entities.

Once Kellogg’s has split into three, the global snacking arm is expected to be higher growth than the historic Kellogg’s group, with an increased focus on emerging markets.

Cranswick (CWK)

Price: £30 – Market Cap: £1.65 billion

Catering to our carnivorous side, Cranswick (CWK) is one of the UK’s leading producers of fresh pork, sausages, bacon, chicken, cooked meats, and ready-to-eat meat products, as well as side dishes and gourmet pastries.

In the six months to September the firm turned over more than £1.1 billion, an increase of 10.7% on last year on a like-for-like basis, as it passed through higher input costs to its customers.

The firm continues to expand production capacity to keep up with demand, such as a third contract cooking line at its Hull cooked bacon facility and a new breaded poultry facility to supply the retail and food service markets.

Investment bank Berenberg says: ‘While industry challenges are unlikely to abate anytime soon, we have confidence that Cranswick can continue to solidify its market position and make strong underlying progress, something that we think will be highly visible when industry fortunes start to turn.’

A £5,000 investment in Cranswick’s shares 10 years ago would be worth £24,058 today including dividends, a 381% total return.

Nestle (NESN:SWX) 

Price: CHF 114 – Market Cap: CHF 310 billion

Swiss firm Nestle (NESN:SWX) is truly a giant in the food industry with annual sales of almost $100 billion, more than double those of Coca-Cola.

As well as Nestle yoghurts and cereals, the company owns the Nescafe and Nespresso coffee brands, the KitKat chocolate brand, San Pellegrino water and fruit drinks, and the Purina pet food brand which has become a huge money-spinner as pet ownership has boomed.

Meanwhile, its Maggi noodles are hugely popular in emerging markets, and it also owns SMA infant nutrition which is over 100 years old and has a global reach.

Chief executive Mark Schneider recently set out new margin and earnings growth targets which were above analysts’ forecasts.

Nestle’s shares trade on the Swiss Exchange, yet UK investors shouldn’t have any problems buying the stock in their ISA or SIPP (self-invested personal pension). Someone who bought CHF 5,000 worth of Nestle shares 10 years ago would have seen the value of their investment including dividends grow to CHF 12,375 today, a 148% total return.

Unilever (ULVR)

Price: £41.60 – Market Cap: £120 billion

Consumer goods colossus Unilever (ULVR) owns a portfolio of what could almost be called ‘essential’ British brands, from Colman’s mustard and Hellman’s mayonnaise to Magnum ice creams and love-it-or-loathe-it Marmite spread.

It also has huge home and personal hygiene businesses with brands like Domestos, Persil and Surf on the one hand and Dove, Lynx, Simple and TRESemme on the other.

While we may not buy these brands every week, it’s likely that the monthly bill for most of us includes some Unilever products.

The firm recently raised its full year sales growth forecast after third quarter revenues increased more than 10% and promised higher margins next year as it improves its pricing and product mix.

A £5,000 investment in Unilever’s shares 10 years ago would be worth £12,055 today including dividends, a 141% total return.

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