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How Companies Make Money in Consumer Goods
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If you're LOOKING forsome new investments, consider checking your re­frigerator, broom closet, or bathroom drawers for plenty of consumer goods ideas. Many familiar household brands, such as Tide laundry detergent and Oreo cookies, are made and marketed by companies that can be worthwhile investments. These companies can be good defensive havens during economic downturns because people still use toothpaste and shampoo even if the economy is in recession.

The consumer goods sector is composed of industries such as food, beverages, household and personal products, and tobacco. Like anything large and old, it also moves slowly: Consumer goods markets typically grow no faster than the gross domestic product and sometimes even slower. (Domestic beer consumption has been growing at a paltry I percent annually, for example.) Despite this slow growth, consumer goods stocks tend to be solidly profitable, fairly steady performers, which can make them excellent long-term holdings for your portfolio.

Consumer goods companies generate profits the old-fashioned way: They make products and sell them to customers, usually supermarkets, mass merchandisers, warehouse clubs, and convenience stores. Kimberly-Clark makes diapers and sells them to Wal-Mart and Target. Smucker's cooks up jams, jellies, and preserves for Safeway and Kroger.

The beverage companies offer a slight twist in the equation by selling their products to their distribution channels: bottlers and beer distributors. For example, nonalcoholic beverage firms such as Coca-Cola and PepsiCo manufacture the concentrate and syrups for the finished soft drink products and sell them to their bottling partners, who mix them with other ingredients, package the finished product, and sell it to retailers. In the case of alcoholic beverage manufacturers, companies such as Coors and Allied Domecq make and market spirits that are then sold to their network of distributors, who resell and distribute the finished product to the retail customers.

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