How do Reccession Proof Businesses Look Like?
Businesses in their simplest meaning are vehicles that are meant to generate cash flows for their owners. The cash flows ought to reflect a positive return on investment over time. Notably, economic conditions both at the local and global level can affect a business’ ability to generate desirable returns. One of the most significant economic conditions hugely known to negatively impact most businesses is a recession.
Recessions cripple economies, cause loss of jobs and incomes and to a greater extent downgrade people’s living standards. It is therefore imperative to look at businesses that hardly get hiccups from recessions. These businesses are referred to as recession proof businesses. Investors can either invest directly in them or buy their stocks and be assured of a higher probability of sustainable growth into the future.
Literally everyone knows about candy. Right from childhood, almost every human has had an experience with candy. It has brought to humans a level of happiness that is carried into adulthood and even into old age. Important to note, Candy can be addictive. People use it to ease their pain, pass time in their pleasure, or help navigate work.
Recessionary periods see many people experience tough times that can be emotional, psychological or even financial. As such, people tend to have Candy to ease their pain through such times. Snickers, a confectionery brand was introduced during the great depression and saw a decent market reception. Further, Cadbury sales went up 30% during the 2008 financial crisis, while Nestle recorded 11% profit growth during the same period. In 2020, chocolate sales went up 20%. These figures show that the candy business hardly takes hits from recessions.
Remember Warren Buffet on his investment in Wrigley’s stock? He argues that the company has a simple business model and he does not see a time that people will stop chewing gum into the future. In fact, the world population keeps on growing, which translates to a growing clientele for the brand.
Pickup and delivery businesses are growing around the world. Their business models can be complex at scale but are among the recession proof entities of our times. During recessions such as the one triggered by COVID, people tend to be at home most of the time. This leads to increased orders online that need to be delivered by delivery businesses. Times such as the financial crisis of 2008 had people’s spending abilities quashed.
Gas becomes an expensive commodity during crises. To cut down on such costs, online orders are made by consumers. In turn, delivery businesses fulfil them. You could argue this is why the trucking business continues to thrive despite the challenges they experience of limited driver supply and controversial pay to the same drivers.
These items are essentials for human living. They include toiletries, detergents, tooth paste, and food. People will need to be in clean environments, eat, and most importantly keep themselves clean as is enabled by bath soaps, shower gels and many other related items. One can argue that the Fast Moving Consumer Goods (FCMG) industry takes care of a great deal of consumer staples. Well, that is true but the food industry that echoes the decent gains of recession proof businesses might have been underrated.
Food has seen companies grow to rake in billions of dollars as is with case with McDonalds and KFC. Nutrition companies have joined the other end of the equation and are doing well for themselves.
Recession proof businesses are ideal for risk averse stock investors. They also offer small but great compounding returns to investors who directly invest in them. Arguably, recession proof businesses strike a balance on returns when high growth and cyclical businesses get hit by recessions.
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