The multibillion dollar consumer staples companies are slowly bringing back their customers, but the ways in which they lured them differ. How did they get consumers to pay a little more to get Colgate toothpaste, Kellogg’s Frosted Flakes and Gillette Fusion shavers, rather than the store-brands that were preferred a few months ago? (The allure of generic).

Dan Sewell and Sarak Skidmore for the Associated Press report that name-brand products have been battling to keep shoppers from trading down to store brands to save money.

• Procter & Gamble (NYSE: PG) cut prices and rolled out cheaper versions of some products.
• Colgate-Palmolive (NYSE: CL) took advantage of lower advertising rates to deliver the message that its products give more bank for their buck.
• Kellogg (NYSE: K) also put money toward marketing. (Brand names fight back).

Consumer spending is perhaps the single strongest driver of the economy, accounting for about 70% of the economy by federal measures. The sector remains weak and continued struggles in the job market could undermine a full recovery.

For more stories about consumer staples, visit our consumer staples category.

• Vanguard Consumer Staples (NYSEArca: VDC): up 11.9% year-to-date; Procter & Gamble 13.4%; Colgate Palmolive Co. 3.4%; Kellogg 1.2%

• Consumer Staples Sector SPDR (NYSEArca: XLP): up 10.4% year-to-date; Procter & Gamble 16%; Colgate-Palmolive 3.9%; Kellogg 1.5%

Assets: $525 million

Holdings: Some of the most recognizable consumer staples brands in America, including Procter & Gamble (NYSE: PG), Coca Cola (NYSE: KO), CVS (NYSE: CVS) and Kraft (NYSE: KFT)

Objective

VDC tracks the performance of the MSCI U.S. Investable Market Consumer Staples Index, which consists of large-, mid- and small-cap domestic companies. Its components include the manufacturers and distributors of food, beverages, tobacco, non-durable goods and personal products.

What You Should Know

• Expense ratio is 0.25%
• It’s up 11.8% year-to-date
• It has 112 holdings

The Latest News

• Major consumer staples brands, such as Procter & Gamble, Kraft and General Mills, have stepped up their advertising efforts in order to grab the growing home-cooking segment of the market, reports Stuart Elliott for The New York Times
• When consumers have opened their wallets lately, it’s generally for staple items that present a good value
• This is a trend that could continue into the holiday season
• Consumers are increasingly turning to private labels and store brands to cut down on costs, which could deliver a sucker-punch to the consumer staples name brands, Mike Pienciak for The Motley Fool says
• Name-brands aren’t taking this lying down:  Proctor & Gamble is promoting a price cut up to 10% off their consumer products portfolio, hoping to lure customers back

Kraft Foods (NYSE: KFT) kicked things off by bidding for Cadbury (NYSE: CBY), which declined the offer. Now other names could be lining up, including Hershey (NYSE: HSY), Pepsi (NYSE: PEP), Nestle and Mars. Don Dion for The Street reports that several types of ETFs, from food to consumer staples, can provide exposure and give investors the opportunity to capitalize on this battle.

• PowerShares Dynamic Foods (NYSEArca: PBJ): up 7.3% year-to-date; holds large, top consumer goods companies; Pepsi is 4.2%

• Consumer Staples SPDR (NYSEArca: XLP): up 7.3% year-to-date; highly concentrated holdings and is the largest ETF in the group; with 40 holdings, 66% of assets are given to top 10 companies; Kraft is 4%; Pepsi is 4.3%

• Vanguard Consumer (NYSEArca: VDC): up 9.7% year-to-date; holds 110 companies and tracks closely to XLP; Pepsi is 6.7%; Kraft is 3.5%

• iShares Consumer Goods (NYSEArca: IYK): up 14.3% year-to-date; IYK’s holdings include large, mature firms that offer stable returns, but does not offer any retail exposure that the others do; has a higher expense ratio of 0.48%; Pepsi is 8.8%; Kraft is 3.5%

The bidding over Cadbury could drag on for months, and the attention that it could draw to the sector make these funds interesting buys in the meantime.

For more stories about consumer staples, visit our consumer staples category.

Shoppers might not be able to afford Rolex watches and champagne during a downturn, the theory ran, but everyone still needs staples such as soap and toilet paper, explains the Economist.

So why have sales fallen in this category? One big factor is growing competition from stores’ own brands, or “private labels.” Private-label goods tend to cost about a quarter less than branded ones, and so they appeal to penny-pinching consumers. The rising commodity prices have also put a damper on the sector at large, as consumers have simply redefined what’s really a “staple” for them.

Analysts are forecasting the change to private-labels is a trend that could stick, whether the recession is here or not. The quality of private-label goods has improved, making it harder for consumers to discern any difference between a store’s brand and a more expensive rival.

How can you play the shift from name-brand to generic? Look for ETFs that hold stores with private labels, such as Target (TGT), Wal-Mart (WMT) and CVS (CVS).

• Consumer Staples Select SPDR (XLP): up 5.6% year-to-date; holds Wal-Mart, 11.7%; CVS, 5.1%

• Vanguard Consumer Staples (VDC): up 7.8% year-to-date; holds Wal-Mart, 11.2%; CVS, 4.2%

For more stories about retail, visit our retail category.

Consumer spending is a huge indicator of the health of the U.S. economy, so it is studied closely.

For the month of June, consumers were feeling secure enough to spend some money even as their incomes dropped, according to the Associated Press. June’s rise in spending came as the average income fell 1.3%, the largest decline in four years. Wages and salaries fell 0.4% in June from May, the eighth straight monthly drop. One theory suggests that the jump in spending came from government subsidies that drove up new car and home sales.

In July, that wasn’t the case, as retailers reported sluggish sales.

Karen Tally for The Wall Street Journal says that July’s decline is the 11th consecutive month in which comparable store sales declined. Even discount stores are anticipating a 6.1% drop in sales.

Consumers for the most part appear to be sticking with the necessities and hunting down values, making consumer staples ETFs appealing. Their top components are a mix of brands that provide staple items such as toothpaste and household cleaners (Colgate (CL), Procter & Gamble (PG)) as well as value-oriented retailers (CVS (CVS), Walgreen’s (WAG)).

• Consumer Staples Select Sector SPDR (XLP): up 3.7% year-to-date

• Vanguard Consumer Staples ETF (VDC): up 5.6% year-to-date

For more stories about consumer staples, visit our consumer staples category.

When it seems like everyone is being affected by the global economic meltdown, there are a few sectors, and exchange traded funds (ETFs) that track these sectors, that seem to be immune from having to slash prices to attract consumers.

In a time of a recession and depressed consumer spending, the most common thing businesses do is cut prices, and most are doing this. However, when dealing with pricing of a product, one must be mindful of the immediate effects it will have on the company and the long-term effect it will have on competitiveness and product branding, states Geoff Colvin of Fortune.

Some companies are defying the price-slashing trend, and are either maintaining or even raising their prices.  For example, Colgate-Palmolive (CL) is sustaining their prices and McDonald’s (MCD) is actually raising their prices.

Despite the hike, McDonald’s still seems to be doing relatively well. On Monday, though, the nation’s number one hamburger chain warned that the dollar could hurt its profits during the first quarter, says Lauren Shepherd for the Associated Press. But the company’s CEO is still confident in its fundamental strength

One may ponder how could these companies do this and still keep their heads above water in such times?  The answer is actually pretty simple. In the case of Colgate, they offer products that are specialized and a necessity, such as toothpaste, something we hope no one is skimping on. There aren’t many, if any, substitutes for toothpaste and we all need it.

As for McDonald’s, despite higher prices, the restaurant is still a great value.  Additionally, MCD is seeing a surge in demand owing to the economic conditions which are forcing many consumers to opt for cheaper alternative options for food.  In a nutshell, both these companies offer consumer staples that we just can’t live without.

If you want to grab exposure to these companies and the consumer staples sector, take a look at:

• Consumer Staples Select SPDR (XLP): down 17.7% year to date; CL is 3.9%

• Vanguard Consumer Staples (VDC): which is down 17.6% year to date; CL is 3.3%

American International Group (AIG) has set off a another wave of pessimism about the health of the U.S. financial system, pushing the blue chips below 7,000 for the first time since Oct. 28, 1997. Tim Paradis for the Associated Press reports that investors are fleeing financials after the government said it would give AIG another $30 billion in loans, in addition to the $150 billion it has already given the company.

European banks are also a concern and even though things look pretty bad right now, they can still get worse. AIG reported that they lost $61.7 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history, amid continued financial market turmoil.

This news came as the U.S. government announced a restructuring of a bailout plan for the troubled insurer, extending $30 billion in additional aid to the company, reports Ieva M. Augustus for the Associated Press.

• Financial Select Sector SPDR (XLF): down 39.3% year-to-date; up 2.2% for one week

Consumer spending spiked in January, going higher as the purchases in food and non-durable items were up. The Commerce Department said Monday that consumer spending rose 0.6% in January, even better than the 0.4% gain that economists expected, reports Martin Crutsinger for the Associated Press.

Personal incomes rose 0.4% in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Personal savings rose 5%, proof that Americans are buckling down for the worst.

• Vanguard Consumer Staples ETF (VDC): down 14.4% year-to-date; down 4% for one week

New York oil prices dropped by more than $3 a barrel this afternoon on expectations of prolonged weakness in energy demand. OPEC has decided to cut output to help generate demand amid the global recession, reports Alex Lawler for Forbes.

• United States Oil (USO): down 18.3% year-to-date; up 11% for one week

The Motley Fool on MSN Money suggests seven stocks that have managed to hold up relatively well in the recession. These are taken from CAPS data that have rated four and five star companies who have outperformed  the market and have higher than usual annualized gains.

Many of these stocks are components in ETFs, too, so there’s a way to get broader access to them.

• Gilead Sciences (GILD), biotechnology; 6% of the SPDR S&P Biotechnology (XBI)

• Colgate-Palmolive (CL), consumer staples; and PepsiCo (PEP), snacks, soft drinks. Both are components of PowerShares Dynamic Consumer Staples Fund (PSL) - Colgate is 2.6%; Pepsi is 2.4%

• Altria Group (MO), focuses on cigarettes, tobacco and Phillip Morris International (PM), cigarettes. Vanguard Consumer Staples (VDC) holds 3.2% of Altria; 14.8% of PM; 7.3% of Pepsi and 2.9% of Colgate.

These companies display sustainable earnings and have decent debt positions, two important factors to consider during a recession. Cash flow also is a big plus. And of course an exchange traded fund(ETF) is a better play because there is more diverisification and the risk is spread out over a basket of companies, rather then one.

Sectors That Blossomed. In a research study conducted by Bespoke Investment Group, there were only two groups that were winners during the time span that passed from Election Day to Inauguration Day  – consumer services and power producers.  Of these two groups, the only sectors that showed positive returns were utilities, health care, consumer staples and telecommunications.

Winning Stocks: To break it down even further, of all the stocks that are publicly traded, only 11 posted double-digit gains, one of which is Newmont Mining Corp. (NEM),which is 9.6% of the Market Vectors Gold Miners (GDX). NEM had 35.5% in gains in that time period.

Looks like there is some optimism left in the markets, at least when it comes to certain sectors. Could it be all the anticipation about just who Obama’s stimulus plan could benefit?  This just proves that there is always a sector, or two, that will enable investors to gain some ground even in a down market.

This hasn’t translated into ETF success just yet – most of the funds focused on these sectors are down in this time frame. But will this news be a sign of good things up ahead? Meanwhile, one fund is clearly tops between election and inauguration:

• Market Vectors Gold Miners ETF (GDX): up 47% between election and inauguration

Consumer buying habits appear to be evolving with the economy, meaning that the consumer is looking for ways and places to shop that stretch their dollar. The Chief Executive Officer of Wal-Mart (WMT) H. Lee Scott Jr. thinks that the typical American consumer is really concerned about their job right now, leading to a change in the way they spend their money, reports Horacio Marquesfor Money Morning.

Proof of the change in spending habits is evidenced by the world’s largest retailer, Wal-Mart, who last month reported a 10% jump in its third-quarter earnings per share; the company’s sales jumped 10%. A double-digit gain in profits during a recession isn’t so bad.

Changes within consumerism is also found on the pharmaceutical level, where there is an increase in self-treatment; more consumers are cooking at home and purchasing frozen items that store well; small business owners also alter their business pattern to match cash flow, meaning more frequent trips for one days’ supply, especially on the small restaurant level. Wal-Mart stores are accommodating to all of these shifts.

• Retail HOLDRs (RTH): down 18.4% year-to-date; Wal-Mart is 26.4%

• PowerShares Dynamic Retail (PMR): down 19.7% year-to-date; Wal-Mart 5.4%

Meanwhile, Proctor and Gamble (PG) has cut their second quarter 2009 outlook as they are not able to meet basic sales target growth. This includes sales from acquisitions, of 4-6% due to the stronger dollar and weakness because of private brands, explains Vinya Ayala for Daily Markets.

• Vanguard Consumer Staples (VDC): down 18.4% year-to-date; P&G 14.8%; Wal-Mart is 9.5%