How much should investors worry about some of the details of Nike's (NYSE:NKE) guidance? More to the point, if this champion of brand value is seeing costs bite into its margin, that cannot be good news for branded consumer product companies in general. After all, if the lions are having to tighten their belts a bit, it stands to reason that those lower on the food chain might be left starving.
Brand Versus Value
As long as there have been premium brands, there have been companies willing to undercut those prices with products that may sacrifice a little quality (or sometimes only the cachet) but still offer good value. However, because these white label/private label companies typically have lower margins, it is not so surprising that they are very sensitive to input costs.
In other words, it is largely a given that companies like TreeHouse Foods (NYSE:THS) and Cott (NYSE:COT) are going to see some challenges to their gross margins. These companies produce products that do not carry the same labels or brand loyalty of competing products from Unilever (NYSE:UL), Kraft (NYSE:KFT) and Coca-Cola (NYSE:KO). That means that they cannot charge as much for their products and they can really only raise prices if the market leaders do so first. If they close the gap in price between their products and the brand names too much, they lose their business.
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