Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
This report argues that the 'moat' of big consumer brands—built on TV ads and store shelves—is being destroyed by the internet and e-commerce. The author says consumers can now easily find cheaper, better alternatives online, so these brands are losing market share and may be overvalued. Three key holdings: Gillette lost nearly 30% of its market to upstarts like Dollar Shave Club; Wal-Mart is a winner, with cheap valuation and a strong shift to private labels and e-commerce; Unilever is too bureaucratic to adapt quickly.
One-sentence summary of the author's market view this period: The "brand moat" of traditional consumer giants (Big Brand Inc) is being dismantled by the digital revolution, and investors should be wary of valuation bubbles while focusing on platforms and retail survivors. [Bearish]
The article opens by fundamentally questioning the consensus of "brand supremacy," arguing that the 20th-century business model of Big Brand Inc is being disrupted by the digital revolution. The author quotes Margaret Thatcher, noting that "brand supremacy" has become a "consensus" that no one truly believes in, yet no one opposes either. The article argues that while brands serve as "mental shortcuts in an age of information overload" for consumers, technology is changing everything. The author states bluntly that personal research over the past five years has led to "hyper-scepticism" about whether the 20th-century model of Big Brand Inc can still serve its target customers.
The author points out that, in contrast to these questions about the business model, the valuations of Big Brand Inc are near historical highs. Meanwhile, its management and activist shareholders are exhibiting a "theological focus on raising margins." The author believes this "margin mania" occurs against two key backdrops: first, the traditional physical retail distribution channels for consumer goods are undergoing "emergency surgery"; second, the rise of so-called "weapons of mass discovery" allows consumers to access cheaper, and often healthier, alternatives with a single click. The core judgment of the article is that the balance of power is shifting from companies to customers, and this "structural shift in consumer economics" is an ominous sign for Big Brand Inc.
The author cites MIT professors Brynjolfsson & McAfee's theory of the "Third Industrial Revolution," emphasizing that the exponential growth of digital information is upending traditional consumption patterns, and investment thinking must start from "first principles." The author states: "The Moore’s Law type-nature of this revolution – for example, the accumulated stock of digital information doubles every 1.2 years – is transforming traditional consumption patterns and redefining corporate winners and losers."
Against this backdrop, the author argues that investment thinking must be based on "first principles," starting from a blank slate. Historical concepts of "moats" and "value" may have become "mental dead weights." The author emphasizes that, despite going against human psychology, the pace of change makes challenging "conventional wisdom" imperative. The article also introduces the concept of "Permissionless Innovation," arguing that while this culture may not always yield the "right" answers, it encourages experimentation, and scientific progress precisely comes from moments when "experiment contradicts theory."
The article argues that Big Brand Inc is "dumb" in terms of data insights, while platform companies possess vast amounts of data to better predict consumption patterns, and traditional distribution channels are collapsing. The author points out that Big Brand Inc is, to some extent, "dumb" because it knows almost nothing about what customers buy, when they buy, or how much they buy. In contrast, platform companies have a wealth of such data and can better predict consumption patterns. Meanwhile, the two pillars that drove the global proliferation of Big Brand Inc—linear TV advertising and physical retail distribution systems—are being rapidly replaced or undergoing massive closures and reshaping.
The author argues that all this is happening against the backdrop of internet retail, the "private label boom," and Amazon's "your margin is my opportunity" model disrupting the consumer landscape. The result is that Big Brand Inc is losing customers, as evidenced by its declining revenue lines. Furthermore, it faces a permanent challenge from "Great Product Inc"—innovative challenger brands that, through platforms, offer consumers products with "more value" than the high-advertising, high-margin products of Big Brand Inc. The author uses personal experience with a challenger rum brand to support the skepticism about the "moat" of Big Brand Inc.
The investment themes the article points to are: be wary of the valuation bubble and business model risks of traditional consumer giants (Big Brand Inc), and focus on emerging alternative companies (Great Product Inc) that benefit from digital platforms and "weapons of mass discovery." Institutional perspective bias: As a firm emphasizing "unconstrained, non-traditional" investment thinking, Hosking Partners' views are inherently challenging to conventional consensus. Readers should be aware of its potential tendency to overemphasize disruption risks while underestimating the transformation capabilities of traditional brands.
The core judgment of the article is that traditional linear television advertising, which once served as a "moat" for Big Brand Inc to monopolize consumer mindshare, has collapsed, allowing challenger brands to reach massive audiences at low cost.
The article argues that after World War II, Big Brand Inc monopolized prime-time TV advertising (e.g., I Love Lucy) and leveraged the "mere-exposure effect" to bombard consumers repeatedly, thereby building brand loyalty. The author cites psychologist Daniel Kahneman to support this model: "a reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth."
However, this model is breaking down. Traditional television is being replaced by ad-free or low-ad "binge-watching" models like Netflix. Today, YouTube's daily content consumption exceeds 1 billion hours, making it more popular than American television; Facebook has registered a quarter of the global population. The author quotes Charlie Munger's 1994 remarks to contrast the past and present:
> "...if you were Proctor & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so damn many cans and bottles. Some little guy couldn’t. And there was no way of buying it in part."
Now, "little guy can buy a part of it." The barrier to entry in advertising—the "moat"—has collapsed. Challenger brands can access massive traffic at low cost, bypassing traditional intermediaries, and the competitive landscape has been significantly leveled.
As online shopping becomes widespread, consumers' choice model shifts from "infinite options on shelves" to "limited comparisons in search results," making prices more transparent and decisions more rational, putting pressure on expensive branded goods.
The article contrasts offline and online shopping experiences: a typical grocery store aisle holds about 650 SKUs, and a single Kroger store offers over 400 types of salad dressing, leading to "decision paralysis." In this paralysis, consumers rely on the "availability heuristic"—such as a TV ad seen the night before—to drive purchases.
In online shopping, searches typically display only 3–4 products, with prices clearly visible. The author cites psychologist Barry Schwartz's research, noting that more choices lead to harder decisions. Online searches reduce the number of comparisons, making "choices" clearer. This shift grants platform companies enormous influence over consumer decisions, thereby weakening Big Brand Inc's pricing power. The article concludes: "whilst some Big Brands benefit, these trends make 'expensive' staple-type brands particularly vulnerable."
Retailers, traditionally partners of Big Brand Inc, are now pivoting to develop their own private labels, further eroding brand companies' survival space from the channel side.
The article notes that the 20th-century retail model was designed for brands, with retailers and Big Brand Inc as partners. Wal-Mart, for most of the post-WWII period, called itself the "House of Brands." However, in 2016, the world's largest retailer suddenly changed strategy, shifting toward private labels. Meanwhile, the sustained global success of Aldi and Lidl has made private labels a norm in the Western world.
The article quotes the CEO of one of the largest private real estate companies in the U.S., describing shopping malls as "an historical anachronism – a sixty-year aberration that no longer meets the public’s needs, the retailers’ needs, or the community’s needs."
By analyzing three structural changes—advertising, retail, and consumer behavior—the article draws a clear investment implication: be wary of valuation bubbles in traditional large consumer goods companies (Big Brand Inc). The author points out that while sales of branded CPG (consumer packaged goods) are declining, at least half of large CPG companies are trading within 15% of their historical highs. This suggests the market may not have fully priced in the disruptive risks to their business models. Readers should note that this is the view of Hosking Partners as an active investment manager, whose stance leans toward identifying disrupted "value traps" and may involve shorting or underweighting such assets.
The article argues that the consumer business model has reversed—customers, not shareholders, have become the core, and the "moats" of traditional consumer goods giants are being dismantled by digital platforms and startups. The author quotes Amazon founder Jeff Bezos as a manifesto for the new paradigm: "The right way to respond to this [New World Order] if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service and put a smaller amount into shouting about it, marketing it. If I build a great product or service, my customers will tell each other."
The author supports this judgment with specific data: according to Euromonitor, small brand companies with sales below $1 billion grow at roughly 4 times the rate (c.4x faster rate) of large manufacturers with sales exceeding $3 billion, causing Big Brand Inc's market share to erode slowly but steadily. The article also notes that Unilever employs nearly 4 times the number of employees of the United Nations (nearly 4x the number of employees of the United Nations!), and such an "intergovernmental-level" bureaucracy struggles to relearn from scratch.
The author uses the disruption of the razor market as core evidence, proving that the "product-first" model can easily cross the moats of traditional brands. In just five years, two challenger brands—Dollar Shave Club (founded in 2011) and Harry's (founded in 2013)—grew from zero to a 12% market share, while the long-standing dominant player Gillette lost nearly 30% of its market. The author quotes Lady Bracknell's phrasing sarcastically: "losing one-third of market is neither careless, nor misfortune… but a damning indictment on a business model that put shareholders first."
The article specifically notes that Dollar Shave Club's YouTube marketing video cost only $4,500 to produce but garnered over 25 million views, attracting 12,000 customers in its first two days. The author argues that a company with only seed funding and a handful of employees can so thoroughly disrupt a "necessity" market like razors, which should prompt investors to reassess the value of the "old-school" moat model.
The article reveals that both physical retailers and e-commerce platforms are shifting from "brand ambassadors" to "brand competitors," directly eroding Big Brand Inc's profit margins. The author quotes an anonymous former Wal-Mart executive: in the late 1990s, when Wal-Mart launched its private label, the packaging design was required to "look as much like 1950s Poland as possible"—implying that retailers' attitude toward private labels was negative at the time. But the situation has completely changed. In 2016, Wal-Mart abandoned its "House of Brands" slogan, aggressively promoting its own private labels, and demanded that supplier brand prices be 15% lower than competitors' 80% of the time.
Specific case: Campbell's Soup (CPB), after refusing to yield to Wal-Mart's pricing demands, issued its second profit warning in 2017. Wal-Mart (which accounts for 20% of CPB's sales) reduced CPB soup inventory to promote its private label. As a result, CPB soup sales in the U.S. declined, while private-label soup sales from grocers led by Wal-Mart grew at an annual rate of 10%. The article notes that food retailers' operating profit margins range from negative to 4%, while Big Brand Inc's margins can exceed 30%—even if retailers capture a small share from brand companies, the improvement to their own profitability is substantial.
The article also quotes Warren Buffett from a CNBC interview: "right now, the retailers, they're doing better in this round of the fight." The author specifically notes that Buffett is a board member of Kraft Heinz, implying the objectivity of this judgment.
In the online space, platform companies' data advantages are even more pronounced: Amazon uses accumulated data to price and recommend products to individual consumers, and one-third of all batteries sold on the internet are Amazon's private label. The author warns that with the arrival of the "voice-first" era, Alexa, Siri, and Google Assistant will further weaken the visual brand associations built through decades of television advertising.
The author's clearly directed investment theme is: be wary of the erosion of moats for traditional consumer goods giants (Big Brand Inc), and focus on emerging alternative companies that benefit from digital platforms and the "product-first" model. Institutional perspective bias: As an active management fund, Hosking Partners has an incentive to emphasize the "disruption" theme to justify the value of its stock-picking strategy. Readers should note that it may underestimate the ability of traditional brands to counterattack through digital transformation.
The article divides the investment implications of "brand demise" into three layers: the first is to avoid or even short the most impacted Big Brand Inc companies; the second is that platform companies (the "Big Four") will continue to benefit; the third is that surviving supermarkets/retailers are expected to regain a larger share of consumer profits.
The author believes Wal-Mart, more than any other stock, embodies the upside potential of the "brand demise" thesis, with a valuation of just 0.6x EV/Sales, one-eighth of Kraft-Heinz, but free cash flow double that of Amazon.
If the "brand demise" thesis holds, many investment conventions originating in the 20th century need reassessment. "Moat" investors may need to "start over" with CPG brands, and the definition of "quality stocks" could be rewritten.
The article points to three clear directions: avoid high-valuation traditional consumer goods giants (Big Brand Inc), focus on platform companies (but be wary of valuations already reflecting expectations), and undervalued retail survivors (especially Wal-Mart). Institutional perspective bias: As an actively managed fund, Hosking Partners' "brand demise" thesis may serve its portfolio positioning (e.g., shorting Big Brand Inc, going long on Wal-Mart). Readers should be aware of potential conflicts of interest.
The article draws on a 1960s psychology experiment to analogize the changing relationship between brands and consumers. Charles Goetzinger of Oregon State University had students repeatedly appear in class wearing large black bags, with the students' reactions shifting from hostility to curiosity and eventually to friendship. The author uses this to illustrate that traditional consumer goods companies have long relied on "mere repeated exposure" to build brand preference—as Zajonc put it, "mere repeated exposure of the individual to a stimulus is a sufficient condition for the enhancement of his attitude toward it." However, the digital revolution has now broken this one-way model of indoctrination.
The article uses a series of links and case studies to demonstrate that consumers have gained unprecedented access to information and choice. Key evidence includes:
The article uses specific transaction multiples to imply that traditional consumer goods companies are overvalued. Unilever acquired the Korean skincare brand Carver for €2.3 billion, corresponding to 7x EV/Sales, while Unilever itself trades at only 2.8x EV/Sales—an acquisition premium of 2.5x. The author's implicit judgment is that traditional brand companies must pay hefty premiums to acquire emerging brands to sustain growth, which precisely exposes their weak organic growth.
The author argues that the "brand moat" of traditional consumer goods companies (Big Brand Inc) is being eroded by digital platforms. Consumers now have near-perfect, instant information through smartphones, social media, and e-commerce platforms, with brand loyalty being replaced by "massive discovery weapons" (such as Instacart's search rankings). Investors should be wary of consumer goods giants whose valuations are at historical highs but whose management remains focused on margin improvement rather than addressing this power shift. Institutional perspective bias: As a contrarian value investor, Hosking Partners naturally tends to question market consensus—readers should note that it may underestimate the actual barriers of traditional brands in specific categories (such as baby food and prescription drugs).
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Wal-Mart | Add/Hold for Observation | Biggest beneficiary of brand extinction, with cheap valuation and huge transformation potential | 0.6x EV/Sales, free cash flow twice that of Amazon; 4,600 stores covering 90% of the U.S. population within 10 miles |
| Dollar Shave Club | Hold for Observation | As a disruption case, proves small brands can cross traditional moats at low cost | From 0 to 12% market share in 5 years; YouTube marketing video cost only $4,500, garnered 25 million views |
| Harry's | Hold for Observation | Disrupts the razor market alongside Dollar Shave Club | Combined with Dollar Shave Club, from 0 to 12% market share in 5 years |
| Gillette | Reduce/Bearish | Lost nearly 30% market share, business model under scrutiny | Market share eroded by challengers by nearly 30% |
| Campbell's Soup (CPB) | Reduce/Bearish | Issued profit warning after rejecting Wal-Mart's pricing demands; private labels squeezing its share | Second profit warning in 2017; Wal-Mart reduced its inventory, private label soup sales up 10% annually |
| Unilever | Reduce/Bearish | Bloated organization, weak organic growth, forced to acquire emerging brands at high premiums | 169,000 employees (nearly 4 times the UN); acquisition of Carver at 7x EV/Sales (its own is only 2.8x) |
| Kraft Heinz | Reduce/Bearish | Buffett hints retailers are performing better in the contest, and its valuation is too high relative to Wal-Mart | Wal-Mart's EV/Sales is one-eighth of Kraft Heinz's |
| Amazon | Hold for Observation | Platform company benefits from brand extinction, but WholeFoods acquisition may expose weaknesses in food retail | One-third of all batteries sold online are Amazon's own brand |
| Hold for Observation | Provides instant price and quality transparency, but needs to assess if this is already priced in | No specific data provided | |
| Hold for Observation | Allows consumers to endorse Great Product Inc, but needs to assess if this is already priced in | Has one-quarter of the world's population registered | |
| Apple | Hold for Observation | Connects Great Product Inc with the "pocket store" of high-income consumers globally | No specific data provided |
| Aldi / Lidl | Hold for Observation | Private label model continues to succeed globally, cloned by retailers | No specific data provided |
| WholeFoods | Hold for Observation | Amazon's acquisition may stem from a "weakness" of failing to scale over 17 years | No specific data provided |