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Recession-proof industries

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Recession brings with it opportunities as well as threats.

The workforce has been jarred by a flood of redundancies already and most experts believe that worse is to come.

If you lose your job, but deploy your pay-off wisely, you might ultimately look back on it not as a misfortune, but a helping hand from fate

However, if you lose your job, but deploy your pay-off wisely, you might ultimately look back on it not as a misfortune, but a helping hand from fate. If the travails of your former workplace stem from its sensitivity to the economic climate, then you might resolve to seek business opportunities in a more resilient sector.

Starting in business is generally seen as a high-risk way of making a living. But with recession biting and the 'job for life' concept consigned to pre-globalisation history, the modern labour market isn't exactly risk-free either.

If you buy a business with everything in place and a track record of healthy revenues, then you've a better chance than if you start one from scratch, and a better chance of raising the necessary funds. If you already have substantial capital in the current, credit-starved climate, then you could secure yourself a bargain too.

Here are some examples of the services and goods where demand remains stable during downturns.

'Essential' goods and services

Some goods and services are a necessity, meaning people will buy them in about the same quantities regardless of changes to their income or employment circumstances.

Food is an obvious essential.

It can vary in price, wildly according to one variable: eating in versus eating out. The mark-up on food in restaurants and cafes from the total cost of the constituent ingredients is steep.

So the restaurant trade, despite selling an essential good, is among the first sectors to suffer when customers' disposable income is jeopardised or eroded.

One exception to this is the fast-food joint, such as kebab shops, pizza takeaways and fish and chip shops, which offer meals roughly as affordable as home-cooked meals.

Food manufacturers and convenience stores, grocers and other retailers of food ingredients are also recession-proof.

Sales of daily staples such as milk, eggs, bacon, margarine, and so on, tend to remain steady. Few people will start taking their tea black or their bread without butter because of redundancy fears.

Other businesses selling essential - or non-discretionary - goods or services, include post offices, hair salons, 'everything for a pound' shops, healthcare businesses such as pharmacies, funeral parlours, legal service businesses or home maintenance businesses such as plumbing, electrician or pest control businesses.

A car is an essential mode of transport to many, but it's an expensive, fast-depreciating investment. Sales of new cars have plummeted recently, but second-hand car sales have risen 12% in the past five months as consumers seek to economise.

Affordable luxury goods and services

Although the restaurant trade is suffering, 'luxury' foods aren't necessarily sacrificed on the altar of austerity. People still want their comforts - perhaps more than ever - in tough times, but affordability is paramount.

 

Cadburys, for example, enjoyed a 7% rise in demand for its goods in the six months to 30 June. The chocolatier's  success is attributable to the fact that its chocolate is cheap both when taken as a proportion of income, and when compared to premium brands such as Thorntons and Hotel Chocolat.

So recession needn't spell doom for sellers of 'luxury' goods, providing they're at the budget end of the market, where they can draw custom away from premium alternatives - for example, a company selling budget holidays or a jeweller selling affordable jewellery. Other businesses that sell inessential, but comparatively affordable goods include cosmetics retailers, nail salons and newsagents.

Businesses which offer slimmed down versions of luxury goods can prosper, as Jim Surguy, senior partner at Harvest Consulting explained:

"When times are hard people will search for value, so the response should be to make smaller versions of the same things they always buy - drinks in half-sized bottles, or seeds not plants, or holidays lasting five days instead of seven days."

A widely used product most users are loath to forgo, alcohol helps to simulate the feel-good factor drained by recession. As with food, there's a huge discrepancy in price between enjoying the product at home and in commercial premises.

Pubs are, like restaurants, suffering greatly, but this can only benefit off-licences. Despite annual government tax rises, alcohol is still 69% cheaper than in 1980 and is fairly price inelastic anyway - ie, price rises have a relatively minimal effect on demand.

Internet and other technology businesses

E-commerce businesses are very much on the right side of history. Online shopping has matured since the excess of the first dotcom boom and online sales, set to rise again by another 10% this Christmas, are on an inexorable upward trend.

The high-street is having its worst year in decades, but online retail is winning a bigger slice of a shrinking pie. The fact that 'e-tail' prices are generally lower because of lower operating costs is particularly important to today's value-conscious consumer. Internet shopping is also, of course, much more convenient.

Businesses ahead of the technology curve, whether as innovators or users, tend to be resilient in a recession. After all, technological improvements improve efficiency and cut costs, and it's the least efficient, most wasteful companies that go under when revenues fall.

Green industries

Far from something which simply benefits future generations, reducing a company's environmental impact can save it money and ingratiate it with today's environmentally aware consumers. And innovators in renewable energy, waste management or other environmental services are emerging to meet rising demand for their services and increasingly incentivised by government financial support.

Tom Ferns, partner and corporate finance specialist at Rosenblatt Solicitors, sees a bright future for 'green' companies, despite the prevailing economic gloom. "We think alternative energy will survive the downturn, because people need power," he says. He also tips waste management as a robust sector. "There's a move away from landfill sites into recycling and alternative energy deals, and we see that continuing to be a strong area of our practice over the next few years."

Businesses that always prosper during downturns

Some businesses actually perform better in a downturn. These include debt collection businesses, cheque-cashing shops such as Cash Generator (especially now the credit tap has run dry) and solicitors (unfortunately, crime and divorce rates rise in tough times).

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