How to spot voids and protect ...
November 8, 2021
Supply chain efficiency and cost controls are top priorities in CPG earnings discussions as brands combat inflationary pressures and aim to maximize margins.
How did 2023 look from the CPG C-suite? And what’s in store for 2024?
The most recent set of earnings calls from leaders in the CPG sector reflect a number of common themes, including a general sense of cautious optimism.
Like many of his peers, General Mills CEO Jeff Harmening noted inflation is stabilizing, supply chain disruptions are dissipating, and consumer confidence is improving thanks to wage growth and a strong labor market – all of which is good for the CPG industry. But challenges remain, and brands say reducing costs and maximizing efficiency across their enterprise is still a priority.
CPG leaders continue to focus on plans to build greater resilience into their supply chains and business strategies as a hedge against forces such as geopolitical uncertainty and climate volatility.
Here’s a look at some of the takeaways from recent CPG earnings discussions, the headwinds and tailwinds brands are experiencing, and strategies for staying on course in 2024.
Consumers are in value mode
Across major CPG brands, there was consensus that consumers remain cautious with their spending.
General Mills reported that ongoing value-seeking behaviors from consumers is influencing both the channels they shop and basket sizes, creating headwinds to the company’s margins.
Kraft Heinz’s data concurs and suggests regardless of income, consumers are seeking value and are finding it at places like dollar stores and club stores. They see consumers making smaller trips to stretch their budgets, downsizing to smaller package formats, and buying more when products are on promotion.
Campbell’s is experiencing the impact of this value mindset in both how consumers buy and how they cook, with shoppers leaning into “stretchable” foods such as condensed soup and broth.
What’s the response to this shift in consumer behavior by the leaders in the CPG industry? Kraft Heinz’s initiatives include pairing up portfolio brands to create complete meal solutions and offering multi-packs, 12-packs and four-packs in different formats to consumers looking for value.
“We’re also making sure we’re partnering with retailers,” said Kraft Heinz CEO Carlos Abrams-Rivera, “Improving the overall assortment to optimize traffic down the aisle.”
Kraft Heinz’s data suggests regardless of income, consumers are seeking value and are finding it at places like dollar stores and club stores.
Input cost inflation remains a concern
Executives also addressed the challenges posed by lingering inflation on input costs. Companies like Hershey’s and Mondelez noted continuing inflation and historically high cocoa and sugar prices as near-term challenges influencing their business decisions. Kraft Heinz called out tomatoes and sugar prices as problematic but sees labor and transportation costs as the source of most of its inflationary woes.
“While current inflation levels are lower than what we saw over the past two years, they are still higher than the average annual inflation rate we experienced in the decade leading up to the pandemic,” said Harmening.
To offset the lower profit ceiling created by high input costs, brands are pushing down the floor by creating cost savings, especially through improvements in supply chain efficiency.
Campbell’s attributed much of its recent boost in adjusted gross profit margin to supply chain productivity improvements. And General Mills reports that it is pursuing “historical cost savings” in the face of what it expects will be continued input cost inflation, and it identified improving supply chain efficiency is one of its top-three goals for progressing against its 2024 fiscal priorities.
“While current inflation levels are lower than what we saw over the past two years, they are still higher than the average annual inflation rate we experienced in the decade leading up to the pandemic.”
Jeff Harmening, CEO General Mills
Where does sustainability fit in?
What are CPG executives reporting on the sustainability front? Research shows that consumers care about sustainability performance and make purchasing decisions accordingly. Yet mentions of ESG initiatives and sustainability on earnings calls have declined.
Mondelez International is one exception. The brand prominently featured its sustainability performance in its (record-breaking) 2023 earnings summary. The brand reports good progress toward goals such as increased utilization of sustainably sourced critical ingredients, including cocoa (we see you, Oreo’s). They also achieved an important milestone in 2023 by submitting a roadmap to achieve net zero by 2050 through the Science Based Targets Initiative. More than 97% of the brand’s packaging is now designed to be recycled.
Reducing carbon footprint, increasing recycling efforts, promoting responsible sourcing practices, and reducing food waste will continue to play a role in overall CPG performance and consumer perception in the years to come.
Innovation and distribution are growth drivers
Emphasis on product innovation, brand differentiation, and media spend to stay competitive in an evolving market landscape were near-universal themes for CPG leadership. Hershey’s drove the point home by investing in a high-profile Superbowl ad buy promoting its “largest innovation of the year,” Reese’s Caramel.
“We will continue to invest across our brands, with advertising and related consumer spend planned to increase in line with sales,” said Hershey’s CEO Michele Buck. “Our teams have a robust calendar of incremental innovation, distribution and merchandising activations planned for 2024.”
General Mills identified both product innovation and expanded distribution as essential components of its competitive strategy, and Clorox is “making ongoing investments in product innovation… supported by strong advertising and sales promotion investment.”
Effective product innovation and strategic media planning both require a deep understanding of what consumers want and where, ensuring product is on shelves when advertising creates the desired bump in demand. That brings us to data.
Effective product innovation and strategic media planning both require a deep understanding of what consumers want and where, ensuring product is on shelves when advertising creates the desired bump in demand. That brings us to data.
Brands are investing in technology
Not surprising, technology initiatives are playing a role in CPG brands’ efforts to improve operational efficiency and capture consumer insights. Executives reported new ERP implementations, new DSD logistics and warehouse network systems, enhanced IDP technologies, and other digital investments during 2023.
“Technology is front and center of our strategy,” according to Kraft Heinz, where digital advancements are enabling the brand to reinvest in future growth, make faster decisions, improve labor usage, and reduce yield losses.
And while not explicitly mentioned in their earnings calls, the vast majority of top CPG brands are now live on Walmart Luminate.
Luminate is an analytics and data-sharing platform that connects Walmart’s internal teams and external suppliers. While the transition to the new platform was a significant change for CPG suppliers, it also provides them with access to more actionable data and insights into sales patterns and consumer trends nationwide.
It will be interesting to see which CPG brands take best advantage of technologies like Luminate to gain a competitive advantage on retailer shelves.
“Technology is front and center of our strategy,” according to Kraft Heinz, where digital advancements are enabling the brand to reinvest in future growth, make faster decisions, improve labor usage, and reduce yield losses.
Efficiency, insights, and innovation for 2024
To anticipate trends, delight consumers with products they want, streamline supply chains to control margins, and understand where opportunities lie and where investments will pay off, CPG brands need granular, real-time data.
Crisp consolidates and centralizes this data from 40+ retailers and distributors, integrating it seamlessly into the existing ecosystems of leading CPG brands. This creates a comprehensive data strategy to understand consumer trends at the retail level, optimize inventory flows, expand retail distribution, better service retailers, and drive velocity. We also help brands leverage data to monitor aging inventory and reduce waste, demonstrating our commitment to sustainable practices.
Planning for your brand’s future starts with a clear picture of what your business looks like today. To get started, book a demo of Crisp here.
