Consumer products companies are reportedly changing their recent "value over volume" strategy as inflation-hit consumers abandon high-end products. Company executives and analysts say packaging customers are emerging from a post-pandemic destocking period, but demand generally remains sluggish due to weak consumer purchases hurt by inflation. Brands and retailers are turning to promotions to entice consumers to open their wallets, but the trend is having mixed effects on packaging companies.
Michael Roxland, senior paper and packaging analyst at Truist Securities, said in a note to investors on May 14 that some consumer products companies have already increased promotions, while others plan to ramp up promotions in the coming months. .
This is a shift in strategy from past years, when consumer goods companies focused on boosting sales by keeping product prices low, rather than prioritizing volume. Now, some FMCG companies are doubling down on their efforts to boost sales.
Michael Roxland said: "While promotions have not yet become widespread across the industry, these first glimpses of promotions represent a shift from volume to price, reversing the FMCG business strategy that has been popular over the past few years. As consumers cut prices Purchasing more cost-effective products or simply postponing purchases altogether has led to significant declines in sales and market share for some brands, which in turn has had a negative impact on food packaging sales."
Cereal maker W.K. Kellogg's CEO Gary Pilnick said on an earnings call on May 7 that first-quarter sales were down 7% year over year and that it increased promotions during the quarter, but that appears to be a tailwind.
Kathy Keller, CEO of frozen and packaged food maker B&G Foods, noted during the company's May 8 earnings call that there is "more competition" given "higher prices and therefore greater sales pressure." Intense promotional environment”. Some promotional discounts can help consumers return to stores and increase sales. ” But he expected the move would be limited to the first half of this year, as B&G launched the promotion last year.
Likewise, snack company Mondelēz International noted an increase in promotions in North America as consumers face inflationary pressures. CEO Dirk van de Put said on an April 30 earnings call that the company would ramp up promotions in the short term and plan to adjust pack sizes in the longer term. "For those low-income consumers who are very cautious about their purchases and very carefully evaluate when to buy, what to buy and the price, we need to be more flexible in the promotion mechanism that will be launched soon," he said.
