A year ago, this column argued the major challenge in 2023 for companies operating in the US food industry would be inflation, albeit that would be a problem that would moderate – which it has.
From mid-2023, US packaged food companies have, overall, been raising prices on their branded products at a much slower rate (and less frequently) than was the case in 2022.
However, while the continued (but significantly moderated) food inflation has allowed many branded companies, particularly the majors, to increase dollar sales, in many, if not most, cases they have turned in lower unit sales.
The US economy also dodged a recession in 2023, which is something numerous economists and bankers said would happen this year. The Fed’s ratcheting-up of interest rates seems to have tamed inflation without ushering in the recession many thought would emerge.
Each of the big-picture issues this column called out a year ago have had an impact on packaged foods companies doing business in the US in 2023 and, as we enter 2024, there are five areas that warrant the attention of executives.
Renewed focus on unit sales
The rampant food inflation seen from 2021 to early 2023 raised the quarterly and annual sales growth rate for most major packaged foods companies over the last three years, evidenced by many groups reporting some of the highest dollar sales growth increases in recent history. However, much of the growth has been attributable to price increases rather than to brand marketing, sales promotion and the other traditional ways we use to boost sales.
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Pay as much or more attention to unit sales growth as to dollar sales in 2024
That all changes in 2024. Packaged foods companies, especially the majors doing business in the US, not only should but must (to satisfy shareholders) put a renewed focus on growing unit sales.
Inflation and the resulting price increases have served as a “cheat sheet” of sorts for packaged foods companies, particularly the big guys, to grow dollar sales.
New rule: Pay as much or more attention to unit sales growth as we do to dollar sales growth in 2024.
Last week, Walmart CEO Doug McMillon said there’s a high probability the US will see deflation in 2024. If he’s right, packaged foods companies will have their biggest sales growth challenge in years. Not only will they need to have a renewed focus on unit sales but they’ll also need to focus like a laser beam on growing dollar sales, unlike what has been the case for the last couple of years.
The challenger brand challenge returns
From the Covid-19 pandemic shutdown in 2020 to the present, big CPG companies have had a great run. Recall that, as recently as 2019, one of the primary concerns of many if not most of the majors was that early-stage and emerging brand companies – challenger brands – were disrupting the categories they own and eating their lunch when it comes to innovation. The pandemic changed that. Concern with challenger brands moved down the “worry list” for legacy brand CPG companies.
During the pandemic and then through this period of hyper-food inflation consumer demand for legacy brands grew immensely. Cries of “big brands are back” (the legacy brands) could be heard throughout the mainstream media.
We’re going to see more acquisitions of challenger brands by major CPG companies
With inflation (and particularly food inflation) moderating further in 2024 – and in my analysis ending around mid-year next year – consumers are going to be ready to explore and experiment more than they have been for the last three years. Challenger brands are still where the major innovation is and, when consumers explore, experiment and switch brands, they usually turn to early-stage and emerging brands and away from legacy brands.
In this regard, we’re going to see more acquisitions of challenger brands by major CPG companies in 2024, along with elements of the traditional pre-2020 marketing/ price/promotion playbook being more aggressively implemented.
Competition and antitrust on steroids
Federal Trade Commission chair Lina Khan is the most competition/anti-competition/antitrust-focused chief regulator the US agency has had in many decades. Based on her writings and speeches, it’s clear she thinks competition in industries like technology, consumer packaged goods, retail and others has been stifled in the US.
For example, she’s taken aim at retail giant Amazon on anti-competition and monopolistic grounds, has signalled she doesn’t approve of the Kroger-Albertsons merger as it is and, in CPG, is currently conducting an antitrust review of Campbell Soup Co.’s $2.7 billion acquisition of Sovos Brands.
CPG industry and food retailing mergers and acquisitions will get more FTC scrutiny in 2024 than at any time in recent history. The last time an FTC chair put a similar focus on the CPG and food retailing industries was in the early 2000s when the regulator went after Whole Foods Market’s acquisition of competitor Wild Oats and some CPG industry mergers and acquisitions.
The environment: climate, water and plastics
As they pertain the CPG industry, environmental issues have been deprioritised, including by consumers, since the pandemic shut down in 2020. This is largely because of the priority of supply (the supply chain crisis) food safety (plastics went from demon to hero status because of Covid and now it’s back to demon status) and focus on price (food inflation, escalating prices). “Can I get it and how much more is it going to cost?” have been the two primary concerns of US consumers since 2020.
However, with Covid-19 in the rearview mirror and food inflation on the wane, this will change dramatically in the US next year.
Climate change, water (its availability and use in agriculture and food processing) and plastic packaging – particularly microplastics – will be the three major environmental issues packaged foods companies and the food industry collectively will grapple with and need to put a major focus on starting in 2024.
Climate change is going to be the biggest issue food and agribusiness companies have faced in the post-World War II era in the US
Not only are these key ESG issues but they’ll increasingly become sales issues for brands. Avoid addressing them and take a risk of sales declines and an erosion in brand equity.
Climate change is going to be the biggest issue food and agribusiness companies have faced in the post-World War II era in the US. Additionally, water, particularly in California and other western states where most of the food in the US is grown, is a mega-issue individual food companies and the industry as a whole aren’t properly addressing but will need to seriously tackle in 2024.
In terms of microplastics, last week’s lawsuit by New York State against PepsiCo for plastic pollution along the Buffalo River is a harbinger of things to come in 2024.
In a related matter last week, Coca-Cola, Nestle and Danone were accused by European consumer group BEUC and two environmental groups of making misleading claims about their water bottles being “100 percent recycled” – greenwashing. The complaint has been turned over to the European Commission for possible legal action.
Consumer trust and the US food industry
Last but far from least, consumer trust needs to be a priority for consumer-packaged foods companies – particularly the majors — and the food industry in general in 2024.
During the pandemic, consumer trust in big, packaged foods companies increased because they delivered for consumers. However, significant and frequent price increases by food-makers from late 2021 to the present have eroded any gains in consumer trust and some argue have even reduced consumer trust in Big Food to a new low.
Earlier this month, global food ingredients supplier Corbion said, based on a survey it commissioned, consumers, particularly those in the US, have low trust in major packaged foods companies. Jennifer Halliburton, senior manager of global insights, and Megan Passman, global insights manager, said consumer distrust of large food companies is growing and is going to be a challenge for packaged food companies doing business in the US going forward.
This lack of trust needs to be on the radar of individual packaged foods companies and the food industry and must be addressed in real and serious ways starting in January. Consumer trust is the lynchpin for packaged foods brands and the companies that produce and market them.
These five hot topics aren’t the only issues consumer packaged goods companies and the food industry collectively will need to focus on in 2024 but they are what I see as the five must-address issues. These aren’t trend predictions. Instead, they’re my attempt to give packaged foods companies and the food industry an important blueprint for 2024. The work begins now.