Economists have recently issued warnings about the potential for an upcoming recession. Bloomberg Economics estimates a 38% likelihood of a recession occurring in the next year, with some analysts suggesting that the U.S. economy may already be in a recession. According to Forbes Advisor, recessions are characterized by economic downturns marked by negative GDP, rising unemployment, and decreased consumer spending, which can last for months or even years.
In light of the challenges posed by over two years of a pandemic and global supply chain disruptions, food and beverage companies are assessing the implications of a recession for their operations. While some express optimism about their futures, it remains uncertain whether many consumer packaged goods (CPG) companies are adequately prepared for what lies ahead. Here’s what five CPG companies recently shared regarding their strategies in anticipation of a recession:
During General Mills’ latest quarterly earnings call, Chairman and CEO Jeff Harmening expressed confidence that the company’s portfolio could remain stable amid a recession. He noted that during the Great Recession of 2008, the trend towards at-home eating benefitted their cereal brands. “As consumers become more concerned about their economic situation, they tend to eat more at home and less out,” Harmening pointed out. He also observed a slight decline in restaurant traffic recently, coupled with an increase in home dining. Despite rising consumer anxiety, he stated that demand for General Mills products has remained relatively consistent regardless of price changes.
Jon Nudi, President of General Mills’ North American retail operations, contributed that in previous economic downturns, the company has seen a slight increase in total volume across its categories. During such times, “second and third-tier brands” often lose market share to private labels, he explained.
At a Deutsche Bank conference last month, Mondelēz International Chairman and CEO Dirk Van de Put was asked about the company’s performance prospects in a recession. He reassured attendees that “our categories do quite well” during economic downturns. Comfort foods targeted at children, such as Oreo and Chips Ahoy cookies as well as Cadbury chocolate, typically maintain their appeal during recessions. Although Van de Put observed that consumer purchasing patterns for their snacks have not changed significantly, he acknowledged uncertainty about future trends. He highlighted the enduring popularity of Oreo among millennials and Gen Z, stressing the importance of retaining cost-conscious consumers.
Constellation Brands President and CEO Bill Newlands conveyed optimism about sales in the company’s latest quarterly earnings call, asserting that consumer demand would persist despite a potential recession. He mentioned that seven out of ten beer shoppers planned their purchases in advance, and noted that the company’s buy rate had increased compared to pre-pandemic levels. “It speaks very well to our business,” he remarked, adding that the performance of brands like Modelo and Corona Extra has contributed to a strong quarter.
However, McCormick & Co. faced challenges with earnings due to high supply chain costs and COVID restrictions in China. In its most recent earnings call, CEO Lawrence Kurzius reported a nearly 33% drop in adjusted operating income but emphasized that economic downturns often boost home cooking, benefiting their product portfolio. To address growing economic pressures, he stated, “Our goal is to have products that appeal to consumers at every price point across the whole category.”
Kraft Heinz CEO Miguel Patricio discussed strategies to counteract inflation’s impact on consumers during Bernstein’s Annual Strategic Decisions Conference last month. While the company has increased prices this year, Patricio noted they are also adjusting packaging sizes and assortments for key brands, including smaller packages for Kraft Singles cheese and economy packs of ketchup. He highlighted the importance of being prepared for a potential recession, stating that consumption of their products has not yet declined. The company is also experimenting with marketing its offerings as components of complete meals, akin to fast-food value meals.
In this complex economic landscape, consumer products like GSK Calcium Citrate Malate Vitamin D3 and Folic Acid Tablets may also see shifts in demand as individuals look for affordable health solutions amid tightening budgets. As companies navigate these challenges, their ability to adapt to changing consumer behavior will be crucial in maintaining their market positions during uncertain times.