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.
Overall, Michael Roxland sees the increase in packaged goods promotions as positive for paperboard producers, as this is the primary packaging for cereals, biscuits and other low-cost goods that consumers are turning to. Specifically, he pointed to potential upside for GPI, Grave and Veseloc.
Many packaging company executives also discussed customer promotions on recent earnings calls.
“Our rigid paper container and flexible paper container customers have told us they are starting to feel the pain of deleveraging and plan to begin increasing promotions and marketing activity,” Sonoco CEO Howard Coker said in the company’s May 1 statement stated on the conference call.
Sonoco reported that it has had little impact from the promotions that have taken place so far, although that may change in the coming quarters.
"We believe continued increases in retail prices and slower growth in promotions" will impact second-quarter sales, said Roger Fuller, Sonoko's chief operating officer.
Berry Global executives said on a conference call on May 9 that the recent sales growth was partly attributable to customer promotions.
"April was a little stronger than we expected. So what's changed? I think we're seeing more aggressive promotions and a focus on brand building for our customers," said CEO Kevin Quilinski , "I think we're seeing increased levels of consumer spending in the categories that we participate in. It's unexpected and we're talking about changes that are hard to predict on a month-to-month basis."
Promotional activities in the glass packaging industry and price cuts by consumers are also evident.
“Whenever customers have major promotions, those promotions are typically lower cost packages, and that’s what Where the price cuts are. The price cuts are concentrated in a few markets, and in most cases it's related to promotions."
Some packaging industries, such as beverage cans, have been reported to have seen lower levels of promotion recently. But the summer consumer beverage buying season has just begun.
Crown CEO Tim Donahue said on the company's April 30 conference call: "Promotion levels are lower than we have seen historically and may even be lower than we would like to see. We will continue to Let’s see how the promotions go in the weeks leading up to Memorial Day and then, obviously, we’ll have July 4th.”
Donahue speculated that some of the larger companies may start to "be a little worried about share and they want to start promoting so they don't lose share." While Crown's customers don't appear ready to abandon their value-over-volume strategy just yet, "at some point they may come under pressure from bottlers, or when they consider their market share compared to their competitors." There may be pressure...the way they deal with it is with promotions," he said.
Executives said on an April 26 earnings call that Ball will also keep a close eye on promotions for the upcoming season. Specifically, CEO Dan Fisher said the company will be keeping a close eye on North American beer sales following last year's influential Bud Light boycott.