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CPGs grapple with a murky 2022 outlook as inflation, supply chain weigh on operations

Écrit par abadmin

Editor’s note: This story is part of a series on the trends that will shape the food and beverage industry in 2022.

As Hain Celestial prepared to consolidate two U.S. snack plants into one this past spring, CEO Mark Schiller faced a big problem that threatened to halt production of one of its biggest food brands: a labor shortage, which made it impossible to hire the 200 workers needed to staff the new facility.

The former Pinnacle Foods and PepsiCo executive quickly responded by hiring a manufacturer overseas before the product was air freighted to the United States “at a huge cost just to be able to keep it in stock so the retailers didn’t replace me with something else,” Schiller said.

Today, that partner has not only become a permanent supplier but also the first in a broader push by Hain to diversify the number of companies who make its products and packaging, supply its ingredients and distribute its teas, yogurts and chipsto minimize the impact of a future disruption. It’s counterintuitive to the past, Schiller said, where companies prioritized low-cost, highly efficient supply chains. 

“It’s almost become the new normal that you have to have a very scrappy and nimble business model to be able to survive in this kind of environment,” he said in an interview. “It’s unprecedented.”

‘Never seen anything like this before’

Food and beverage manufacturers such as Hain are being inundated with a barrage of challenges that are testing even the most seasoned CEO. Supply chain disruptions, labor shortages, elevated consumer demand and soaring inflation are simultaneously battering CPGs, with little clarity on if and how things will finally improve in 2022. The disruptions have placed many executives in a bind as they try to remain competitive and respond to shifting trends.

General Mills, the maker of Cheerios and Nature Valley bars, said its challenges are especially prevalent across its supply chain, where it’s facing record levels of disruptions, covering everything from ingredient suppliers and its own manufacturing plants to the warehouses of its customers. The Minnesota company has struggled in some cases to fully meet its customers’ orders.

“If you look at our pricing … we would offset the inflation. It’s really the short-term supply chain costs, obviously that’s really the bogey for us,” Jon Nudi, who oversees General Mills’ North America retail business, said during the company’s second-quarter earnings call in December. The company recently hiked the prices of some of its offerings by about 20% at the start of the new year, CNN reported.

Neil Saunders, a managing director with GlobalData, said executives at several CPGs tell him they are struggling to gauge how long many of the challenges they are facing will last and the best way to position their businesses to address them. 

“Even seasoned companies and seasoned industry executives who have been through the many ebbs and flows and cycles are all saying, ‘Well, we’ve never seen anything like this before,’ ” Saunders said. “Wherever you look, there are unusual dynamics and it just makes planning very, very challenging and difficult.”

Among the issues weighing on CPGs include unprecedented upheaval in the supply chain that have made it difficult for businesses to procure packaging, raw materials and trucks to keep up with heightened demand. The highly contagious omicron variant is further pressuring the supply chain by sickening workers at several CPG companies. 

“It’s entirely reasonable for all of us to project that the next month or so could remain strained within the supply chain as omicron runs its course,” Sean Connolly, Conagra Brands’ president and CEO, said last week.

Together, these disruptions have lead to frequent product shortages and temporary out-of-stocks for everything from V8 to Pringles to Nutella.

Optional Caption

Christopher Doering/Food Dive

 

“The fact is, it’s like whack-a-mole,” Vivek Sankaran, CEO of grocery giant Albertsons, said during the company’s second-quarter earnings call in October. He noted the unpredictability of carrying a particular item on the retailer’s shelves. “On any given day, something is out of stock in the store.”

The supply chain disruptions have prompted many companies to curtail promotional offerings. There is little need to boost consumption for a product when demand is already elevated and there is uncertainty over whether the manufacturer will be able to make enough of it in the first place, analysts and CPG companies said.

“You don’t want to frustrate a consumer right at the store looking for a particular product, then they can’t find it,” said Erin Lash, a director of consumer equity research at Morningstar who has personally struggled at times to find Lunchables and small bottles of Gatorade for her family. 

The highest rate of inflation in at least a decade also is battering nearly every major food and beverage company, prompting them to pass along higher prices to the consumer across a broad range of categories.

Conagra, Campbell Soup, Coca-Cola, Nestlé and Hain are just a few of the CPGs to announce price increases. Analysts expect more hikes to continue through at least the first half of this year. Many CPGs have announced plans for or already implemented another round of price increases to further offset further escalating costs.

Any further increase would come on top of those already levied by manufacturers in 2021. Food at home has risen 6.4% during the past year — the largest 12-month increase since the period ending December 2008, according to the Labor Department’s November consumer price index report. The six major grocery food groups measured by the government have all increased in the past year, ranging from 1.6% in dairy and related products to 12.8% in meats, poultry, fish and eggs.

Krishnakumar Davey, president of client engagement at IRI, forecast food prices to jump an average of 5% through the end of June. 


“Even seasoned companies and seasoned industry executives who have been through the many ebbs and flows and cycles are all saying, ‘Well, we’ve never seen anything like this before.’ Wherever you look, there are unusual dynamics and it just makes planning very, very challenging and difficult.”

Neil Saunders

Managing director, GlobalData


So far, there is evidence that consumers have shown a willingness to digest the price increases showing up for some of their favorite products. 

Total food and beverage volumes, which have benefited from the holidays and the rapid spread of omicron that may have shifted more consumption at home, have been stable at about a 2% to 2.5% per year increase during the eight weeks ending Dec. 26, according to IRI data. But the question looming over CPG giants is whether the price hikes will further weigh on the U.S. shopper. 

General Mills’ Nudi noted elasticity is lower now than in the past, but he expects it to creep up going forward. Elasticity is defined as the change in consumer demand following a movement in the price, with lower elasticity indicating a greater number of shoppers are not changing their buying habits despite an increase in cost. 

Chris Foley, president of Campbell Soup’s meals and beverages division, told Food Dive the maker of Swanson and V8 has moved cautiously in increasing prices to make sure they are commensurate with a rise in inflation. 

Campbell hasn’t seen “dramatic changes [in consumption] based around specifically price,” Foley said last month. “We’re not seeing elasticity come in more dramatic than we forecast.” 

PepsiCo CEO Ramon Laguarta observed a similar sentiment in October, when he noted that the snack and beverage giant has witnessed “much lower elasticity on the pricing that we’ve seen historically.” 

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