Corporate Profiles - 2020 - 8

EDITORIAL

For CPG companies, major
challenges loom after 2020 boom
o reader needs to peruse this annual Corporate Profiles issue to learn
that 2020 has been a year like no other for the consumer packaged
foods business. If supermarkets and other retail outlets are where a
company's products are sold, chances are the business had an extraordinarily
successful year, certainly in terms of sales and most likely in terms of profits.
Still, the profiles collectively offer a breathtaking view of how the heretofore
staid consumer staples food business was turned on its head by the rapid spread
of the coronavirus (COVID-19). Beginning in March the pandemic left companies that previously were famished for growth opportunities suddenly starved
for adequate production capacity and an adequate workforce to meet elevated
demand. Some of the fastest growth was enjoyed by prominent, center-ofstore products that had been enduring decades-long declines in popularity,
including condensed soup, flour and sliced bread. The sales surge initially was
attributed to panic buying precipitated by stay-at-home orders imposed across
large areas of the United States during the spring amid an effort to "flatten the
curve" of COVID-19 spread.The hoarding was likened by a baking executive to
the kinds of sales activities often seen ahead of a hurricane with the key differences being that this episode was taking place coast to coast, not just in a local
area hit by catastrophic weather, and that the strong demand lasted not just
days but weeks and months. The economic shutdown meant away-from-home
dining, including at foodservice outlets and institutions, plunged and at-home
food expenditures rose to the highest level in decades.
The shift was tracked in monthly data issued by the Economic Research Service of the US Department of Agriculture. A figure that normally drifts upward
or downward negligibly from one month to the next swung wildly in 2020.
The share of food sales accounted for by at-home expenditures peaked in April
at 66%, up from 48% in February and a larger percentage than for any year
since 1974. Dollar sales of at-home food expenditures peaked in March at
$79.2 billion, a record high for any month and fully $10 billion greater than
any single month ever (excluding December, when at-home food expenditures
spike each year - the December record was $74 billion). Foodservice began
to recover as the year progressed, but in July, the share held by at-home food
expenditures had retreated only to
55% and was still 7 percentage
points higher than the 12-month
average leading up to March 2020.
In addition to providing large
lifts for companies' mega brands,
the surge in sales lifted numerous
secondary brands. With supermarket shelves bare or nearly bare consumers took what they could find or,
in some cases, turned to products
perceived as satisfying heightened
L. Joshua Sosland
needs for comfort or nostalgia.
President
Penetration has been a watchword
Sosland Publishing Co.

8 \ October 2020

©PIMAN KHRUTMUANG - STOCK.ADOBE.COM

throughout 2020, with company after company celebrating increased sales
of products to households new to the items. For instance, Kellogg Co. said
its ready-to-eat cereal brands increased household penetration 3 percentage
points between February and March. In July, Kraft Heinz Co. said many of its
brands grew household penetration by double-digit percentage points from the
year before. In normal times, CPG companies would happily invest tens of millions of dollars in advertising and promotion in the hope of capturing a fraction
of the trial achieved in 2020.
For the balance of 2020 and into next year, companies will fight hard
to retain a portion of the new business they suddenly gained over the past
several months. Still, it is far from clear that the outlook for the industry in
2021 is bright. Come March, food companies will begin lapping the extraordinary results of this year. Restoring retailer inventories will fill some of the
gap, but without pantry loading sales will be lower. In striving to retain new
households, the entire industry will be back to competing for a larger slice
of the pie in what may be at best a zero-sum game. It would be wise to assume foodservice sales will continue to recover, to a degree and at a pace
unknown, creating a further meaningful headwind for branded food companies. Meanwhile, other significant unknowns face the industry and the overall
economy. Will a vaccine be approved and when? Will widespread vaccination
put COVID-19 sufficiently under control to give consumers the confidence to
resume normal social behavior? What shifts in consumer eating preferences
and food shopping behavior, including e-commerce, will extend beyond the
pandemic? Throughout this year, many companies have continued to pursue
ambitious strategic plans underway before the pandemic hit, but amid this
year's disruption, management teams have been unable to see how well
the changes are matching up against true underlying long-term trends. The
remarkable food business surge of 2020 certainly has been welcome in
c-suites, but the bounty sets the stage for unprecedented and daunting challenges for management requiring agility and wisdom. CP

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Corporate Profiles - 2020

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