How CPGs Like Kraft Heinz, PepsiCo, Unilever & More Are Shifting Investments to Spur Cautious Consumers
As CPGs double down on putting the Consumer at the CenterTM, they’re shifting their investment strategies to adjust to a number of persistent consumer behavior trends.
Consumers remain in the “buy now, wear now, use now approach” that was prompted by the pandemic and reinforced by economic concerns, according to Marshal Cohen, chief retail industry advisor at Circana. Most CPG categories recorded overall demand declines in 2023, with prestige beauty the only general merchandise category to grow in both dollars and units.
While they’re shopping more frequently across most channels, consumers are buying fewer items, per McKinsey & Company, shifting dollars away from traditional brick-and-mortar in favor of online and value channels.
Higher prices, of course, have played a role. With that said, food and beverage retail prices are dropping, but discretionary general merchandise dollar sales still declined 5% and unit sales dropped 4% during the week ending Feb. 3, according to Circana.
“The purchase process has changed, and the change spans all industries and channels,” noted Cohen in a statement. “These widespread changes are rooted in need and practicality, rather than in desire and indulgence. Manufacturers and retailers need to adjust to this new behavior in order to create another shift in the consumer’s spending priorities.”
As many companies ramp up product innovation in 2024, some of the largest manufacturers recently detailed what they’re seeing about consumer behavior and how they’re adapting.
Kraft Heinz
Consumers continue to look for value and are under pressure regardless of income levels, reports the No. 21 publicly owned consumer goods company. While low-income consumers are shopping more at dollar stores, higher income consumers are visiting more club stores.
“But mostly we are seeing them looking for overall smaller trips to stretch their dollar further,” said CEO Carlos Abrams-Rivera in an earnings call last week.
How they’re shifting: Kraft Heinz is increasing product distribution in dollar stores by 10% this year, while club stores will increase offerings by 20%. They’re also testing new products in club channels.
PepsiCo
Despite the current pressure, PepsiCo expects consumer confidence and disposable income to improve throughout 2024. Consumption is also moving from in-home to away-from-home, including convenience retail, as people return to normal mobility.
“Consumers are expecting … a much more holistic experience [in away-from-home], and that's what we're working on and I think we're making good progress,” said CEO Ramon Laguarta
How they’re shifting: PepsiCo is investing in more “food experiences” like Frito-Lay’s The Walking Taco Doritos Loaded lines. They’re also testing food trucks and ways to make their products available to consumers beyond bags, cans, and bottles.
L’Oreal
Chinese consumers are becoming more sophisticated and more demanding, reported L’Oreal CEO Nicolas Hieronimus. They’re also increasingly looking for true online and offline experiences.
Most of the largest consumer goods companies closely monitor consumer behavior in China, often viewing it as a bellwether of future behavior in other regions. For L’Oreal, the region also represents a significant whitespace for new shoppers.
“We are convinced that China is still the next China,” declared Hieronimus in an earnings call to explain why they’ve prioritized mainland China over travel retail.
How they’re shifting: L’Oreal is opening their first smart fulfillment center in Suzhou to reinforce logistics capabilities.
The Hershey Company
In addition to prioritizing time with friends and family over solo activities, mental and physical health remain key priorities for consumers, according to the snack giant.
“Per our poll, more than half of consumers (59%) currently participate in mental health self-care and at least one-third say that weight management and a healthy diet are important to healthy aging,” writes Martin Moore, senior manager of consumer insights, in a company blog.
How they’re shifting: Hershey is expanding better-for-you, sugar management, protein snacks, and plant-based product offerings, as well as smaller portion sizes of their classic brands.
Unilever
Ice cream shoppers are heading to private label as they prove to be more price sensitive in this key Unilever category vs. others.
It’s not a new story for Unilever, which installed Peter ter Kulve, previously the leader of home care, as the company’s new ice cream leader last fall in response to disappointing performances.
How they’re shifting: Unilever has replaced 80% of country and regional leaders in the category and shrunk the overall size of the leadership team since ter Kulve took the helm, said CEO Hein Schumacher on an earnings call. They’ve also developed new targets based on external benchmarks.
They're also taking a harder look at their supply chain in order to increase distribution competitiveness, and have cut one-third of ice cream SKUs in order to focus on scalable innovations.
