- Larger food companies are likely underestimating the long-term impact the coronavirus will have on at-home food consumption, Credit Suisse analysts said in a research note emailed to Food Dive. Analysts at the firm increased sales estimates above consensus for 10 of the 11 packaged food companies in their coverage.
- The three analysts said once shelter-in-place orders are lifted, consumers will continue to spend more time at home and less time traveling or attending public gatherings, helping many brands in the food space. In addition, consumers will save money during an expected recession by cooking more for themselves. He also said big food companies are likely to see less competition from smaller startups and improved product quality will increase the chance of repeat purchases.
- Credit Suisse said companies like General Mills and private-label maker TreeHouse Foods are among the best positioned for the near term. Analysts were less optimistic on Kraft Heinz and B&G Foods.
The coronavirus pandemic has led to an uptick in purchases as consumers stockpile food and spend more time at home, or are simply reluctant to venture out as often to the grocery store.
Nearly every food company has touted the benefits. Nestlé has seen a spike in demand for its coffee, frozen meals and home baking products. Unilever has been selling more of its teas, ice cream and condiments. And Campbell Soup and Kraft Heinz have worked hard to meet demand for once-out-of-favor products like soup and boxed macaroni and cheese. Shoppers have gravitated toward iconic brands they grew up with and which give them a feeling of nostalgia and comfort, an underlying benefit for many big CPG brands.
After an early surge in sales, manufacturers have watched demand moderate a bit, though signs point to purchases still generally being above where they were before the epidemic. Similar to the uncertainty that surrounds the coronavirus, there's no consensus among food companies or analysts as to how the pandemic will ultimately play out, or even which companies will benefit from changed food consumption habits.
The Credit Suisse analysts make a sound argument that food companies, for the most part, will continue to benefit for a host of reasons — including that consumers will spend more time at home.
"This will create more at-home eating occasions for everything from Special K cereal to Folgers coffee," the analysts said. Still, they added, "Recent optimism about reaching the peak of COVID-19 and reopening the economy is actually working against these stocks because it suggests a quicker reversion back to away-from-home food consumption."
Therein lies the underlying concern. While consumers no doubt have gotten accustomed to making their own bread, cookies and meals, or turning to the convenience of a microwavable frozen dish or a can of condensed soup after several weeks at home — habits that will linger to some extent — consumers could be eager to get out. Some CPG brands could be negatively impacted as people can't wait to attend sporting events, fairs, movies, concerts, restaurants or other places they've been shut out from.
Furthermore, trends that were important to consumers before the outbreak — like clean label or plant based — are likely to regain prominence again. That could once again weigh on CPG players like Kraft Heinz, Campbell Soup or B&G Foods.
In a separate research note emailed to Food Dive on Kraft Heinz, R5 Capital analyst Scott Mushkin said while he sees "a significant step up in sales through the end of the year ... our longer-term view, however, remains more cautious" because of the company's highly processed brand portfolio.
In another note on Campbell Soup, Mushkin said, "it is still a leap of faith to believe that the current stock-up going on in the company’s soup business is a harbinger for consumers having a larger appetite for canned foods."
For many large CPG companies that have been struggling to rejuvenate sales and fend off trendier competitors, the recent surge in demand has been a welcome change from their recent struggles. It remains to be seen if the climb in sales is really here to stay, or a blip because of the times.