Economists have recently warned a recession could be on the horizon.
Recessions are defined by Forbes Advisor as periods of economic decline caused by negative GDP, rising unemployment and lower consumer spending. They can last months or years, based on history.
After dealing with more than two tumultuous years of a pandemic and global supply crises, food and beverage companies have been looking at what a recession could mean for their businesses. While some are optimistic about their prospects, it’s unclear whether many CPG companies are equipped for what may come.
Here’s what five CPGs said recently about a recession and how they are preparing for it:
General Mills’ at-home focus
In the company’s most recent quarterly earnings call, General Mills Chairman and CEO Jeff Harmening said its portfolio has the potential to remain steady in the face of a recession. During the Great Recession in 2008 at-home eating increased, which helped the company’s cereal brands, he said.
“I think as consumers become more concerned about their economic reality, the first thing they tend to do is eat more at home and less away from home,” Harmening said. “We've seen restaurant traffic year-over-year, in the last couple of months, has gone down a little bit, and eating at home has gone up.”
Harmening also said consumers are getting “nervous” now, but are still spending money. Because of this, he said, demand for General Mills’ products has been relatively unchanged, regardless of price.
Jon Nudi, president of General Mills’ North American retail operations, added that in past economic downturns, the company has sold more products across its categories, increasing by a percent or two in total volume. In those times, “second and third tier brands” have lost market share to private label companies, he said.
Mondelēz International: Snacking is essential
When an analyst asked Mondelēz International Chairman and CEO Dirk Van de Put if it should be concerned about the company’s performance during a recession at a Deutsche Bank conference last month, he responded by saying that “our categories do quite well” during downturns.
Van de Put noted comfort and kid-targeted foods — including Oreo and Chips Ahoy cookies and Cadbury chocolate — are generally not negatively affected during a recession. Consumers still count those items as a priority in those situations.
Van de Put said consumers are not currently changing the amount of the company’s snacks they purchase, but he is not certain that will continue. He mentioned Oreo, which he said is one of the most popular brands with millennials and Gen Z, as an example of an item from Mondelēz’s portfolio that has sustained consumer momentum.
While core consumers with an attachment to its brands may be more willing to keep buying them, Mondelēz is focused on retaining consumers who are looking to cut costs. Van de Put said the company must be “clever” in how it approaches pricing.
“What I do know is that we are doing everything that’s in our power to prepare for, potentially, a consumer that reacts,” Van de Put said. “But the underlying trends: Consumers are snacking more, indulgence is on the rise, consumers are very attached to our brands, which sometimes plays an emotional role.”
Constellation Brands is confident about beer
Constellation Brands President and CEO Bill Newlands said in the company’s most recent quarterly earnings call he felt confident about its sales during the last quarter. He believes consumer demand will continue, despite a potential recession.
When asked by an analyst how the business is positioned if consumer spending becomes weaker, Newlands responded that seven out of 10 shoppers who purchase beer planned that purchase in advance. And, he said, Constellation’s buy rate — how much consumers are spending on its products, multiplied by the number of trips they make to the store — is up compared to pre-pandemic levels.
“It speaks very well to our business,” Newlands said. “It actually accelerated in [the last quarter] for beer versus the prior three months.”
He said Modelo is “on fire,” and Corona Extra also helped fuel Constellation’s strong quarter. Newlands added he expects the continued solid year in the beer business to continue, but added that “unknown variables” in the economy may change things.
McCormick & Co. bets on cooking at home
The seasonings and sauces company faced difficult earnings numbers in the last quarter amid high supply chain costs and COVID restrictions in China. McCormick & Co.’s adjusted operating income was down nearly 33% in the first quarter, CEO Lawrence Kurzius detailed in its most recent earnings call.
Kurzius said despite this, an economic downturn “reinforces cooking at home,” and that its product portfolio has performed well in recessionary times. However, he added, the company has a plan to retain consumers facing growing economic pressure as the year continues.
“Our goal is to have products that appeal to consumers at every price point across the whole category,” Kurzius said. “And between our new product launches, our brand marketing and our brand marketing activity, we are taking a tone that tries to address that pressure to consumers.”
One such action could be lowering prices on smaller-sized items, the company’s COO and President Brendan Foley said. Still, he noted that many consumers are switching to larger-sized items for value.
“Those are things that we're reacting to, and making sure that we drive even more distribution and items in our assortment that serve those needs and those price points that consumers are looking for,” Foley said.
Kraft Heinz turns to new packaging sizes, value pricing
Patricio responded while the company has raised prices this year, that isn’t its sole focus. One strategy Kraft Heinz has adopted is changing the packaging sizes and assortments for nearly all of its key brands, he said. Notably, it is testing smaller packages for its Kraft Singles cheese and Mac & Cheese, as well as economy packs with 12 bottles of ketchup.
The CEO said Kraft Heinz is operating with the possibility of an eventual recession in mind. Consumption of the company’s offerings has not declined, Patricio said, but an economic downturn “can come, and we have to be ready for that.”
The company also is testing advertising its products as elements of a meal, Patricio said — like cheese and mayonnaise to make a grilled cheese — and telling consumers how much that complete meal would cost. He compared this strategy to fast food companies selling value meals.
“What we found out is that we have even better propositions from a value standpoint, if we communicate it the right way,” Patricio said.