How Big CPG Attracts A Cost-Constrained Consumer
The Barclays Consumer Conference kicked off in Boston this week with plenty of big CPG food and beverage executives taking the stage to share their approach to the current state of consumer spending, or the lack thereof.
Overall, the general sentiment indicates that the year ahead will see an extremely careful allocation of resources. The likes of Mondelēz and Nestlé are working to regain consumer loyalty through strategic, targeted innovations and to execute on strategies to soothe pricing pains that are currently pushing many to down trade or skip over categories like confections altogether.
According to Nestlé S.A. CFO Anna Manz, the global corporation has been focused on “recipe led” innovation over the past few years in order to ride out a variety of supply chain crises and constraints. Now, that strategy will begin shifting back toward consumer-led innovation and has seen Nestlé reduce nearly 20% of its North American portfolio as it homes in on the highest performers, said CEO of Nestlé’s North America Zone, Steven Presley.
In terms of pricing, Manz said the company will nevertheless take increases in both confections and coffee, but believes the consumer will still be there to meet those increases.
“I think these two categories are two of the most resilient to price. Confectionery, because it’s an impulse… if you’re treating yourself, you’re less worried about the little bit extra cost on that treat. And coffee, because, and I speak personally here, it becomes a valued and treasured part of your daily routine and it’s not something you readily give up on.”
Mondelēz execs, including CEO Dirk Van de Put and CFO Luca Zaramella, are taking a different approach and highlighted that even as the chocolate supply chain is feeling the effects of extremely high cocoa prices, it will not touch product formulations. The company is taking a hunker-down approach to those supply chain shocks, Zaramella said, and aims to keep the chocolate category “intact” as it rides out the input price spike.
Both companies are also tightening their marketing purse strings. Zaramella noted that Mondelēz has identified that 40% of its marketing budget “is not working” and said it is putting a cap on expenditures while it “calibrates” expenses to drive top-line growth, cuts costs and optimizes the portfolio so it can generate long-term P&L improvements. That includes experimenting with smaller pack sizes, sold at lower price points, for cost-conscious consumers: “It is going to be a frugal year,” Van de Put emphasized.
At Nestlé, the focus will be fairly category specific. Manz noted that the company is losing share in frozen food and creamers and will work to correct those losses by reducing prices and narrowing the gap with its competitors.
“I really don’t think the right focus is on [any] single line in the P&L,” Manz said. “The way I talk about it internally, and what I want us doing, is looking at each of those metrics and diagnosing which of those metrics is stopping the consumer [to] buy. Is it that we’ve lost taste preference? In [that] case we need to innovate taste preference because no amount of marketing is going to fix that. If we don’t have our share of [the] shelf, you’re doing media to drive consumers to a shelf where you’re not adequately present.”
“That metric-led diagnosis will much ensure that we’re applying our investment more in a more surgical way to deliver the returns and the returns need to be visible,” she continued.
