The Supply Side: CPG sector to face growth challenges in early 2021

Many consumer packaged goods (CPG) manufacturers saw a hefty increase in online sales of food during the COVID-19 pandemic that slowed the global economy in 2020 and continues into 2021. According to research from IRI, as promising vaccines begin to be administered in the first half of this year, consumer shopping behaviors are expected to shift.

The report indicates many categories will likely see sales declines in the first half of 2021 as they lap spikes seen a year ago. The most significant drops are expected for canned soups and shelf-stable meats and vegetables, with as much as a 20% decline in omnichannel sales this year. Frozen and other easy-to-prepare foods are also expected to see omnichannel sales dip more than 10% in 2021.

On the flip side, IRI said categories negatively impacted in 2020 are likely to bounce back. That includes candy, cosmetics and bottled water. The report states the bottom performing categories in 2020 are led by cosmetics, primarily lipstick sales, breath fresheners, gum, facial makeup, hair spray, shaving lotion, men’s fragrances, hair styling gel and snack bars.

IRI also shared the top categories — with more than $1 billion in annual sales — most negatively impacted by disposable income levels as unemployment rose in 2020. Ice cream treats topped the list, followed by nail polish and hair accessories.

The lack of consumers’ mobility is the biggest reason for the growth of some category sales like canned soup and others’ decline, such as cosmetics, as more people began to work from home. IRI said the new normal is anticipated six months after the vaccine is widely available, based on accessibility and distribution.

“The new normal assumes a 5% loss to pre-COVID-19 levels because of newly formed habits that will persist as well as long term work-from-home adoption,” the report states.

IRI expects moderate growth in omnichannel CPG sales in the back half of 2020, following a slight dip in the first half of the year. The growth is timed to the vaccine distribution and consumers beginning to become more mobile, driving to work, and more food consumption away from home. Economic recovery also hinges on further government stimulus and could impact growth and the likelihood of more value behaviors manifesting in 2021. IRI expects different cohort behaviors with younger generations, increasing mobility faster than older cohorts.

CPG pricing is likely to moderate due to softer economic recovery, IRI reports. E-commerce is expected to grow in 2021 regardless of the vaccine availability timing. Analysts expect the shopper adoption of e-commerce will stick, although growth will soften slightly compared to the robust levels of 2020. IRI expects the e-commerce dollar share of omnichannel for edible categories will grow between 8% and 9.2% by the end of the year. Non-edible categories are poised to grow e-commerce dollar share between 25.3% and 29.2% this year, according to IRI.

The most significant implications for CPG companies driving growth in 2021 involves their ability to react to mobility restrictions in the wake of economic and COVID-19 uncertainty in 2021, the report states. IRI also recommends CPGs strategically leverage their assortments, pricing and promotions by shopping channels to enhance growth. It will be necessary for CPG manufacturers to retain Millennial and higher-net-worth households as they are likely the first to begin spending away from home. At the same time, Baby Boomers and seniors also need to be retained, and they will probably be restrained at home with restricted shopping behaviors well into the back half of the year.

IRI also cautions CPG companies to focus on strong distribution in all shopping modes to ensure products are physically available where shoppers are. The report indicated non-edible categories like hair color, allergy meds, toilet paper and diapers had the most significant distribution issues amid the soaring COVID-related demand in 2020. Edible categories such as wine, spirits, liquor and baking mixes also had major distribution hiccups because of the pandemic.

IRI said CPG players would need to find pockets of demand to drive further growth. Those markets include lifestyle and consumption shifts around in-home meal occasions, prepared meals, new flavors and expanded variety. The researchers also expect the economic bifurcation to continue in 2021. Effective CPGs will find a way to fill consumer demands in premium and value products as the K-shaped economic recovery continues.

Special occasions behaviors around holiday celebrations will likely continue to shift in the first half of 2021, and CPGs need to adjust packing sizing and allow for smaller groups and provide larger packs for consumers returning to more normal celebrations.

One big issue for CPGs going forward is shopping behavioral shifts expected to stick, such as larger baskets buys, spending less time in stores and item reductions among retailers, IRI reports.

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.