The first quarter of 2023 is now in the books. And some things look worse while others look better. Yet the overall net picture is still ominous for consumers and CPG firms.
Let’s start with consumers
First off, household budgets are really tight. While inflation for March came in below expectations, consumer prices were still up +5% year over year. The Fed has continued to increase interest rates to try to bring down inflation, which has caused many households to defer or delay major purchases like appliances, cars, or houses. And many households have reduced their savings rates while also shifting down to private label products to stretch their budgets.
Yes, the labor market is still OK with 256,000 new jobs added in March and 4.1 million during the past 12 months, and the unemployment rate still at a historically low 3.5%. But wage increases are lower than inflation so a net negative. Some have gone so far as to call it a cost-of-living crisis.
The many large scale tech employer layoffs are a warning sign as is the rising proportion (58%) of economists now predicting a recession in the coming year.
While consumers still say sustainability matters, fewer are now willing to pay a premium for that.
Overall, a very cautious mood with ever more disconcerting news of climate change, geopolitical tensions, weekly mass shootings, and domestic political unrest. Safe to say that it is an uncertain environment that puts Brand loyalty at risk.
Actions by CPG companies
Given the economic realities, most firms are doing their best to weather the storm. Doing less with less is a common refrain. Surveys show that company execs expect tough times ahead.
Revenue growth is likely to be difficult to achieve as unit volumes decline. With the increasing cost of supplies and materials, all companies have been pushed to increase prices to try to maintain margins. The tricky part is navigating the balance for when you reach the point where demand declines due to higher pricing. Some are downsizing package contents or changing pack sizes instead. Many are rationalizing their SKU assortment to improve operating efficiencies. And some weaker Brands are being divested or shut down.
The more aggressive companies are looking to try to grow market share with heavier promotional pricing as the higher unit volumes that result help improve operating costs.
Here are some thoughts on ways to get through these challenging times.
1. Get close to your consumer.
Take a temperature check of your core consumers. See what they are saying about you on social media. Figure out if there is any shift in their sentiment toward your Brand in their product feedback or reviews. If your revenues are coming from Gen Z consumers, you might even want to do some TikTok videos of consumer use or endorsements (instead of ads) since 60% of that target audience use the platform. Importantly, if you learn new things or get inspiration, this could be a really good time to respond and engage with your customer base. Anything that you can do to boost consumer trust is a wise investment. And it does not have to be big money to make meaningful progress. You just have to be clever and targeted.
2. Push your vendors.
And not just for their best pricing. Make sure that they get you what you need when you need it. And maybe even explore alternative suppliers so that you have options and flexibility. Given that sustainability and reusability are increasingly important to consumers, can you get better data about those metrics from your suppliers that can be helpful in your claims or labeling. Or can you decrease the cost of sustainability?
3. Consider investing in your on-shelf and online appearance through a packaging re-design or visual refresh.
Celebrate milestones, recognition, and major accomplishments. Particularly if you have made (or expect to make) strides in your social responsibility or environmental profile. Things like doing charitable work, producing less waste, doing more recycling, or employee time off for good causes. Those stories create a sense of pride and spark enthusiasm especially among your employees. Your folks may also extend the story and the messaging on their social media networks. Amplifying those stories can make a difference in the total reach and impact. Strengthening your culture and your employer Brand is always a good idea.
At Damen Jackson, we thrive on helping clients maximize Brand value even in tough times. We are here to be your partner, your conscience, your devil’s advocate. And we will always bring the conversation back to strategy. How do we best engage with and attract your primary target audience? How does your product uniquely meet the needs of customers? How do we maximize the market opportunity? How can we make sure that company culture AND Brand operate in a powerful manner?
Importantly, we are pragmatic, focused, nimble, and energetic. We get assignments done well, and quickly.
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