COVID-19: Packaged food & beverage brands enjoy surging sales, but mass unemployment could change the landscape rapidly
“Even before this began, the growth rate of premium CPG had already begun to decelerate,” noted Dr James Richardson at consultancy Premium Growth Solutions in a post on linkedin on Wednesday.
“My behavioral research has suggested that this is because there is a finite amount of middle and lower middle class trade up to premium priced CPG (natural/organic)… Buy stock in Dollar General.”
Right now, however, many premium packaged food brands are experiencing a sharp uptick in sales – particularly on Amazon – with The Worthy Company, maker of shelf-stable nutrient dense ‘blendie bowls’ of fruits, veggies, legumes, chia and pea protein, shipping “more product the last 4 days than all of last month,” according to co-founder Sara Renahan, although a planned launch in foodservice will “most likely will be put on pause.”
Country Archer Jerky Co. meanwhile, has seen e-commerce sales quadruple from last month, while plant-based milk brand, Elmhurst 1925 reported online sales are up +300%.
Candy is fairly recession proof… people still want to treat themselves
Longer term, however, we could see significant shifts in buying behavior as shoppers cut back, although during the recession of 2007/8, consumers still treated themselves with candy and other low-ticket discretionary food items, and interest in healthier products and plant-based trends is likely here to stay, predicted industry sources.
“We sell gum and candy, which is a discretionary purchase,” said Project-7 founder Tyler Merrick.
“Right now people are going to the store, stocking up on canned beef and essentials, and getting out, but that will change [as the initial mayhem recedes]. Candy is fairly recession proof because it’s relatively inexpensive and people want to treat themselves when they are trying to cope with everything else.”
Marketing during a pandemic: ‘It’s about avoiding dumb stuff, and being sensitive and respectful’
That said, Project 7 has already been modifying its proposition to address the fact that there is a limited number of consumers that will trade up to organic in the confectionery aisle unless you’re also offering other points of differentiation, said Merrick, who is launching a new line of low sugar candies as consumers look for “something more than just premium, organic, no artificial flavors and colors.”
“Some people were saying, I could spend $1.49 for a bag of Haribo, or I could spend $2.99 for a bag of organic Project 7 candy, and it’s still got the same amount of sugar and calories, so I started to see a bit of that in the data, so we’ve spent two years developing a reduced sugar range that is just starting to ship to Target now.”
As bricks & mortar retailers focus on keeping shelves stocked, cancel meetings and stop accepting samples as buyers work from home, however, Merrick will focus much more attention on e-commerce, which currently only accounts for around 5% of sales.
Like many founders, he’s also looking again at his marketing messaging to ensure it’s in tune with the times: “It’s about avoiding dumb stuff, and being sensitive and respectful. We can still try to surprise and delight people, but we’re not using covid-19 as our coupon code.”
Think about messaging, considering increasing inventories
With many emerging brands focusing budgets on boosting online sales if they don’t yet have much of a retail presence (as onboarding new brands has fallen off retailers’ priority lists), thoughtful messaging on social media and other platforms will be key in the weeks ahead, agreed Jeff Grogg, managing director at consultancy JPG Resources.
Opportunistic and tone deaf messaging (‘Freaking out about coronavirus? Chill out with our CBD gummies…’) also risks alienating consumers at a time when trust is all-important, he added. “You don’t have to be overt with messaging about being stuck at home with the kids; it’s about providing recipes and guidance and making things easier for people. Focus messaging on behaviors you know are happening.”
With many people buying groceries online for the first time amid the pandemic, new habits could also form, with COVID-19 accelerating the takeup of food ecommerce – which has historically lagged behind other sectors - he predicted (although current shortages could have the opposite effect given long wait times and shortages). “People may also discover your brand inadvertently in the short term if their preferred brand is out of stock.”
On a practical level, he said, retail facing companies with shelf-stable products “should be upping their inventories right now” both to meet an increase in demand and to build some slack into the system should manufacturing plants experience disruptions down the road.
MEAL KITS: With sealed packaging and home delivery, some commentators have predicted that mealkit services such as Blue Apron and HelloFresh may benefit in the short term (Blue Apron's share price has suddenly risen from the doldrums this week), although longer term it's not clear how much of a boost they will get if we enter a recession and shoppers' food budgets become more constrained.
Open dialogue with co-manufacturers
At lupini-bean fueled snack brand Lupii, which launched two months ago, founders Isabelle Steichen and Alexandra Dempster are “shifting our focus and resources somewhat to support our website/online sales,” but also “doing what we can to follow-up with our existing buyer relationships to ensure we fulfill needed re-orders and can help keep the shelves of our existing accounts stocked.”
They have also been “sure to order ingredients for our next anticipated production runs and have also been in communication with our co-man to have an open dialogue about how we handle these unprecedented times,” said Steichen, who said it is “too early to make assumptions around long term consumer purchasing habits.”
That said, “We know that consumers understand how important a health supportive diet is,” she added, “especially during times of a health scare, like the one we are all going through currently, people are looking to invest in their health and in building up their immune system.”
Bernstein: COVID-19 will be a test for food manufacturing and supply chain capabilities
When it comes to the food supply chain, large packaged food companies, distributors and retailers are working round the clock to deal with a sudden surge in consumer demand with the FMI reassuring consumers that the food supply chain is robust and more than capable of handling this crisis.
However, should workers at these critical operations become sick, the food supply chain could nevertheless be tested, say analysts at Bernstein.
Right now, many brands are building inventory to meet demand (which has frustrated some smaller players as co-packers have prioritized larger clients) while those who have their own manufacturing operations have ramped up sanitation procedures.
As PepsiCo told us: “The direct risk to our supply chain is very low based on the poor survivability of coronavirus on surfaces or in dry environments. We have put in place robust preventative measures within our manufacturing locations, and have ample product inventory to meet demand.”
Coca-Cola in turn, has been “incorporating best-practices from locations that have had to temporarily close facilities for some period of time,” introduced “staggered shifts for production to protect employees’ health and maintain operations,” and limited interactions between delivery drivers and plants.
Campbell Soup introducing ‘health screenings for everyone entering our facilities’
Campbell Soup is introducing “health screenings for everyone entering our facilities,” while Amazon - which is prioritizing groceries and household supplies (health, beauty, personal care, baby, petfood) - is recruiting more staff and adding shifts to deal with demand.
However, things could change rapidly if workers at manufacturing plants and warehouses – who either don’t know they have COVID-19 or feel unwell but can’t afford to take unpaid leave – infect colleagues and prompt temporary closures, said Bernstein in a March 18 note.
“The fast-evolving coronavirus situation will be a test for many companies' manufacturing and supply chain capabilities, with the worst case scenario being a temporary closure of manufacturing facilities due to infected employees, which could have broader implications.”
Consumers may trade-down from branded to private label food products
Supply chain woes aside, COVID-19 is providing a significant boost to large packaged food brands, many of whom have been struggling in recent years, as restaurants become off limits, noted Bernstein, “although this could be offset by a further trade-down from branded to private label food products.”
The report added: “With restaurants / foodservice channels closing in certain regions with only delivery and pick up options available, we expect food-away-from-home consumption to decrease by at least ~20% over the next quarter. This could support the growth of food-at-home consumption in the near-term.
“While food-away-from-home consumption as a percentage of total food consumption only decreased from 44% in 2007 to 41% in 2009 during the financial crisis, we believe that the current situation is unprecedented in terms of restaurant / school closures and in terms of the number of people working from home in the near term.”
FDA: No nationwide shortages of food
The FDA said Tuesday that to keep the supply chain running, it won’t enforce FSMA on-site audit requirements if other appropriate supplier verification methods are used.
FDA commissioner Dr Stephen Hahn added that there are "no nationwide shortages of food, although in some cases the inventory of certain foods at your grocery store might be temporarily low before stores can restock. Food production and manufacturing are widely dispersed throughout the U.S., and there are currently no widespread disruptions reported in the supply chain.
"While we are confident that stores will remain open and supply will continue to meet demand nationwide, we ask all Americans to only purchase enough food and essentials for the week ahead."
Baldor Specialty Foods, one of the largest wholesale importers and distributors of fresh produce and specialty foods in the Northeast and Mid-Atlantic regions, is making its products available directly to consumers within a 50-mile radius of its Bronx, NY headquarters for at-home delivery via http://www.baldorfood.com
The company - which has historically only served restaurants and food service establishments - wants to “help alleviate grocery store food shortages and provide a convenient delivery service for consumers staying put at home. With a minimum order of $250 [tax and delivery included], Baldor is opening access for consumers to purchase the foods they need the most including fresh produce, meat and poultry, dairy and other food staples, so they can avoid running out to the store and potentially exposing themselves to the virus.”
NPA: 'If a product sounds too good to be true, then it probably is'
The Natural Products Association has urged the FDA and the FTC to take action against companies selling nutritional supplements claiming to “treat or prevent infection by the coronavirus.
“If a product sounds too good to be true, then it probably is,” said NPA president and CEO Dr Dan Fabricant.
“There is no such thing as a magic pill and consumers should steer clear of any product being marketed as a nutritional supplement that says it will prevent, treat, or cure coronavirus or any other illness.”
However, it has also asked governors of all 50 states to deem health food stores selling nutritional supplements ‘essential businesses,’ noting that health food stores “offer a wide range of essential products, including, water, electrolytes, nutritional supplements, healthy food options, and other health-related products such as hand sanitizer.”
"In the event of a system-wide school shut down, we have a suite of contingency meals on tap that are reimbursable, following the SFSP meal pattern, as directed by the latest USDA guidance, but need the community’s assistance in determining centralized community locations where these meals can be delivered and distributed to students and their families.
"We also implore schools everywhere to submit an application to their state agency or eligible community organization for approval to operate during COVID-19 related closure conditions. We believe it’s our duty and we are committed to finding ways to best serve these students and their families at this critical time."
Kristin Groos Richmond, founder and CEO, Revolution Foods
