By Saabira Chaudhuri
The makers of shampoo, cereal, frozen pizza and other
supermarket staples are working to woo shoppers who are cutting
back on spending, as tough economic times set in.
Executives are looking back at the last major recession for
tools to keep customers from swapping their brands for cheaper ones
from rivals. Nestlé SA -- the world's biggest packaged foods maker
-- is rolling out new, more affordable pack sizes, while Oreo
cookies owner Mondelez International Inc. is narrowing ranges to
focus on core products. Kellogg Co. is exploring marketing to
convey how many meals a single box of cereal can provide.
"We've studied what worked well and what did not in past
recessions and how this one could be different," Kellogg's Chief
Executive Officer Steve Cahillane recently told investors. "We're
preparing ourselves."
Preparing for a downturn this time around is tougher, executives
say, because the potential for wider spread or a second occurrence
of the new coronavirus isn't yet known. Consumer-products companies
are already scrambling to meet surging demand for household
essentials while operating factories at lower capacity because of
worker sickness or social distancing.
"You need to manage right now with both a telescope and a
microscope," said Graeme Pitkethly, Chief Financial Officer for
Unilever PLC, owner of Dove soap and Hellmann's mayonnaise.
The Covid-19 recession is expected to be deeper and more global
than the financial crisis of 2008-09. The International Monetary
Fund has forecast the world economy would shrink by 3% this year,
compared with a contraction of 0.1% in 2009. U.S. consumer spending
in March logged the steepest monthly decline on record, while the
monthly number of jobs lost in April was the biggest on record.
Back in 2009, consumer-goods companies used a variety of tactics
to cater to cash-strapped shoppers. Unilever acquired affordable
personal-care brands like Sanex and Radox from Sara Lee Corp. to
complement its portfolio of higher-priced brands. PepsiCo Inc.
tailored promotions to paycheck cycles, pushing large multipacks of
snacks near the start of the month and smaller packs later on after
finding that brand loyalty dwindled with cash.
Others reformulated existing brands. Procter & Gamble Co.
launched a variant of its Tide laundry detergent that was 20%
cheaper. ConAgra Brands Inc. reworked its Banquet frozen meals to
continue selling them for $1 even as costs spiked.
Though it is early days, some companies are examining pack sizes
to make products more affordable.
Nestlé plans to roll out single-serve sachets of its Maggi
chicken seasoning in Indonesia for the first time, to appeal to
shoppers with little to spend. In parts of Europe it will sell
one-kilogram bags of the seasoning, which are cheaper per serving
than the 200-gram or 500-gram packs currently sold.
"We are leaning in by doing multipacks, big packs, 10% free,
which we weren't doing with the same intensity before Covid, and
which is what we will do more and more post-Covid," said Wayne
England, who runs the food business for Nestlé.
Hershey Co., whose SkinnyPop and Pirate's Booty snack brands
last month lost share to cheaper products, said it is also
evaluating pack sizes to ensure it has enough entry-level priced
items.
"A significant number of American households are not working and
experiencing meaningful financial pressures," said CEO Michele
Buck. "Their shopping priorities have changed."
During recent economic crises in Brazil and Argentina, Unilever
deployed what its executives call "the full price piano," ensuring
its most popular products are available in a range of sizes and
prices. The variety allows shoppers to stick with brands regardless
of their budget. In Brazil, Unilever's upscale laundry detergent
brands Omo and Comfort are complemented by a medium-priced brand
Brilhante and a cheaper one, Surf.
"We understand very, very deeply the attractiveness of making
brands affordable to consumers," said Mr. Pitkethly. "I don't mean
just value brands themselves, I also mean premium brands that are
available at affordable price points."
Kellogg, P&G and Coca-Cola Co. are also tinkering with
packaging to put products within reach of consumers with tighter
budgets. "We're really looking at how we can drive affordability,"
said Coca-Cola CEO James Quincey.
Companies are girding to defend market share from cheaper store
brands, which grew strongly in the last recession and have seen
growth accelerate during recent lockdowns. For the four weeks to
April 19, U.S. volume in store brands for food grew 16.1%, compared
with growth of 5.8% for branded items, according to IRI.
Nestlé has begun changing its on-pack recipes and creating new
video ads to pair its cooking aids with cheaper ingredients like
eggs, rice and pasta, or chicken rather than beef as consumers
trade down, said Mr. England.
Kellogg is considering ads that tout the affordability of its
cereal. "If people understand how many meals you get from a box of
cereal, that could be very helpful," Mr. Cahillane said. During the
2007-09 recession, the company ran a two-month campaign in the U.K.
spotlighting the cereal's cost of 10 pence a serving.
Past crises have shown executives that consumers often indulge
in more upscale supermarket products as they cut back on dining out
and salon treatments. As shoppers flocked to high-end chocolate
during the 2007-09 recession, Mars Inc. introduced M&Ms
Premiums, made from a new recipe with no candy shell in flavors
like mint chocolate and raspberry almond.
Nestlé recently reported strong first-quarter growth in premium
brands like Nespresso and San Pellegrino in the U.S., even as it
said consumers are focusing on value for money.
"It's the two extremes, the value side and the premium side that
do hold up quite well in a downturn," said CEO Mark Schneider. "For
the early innings of this new situation, that seems to apply as
well."
Shoppers may find fewer flavors and fragrances of products as
retailers conserve shelf space for top-selling items.
Companies had already narrowed ranges to focus on making larger
volumes of their most popular items to meet surging demand from
consumers in lockdown. Mondelez, for instance, has prioritized its
top 100 lines. It said Oreo lines like Double Stuf and Thins will
continue uninterrupted, while seasonal variants like strawberry
shortcake or s'mores are more at risk.
Companies across the sector are also accelerating cost-cutting
efforts and delaying some planned new products. But spending on
advertising and investments in research and development are still
important, say executives.
"Some of the mistakes made across categories in recessions is a
hunkering-down mentality," said Kellogg's Mr. Cahillane. "People
still want good news. People want fun. They want to try things in
an affordable way."
Annie Gasparro contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
May 13, 2020 10:49 ET (14:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Nestle (PK) (USOTC:NSRGY)
Historical Stock Chart
From Aug 2024 to Sep 2024
Nestle (PK) (USOTC:NSRGY)
Historical Stock Chart
From Sep 2023 to Sep 2024