Consumer Spending Slowdown: Impact on Food Processing Companies

Current Consumer Spending Trends

Consumer spending is normalizing, with a shift back to services and entertainment (TGT). Spending trends are weaker in Europe compared to the US (AMZN). Uncertainty persists due to inflation, macroeconomic challenges, and consumer confidence (WMT). Despite these challenges, providing great value continues to benefit retailers (COST).

"In addition, business trends continue to reflect a normalization in spending patterns that first emerged more than 2 years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic." --- (TGT, earning call, 2025/Q1)

"As part of our guidance considerations, we also continue to keep an eye on consumer spending and macro level trends, specifically in Europe, where it appears to be a bit weaker relative to the US." --- (AMZN, earning call, 2024/Q1)

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q1)

"So we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well." --- (COST, earning call, 2024/Q3)

"And even as inflation moderates and we see sequential improvement in discretionary category trends, higher interest rates, uncertainty around the future of the economy, continued social and political divisiveness and the upcoming election cycle have consumers concerned about what lies ahead." --- (TGT, earning call, 2025/Q1)

Shifts in Consumer Behavior

Consumers are adjusting their behavior by reducing food waste, utilizing leftovers, and facing financial stress, leading to increased credit card debt. This shift is impacting snack consumption and overall shopping habits, influenced by macroeconomic factors and competitive pressures.

"I think, I'm trying not to create a false sense of accuracy of pinpointing it, but I do think through the first half of the year, Snacks will have cycled a fair amount of what I would say their consumer adjustment or change in behavior is." --- (CPB, earning call, 2024/Q3)

"And so, combine the consumer perception with consumers are stressed financially right now, you see the rise in credit card debts and so forth." --- (GIS, conference, 2024/05/29)

"Based on the length and severity of the fluctuating macroeconomic environment, including price volatility for our commodities, the possibility of a recession, changes in consumer shopping and consumption behavior, and changes in geopolitical events, including the ongoing conflict between Russia and Ukraine, we may experience increasing supply chain costs, higher inflation and other impacts to our business." --- (HSY, sec filing, 2024/Q1)

"I think consumer confidence is somewhat impacted among those. And what we are doing specifically to tackle both the market situation and a little bit the share situation that manifest itself through brands like Chips Ahoy that are more prone to competitive aggressiveness and private labels aggressiveness." --- (MDLZ, conference, 2024/06/13)

"But I think this new consumer behavior around less food waste and more - making sure that leftovers are really used is probably consumer behavior as far as we can tell, that will remain." --- (K, earning call, 2024/Q1)

Pricing Strategies and Adjustments

Food processing companies are employing diverse pricing strategies to navigate economic challenges. Coca-Cola highlights that only half of their price mix is actual price adjustments. PepsiCo focuses on affordability while expanding margins internationally. Kraft Heinz reports higher pricing across segments despite mixed volume trends. J.M. Smucker balances inflation recovery with consumer options, and Conagra Brands leverages productivity improvements to offset inflation and fund brand investments.

"Remember that our North American business, a typically compared to the other parts of the world, we consolidate a set of vertically integrated businesses and a set of franchise kind of concentrate businesses, such that the growth of a channel or a category can produce a mix effect independent of pricing in the marketplace. As you look at the 11 points of price mix in the second quarter in North America, it's important to understand that, only half of that is actually price." --- (KO, earning call, 2024/Q2)

"We look at that very carefully. Now why are our margins expanding internationally because as we gain scale and obviously, that our fixed cost leverage is much better, and that's how we're getting to more profitable businesses in international markets, especially the large markets, whilst we keep affordability at the center of our strategy because that's long-term, including other things that we do, obviously, with availability and with innovation." --- (PEP, earning call, 2024/Q1)

"Pricing was higher in each segment. Volume/mix in each of North America and International Developed Markets was unfavorable, while volume/mix in Emerging Markets was favorable." --- (KHC, sec filing, 2024/Q1)

"As always, we will continue to manage our coffee business through a strategy that demonstrates a balance between recovering inflationary input costs, while providing consumers with attractive options ranging from value to premium." --- (SJM, earning call, 2024/Q4)

"Adjusted gross margin improved 62 basis points over prior year to 27.6%. Productivity improvements, which approximated 4% of cost of goods sold in the quarter, more than offset net inflation, which approximated 2.7% of cost of goods sold, which helped fund trade merchandising investments in our brands." --- (CAG, earning call, 2024/Q4)

Supply Chain Challenges

Food processing companies are grappling with supply chain disruptions, including logistical hurdles and labor shortages (ADM). They are employing various technological solutions to address these challenges (TSN). Strategic priorities include modernizing supply chains (HRL) and enhancing efficiency and resilience (BG), with strong employee engagement being crucial (LANC).

"Additionally, disruptions in the supply chain, including logistical hurdles and labour shortages, further exacerbated the challenges faced by biofuel producers." --- (ADM, press release, 2024/04/05)

"Their solutions targeted supply chain challenges from many different angles using technologies that include software, artificial intelligence, cold chain management, recyclable materials, freezing technology, monitoring, cloud platforms and fleet management." --- (TSN, press release, 2024/07/24)

"Turning now to our last two strategic priorities, future fitting our one supply chain and advancing our transform and modernize initiative." --- (HRL, earning call, 2024/Q2)

"Will be more efficient and resilient throughout all of our supply chains. Markets aren't getting any easier." --- (BG, earning call, 2024/Q1)

"We're seeing very high engagement from the employees. It continues to be a big area of focus from our supply chain leadership team, just because of the magnitude of the promise that that facility affords us." --- (LANC, earning call, 2024/Q3)

Financial Performance Analysis

Despite a consumer spending slowdown, major food processing companies like Kellogg, General Mills, and Campbell Soup have shown resilience. Kellogg's performance exceeded expectations, General Mills anticipates stronger results post-Q1, and Campbell's frozen meal business maintained positive momentum, indicating robust financial health across the sector.

"We again delivered continued on-algorithm financial performance that tracked ahead of expectations." --- (K, earning call, 2024/Q1)

"Kofi Bruce: Yeah, I think, the -- we won't get too detailed, other than to just note that our Q1 results, we would expect to trend below the balance of the rest of the year, primarily driven by higher levels of investment as we step into the year with a focus on improved volume, and then obviously, the comparison against our strongest quarter performance in fiscal '24." --- (GIS, earning call, 2024/Q4)

"Our total frozen meal business maintained positive momentum with strong velocity increases as the team has optimized assortments and distribution and with the continued strong performance from our expanding frozen pizza portfolio, we continue to see strong potential in this business. Overall, we continue to be encouraged by the success of Rao’s disciplined" --- (CPB, earning call, 2024/Q3)

"As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and in their analysis of ongoing operating trends." --- (K, sec filing, 2024/Q1)

"You can see that our performance is improving. We're getting back to full merchandising activity, which we had said, so we're moving from really telling everybody what we're going to do to showing what we're doing, and you actually see that in our improvement." --- (K, earning call, 2024/Q1)

Technological Innovations

Food processing companies are leveraging agritech innovations, focusing on disruptive technologies, and investing in research and commercialization of next-generation products to drive technological advancements and meet sustainable demands.

"To meet the rising demands for sustainable agriculture, agritech innovations are accelerating." --- (ADM, press release, 2024/05/17)

"We have improved that to focus on innovation that is truly new to the world that is disruptive." --- (KHC, conference, 2024/05/30)

"As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items." --- (BYND, earning call, 2024/Q1)

"So we've got investments there. We've got momentum there and it's an important brand and you're not going to see us slow down on the marketing support and the innovation front." --- (CAG, earning call, 2024/Q3)

"28 Sept 2023, In order to help meet the rapidly increasing demand for biofuels and other sustainably sourced products, ADM (NYSE:ADM), a global leader in nutrition and agricultural origination and processing, and Syngenta Group, one of the largest agricultural technology companies in the world, have signed a memorandum of understanding (MoU) to collaborate in scaling research and commercialization of low carbon-intensity next-generation oilseeds and improved varieties." --- (ADM, press release, 2024/04/05)

Regulatory Impacts

Food processing companies face significant regulatory impacts, including outdated guidance from agencies, increased costs due to new legal requirements, and climate change regulations. Companies like Coca-Cola and PepsiCo rely heavily on existing regulatory body reports but must also invest in compliance and sustainability initiatives.

"It is not enough to abide by various countries' regulatory guidance as these agencies in the EU, Canada and the U. S.For example are often decades behind in reevaluating the health impacts of MSS." --- (KO, event transcript, 2024/05/01)

"These new or increased legal or regulatory requirements, along with initiatives to meet our sustainability goals, could result in significant increased costs and additional investments in facilities and equipment." --- (PEP, sec filing, 2024/Q2)

"Their claims fail to recognize and acknowledge the abundant reporting and research the company relies on from regulatory bodies like the U. S.Food and Drug Administration, the European Food Safety Authority and the United Kingdom Food Standards Agency, and this is to name just a few." --- (KO, event transcript, 2024/05/01)

"Risks Associated with Climate Change Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and  " --- (PEP, sec filing, 2024/Q1)

"However, no additional third party assessment can usefully contribute to the abundant reporting and scientific assessments that have already been issued by the most credible food safety bodies and regulatory authorities around the world." --- (KO, event transcript, 2024/05/01)

Future Outlook and Strategic Planning

Food processing companies are confident in their strategic plans, anticipating strong revenue growth despite volatility. They are exploring strategic alternatives, investing in resilient supply chains, and prioritizing M&A based on strategic priorities like breakfast, convenient meals, and pet food.

"And we remain steadfast in that being an important strategic plan for us and we remain very confident that we've got plans to deliver." --- (K, conference, 2024/06/11)

"Our overall outlook for future snacks revenue growth remains strong; however, we anticipate ongoing volatility." --- (MDLZ, sec filing, 2024/Q1)

"Even though we have decided to explore strategic alternatives for the business, as yogurt is not a strategic category for Campbell's, the business has truly exceeded our expectations." --- (CPB, earning call, 2024/Q3)

"We have dedicated resources and we also have very strong investments in place to ensure that we have a resilient supply chain for the future." --- (HSY, event transcript, 2024/05/06)

"To your second point around criteria for M&A, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to look at critical occasions, which would get us to priorities around breakfast and convenience -- convenient meals and snacking, as well as obviously pet food." --- (GIS, earning call, 2024/Q4)