Consumer Staples: Resilience in Times of Economic Uncertainty

Shifts in Consumer Behavior

Consumers are becoming more cautious and selective, yet willing to spend on perceived value. Companies like Coca-Cola and PepsiCo are adapting by engaging directly with consumers and shifting spending to meet these needs. Innovation and targeted marketing, as seen with Colgate-Palmolive and Kimberly-Clark, are driving growth and meeting evolving consumer demands.

"This transformation is already paying off. We're rapidly and more effectively engaging directly with consumers through experiences focused on passion points. In terms of spend, we continue to shift our mix with the consumer in mind." --- (KO, event transcript, 2024/05/01)

"So have you seen any shifts in consumer behavior as a result of these dynamics?" --- (PG, conference, 2024/05/14)

"So do you see different behaviors happening everywhere, I think the connecting line it would be, the consumer is more cautious, the consumer is more choiceful, but the consumer is willing to spend in areas where they see value and we see it in our category, right, the more -- the parts of the category there I was referring to." --- (PEP, earning call, 2024/Q2)

"So thinking about taking this all the way to the consumer need states. And as we brought the innovation along with the Need State work as well as the increased marketing, what you've seen is big increases in the growth of the category for whitening, increases in our market share in the whitening segment and then to your point, it's driving household penetration." --- (CL, conference, 2024/06/11)

"In this phase of our journey, we will focus on accelerating pioneering innovation to capture the significant growth available in our categories by solving big unmet consumer needs, optimizing our margin structure to deliver superior consumer propositions at every rung of the product ladder and wiring our organization for growth gratitude I would also like to take a moment to express our deep gratitude to our Lead Director, Mike White, who will be retiring from the Board at the conclusion of this meeting after 9 years of dedicated service to Kimberly Clark and our stockholders." --- (KMB, event transcript, 2024/05/02)

Sales Performance During Economic Downturns

Consumer staples companies have experienced varied sales performance during economic downturns. General Mills reported an 8% decline in organic net sales, while Procter & Gamble highlighted potential negative impacts from economic recessions and inflation. PepsiCo saw a 34% decrease in operating profit, and Kimberly-Clark noted a slight 1% sales decline. Coca-Cola experienced sales declines in dollar terms despite currency-neutral growth.

"Organic net sales were also down 8 percent. Net sales results in the quarter lagged all-channel retail sales by approximately 4 points, reflecting the headwind from the comparison against favorable trade expense timing in the prior year as well as a decline in retailer inventory." --- (GIS, press release, 2024/06/26)

"More broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe." --- (PG, sec filing, 2024/Q3)

"Operating profit decreased 34%, primarily reflecting the net revenue performance, certain operating cost increases, a 12-percentage-point impact of charges associated with the Quaker Recall and a 6-percentage-point unfavorable impact of commodity costs, partially offset by productivity savings and lower advertising and marketing expenses." --- (PEP, sec filing, 2024/Q2)

"First quarter sales of $5.1 billion were 1 percent lower than the prior-year period, including negative impacts of approximately 5 percent from foreign currency translation and approximately 1 percent from the divestiture of the Tissue and K-C Professional business in Brazil in June 2023." --- (KMB, press release, 2024/04/23)

"At the moment, they're in the phase of shooting down in dollar terms. So they're declining in dollar terms, even though they're growing a lot in currency neutral." --- (KO, earning call, 2024/Q1)

Pricing Strategies in Economic Uncertainty

Consumer staples companies are leveraging a mix of innovation, premiumization, affordability, and inflationary adjustments to navigate economic uncertainty. Procter & Gamble emphasizes innovation and reasonable pricing, Colgate-Palmolive focuses on premiumization, PepsiCo prioritizes affordability, Coca-Cola adjusts for inflation, and General Mills expects gradual consumer adaptation to new pricing.

"But I do feel strongly about our ability, and I think we've proven it over the past 2 years, that with a combination of strong innovation, good reasonable pricing combined with that innovation and strong productivity, whatever comes our way, we'll be able to handle." --- (PG, earning call, 2024/Q3)

"Great. The other push you made beyond sort of pure pricing has been a push towards premiumization, kind of inherent in the growth mindset strategy was a push towards premiumization." --- (CL, conference, 2024/06/05)

"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)

"Our revised top-line guidance is solely driven by higher than expected inflationary pricing in a handful of markets, which we expect to moderate throughout the year." --- (KO, earning call, 2024/Q1)

"But I would expect that we would see a gradual improvement over time, both as consumers get used to pricing and as they feel economically more sound." --- (GIS, conference, 2024/05/29)

Supply Chain Management Adaptations

Companies in the consumer staples sector are enhancing supply chain management through synergies, visibility into costs, and risk management tools (KMB). They are also leveraging supply chain finance programs to benefit suppliers (KO), maintaining resilience and pricing stability (GIS), and ensuring robust programs that offer new opportunities (PG).

"When you bring those 2 together, both in North America and family and professional, there are going to be synergies in the supply chain that will drive productivity over time and will also allow us to have more visibility into costs and apply some of the risk management tools that we've been deploying to manage through the volatility we've seen over the last few years." --- (KMB, conference, 2024/05/30)

"Our current payment terms with the majority of our suppliers are 120 days. Two global financial institutions offer a voluntary supply chain finance program which enables our suppliers, at their sole discretion, to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus may be more beneficial to them." --- (KO, sec filing, 2024/Q1)

"As a result, our supply chain held up well during the last few years. And our pricing held up well over the last few years." --- (GIS, conference, 2024/05/29)

"Supply chain financing arrangements did not have a material impact on our liquidity or capital resources in the periods presented and we do not expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future." --- (PEP, sec filing, 2024/Q1)

"So I feel very good because of that. We have a very robust program. And the whole idea of looking at the supply chain in totality is throwing up tremendous opportunities." --- (PG, conference, 2024/06/04)

Market Share Dynamics

Consumer staples companies are experiencing varied market share dynamics. Colgate-Palmolive sees growth driven by market share momentum, while General Mills faces challenges in the cereal segment due to increased competitor promotions. Procter & Gamble and Kimberly-Clark report positive market share movements, and PepsiCo aims to boost Gatorade's share in a growing category.

"But there also seems to be at least a point beyond that attributable to upside that you’re seeing in real terms across the portfolio, so I’m curious if you could expand on where that upside is coming from versus your prior expectations, and if you’d say more of that is being driven by category growth or it’s more being driven by your own market share momentum. Thank you." --- (CL, earning call, 2024/Q1)

"Jeff, I'd like to ask about your ready-to-eat cereal segment. Measured channel data suggests you've experienced a bit more challenged market share dynamics at a time when promotional spend has increased at one of your competitors." --- (GIS, earning call, 2024/Q4)

"Global market share of the Feminine Care category increased 0.3 points. • Net sales in Family Care, which is predominantly a North America business, increased mid-single digits driven by higher pricing and a unit volume increase, partially offset by unfavorable product mix (due to growth of larger pack sizes with lower than category-average selling prices)." --- (PG, sec filing, 2024/Q3)

"And so I think that was probably when also the market shares are moving kind of in the right direction." --- (KMB, earning call, 2024/Q1)

"So we feel good about we have the platform to take Gatorade to higher market share in a faster growing category." --- (PEP, earning call, 2024/Q1)

Innovation and Product Development

Consumer staples companies are driving growth through innovation and product development. Coca-Cola is enhancing its sports drinks category with new products and marketing partnerships. General Mills anticipates increased new product innovation. Kimberly-Clark focuses on sustainable products, while Procter & Gamble and Colgate-Palmolive see positive impacts from recent innovations and strategic launches.

"So, some product innovation that's getting some traction, a new partnership with NHL on the marketing front and on the execution front, a stepping up of the merchandising and sales force focus directed just at the sports drinks category, which is helping improve the share trend in the category, although not at the rate we had hoped initially." --- (KO, earning call, 2024/Q1)

"And so as we look ahead, I feel good about our innovation capability. You will see our percentage of new product innovation come up this coming year." --- (GIS, conference, 2024/05/29)

"Over the past decade, the company has made significant investments in developing more sustainable products as part of the company's innovation strategy and focus on delivering products with enhanced consumer benefits while striving to lower its environmental footprint." --- (KMB, press release, 2024/06/05)

"We have innovation that is launching on Douyin First, Head and Shoulders Premium would be a good example of most recent innovations." --- (PG, earning call, 2024/Q3)

"Sanex is just an extraordinarily strong brand there. The spending behind some of our innovation is driving good share growth and good execution in store, so overall it’s having a pretty systematic impact on the business and we’re pleased with the results that we’re getting." --- (CL, earning call, 2024/Q1)

Financial Health and Cost Management

Procter & Gamble's Health Care segment saw a 2% net sales increase driven by higher pricing and favorable product mix, despite lower unit volume and unfavorable foreign exchange. Kimberly-Clark's outlook highlights cost management strategies, including raw material and energy costs, currency risks, and anticipated cost savings from their 2024 Transformation Initiative.

"Health Care Three months ended March 31, 2024, compared with three months ended March 31, 2023 Health Care net sales increased 2% to $2.9 billion driven by higher pricing of 4% and favorable product mix of 3%, partially offset by a 4% decrease in unit volume and unfavorable foreign exchange of 1%." --- (PG, sec filing, 2024/Q3)

"Certain matters contained in this news release concerning the outlook, anticipated financial and operating results, raw material, energy and other input costs, anticipated currency rates and exchange risks, including in Argentina and Türkiye, net income from equity companies, sources and uses of cash, charges and savings from the 2024 Transformation Initiative, the effective tax rate, the anticipated cost savings, growth initiatives, product innovations, contingencies and anticipated transactions of the company constitute forward-looking statements and are based upon management's expectations and beliefs concerning future events impacting the company." --- (KMB, press release, 2024/04/23)

Future Outlook and Resilience Strategies

General Mills is advancing regenerative agriculture and implementing a Climate Transition Action Plan to build resilience. Coca-Cola's 'all-weather strategy' aims to create value under various economic conditions. Kimberly-Clark and Colgate-Palmolive focus on executing sustainability strategies and delivering on plans, while Procter & Gamble aims to outperform competitors.

""Our Climate Transition Action Plan and continued progress demonstrate how we are working from the ground up, with partners across our value chain and industry, to help solve today's food and agriculture challenges and build a resilient future." Additional Planet progress in fiscal 2023 includes: Advancing regenerative agriculture: More than 500,000 acres engaged in General Mills' regenerative agriculture programs – more than halfway to the company's 2030 commitment." --- (GIS, press release, 2024/04/18)

"Forward Looking StatementsAll statements in this news release that are not historical, including goals for and projections of future results, the expected execution and effect of our sustainability strategies and initiatives and the amounts and timing of their expected impact, constitute forward-looking statements that are based on management's expectations and beliefs concerning future events impacting the company." --- (KMB, press release, 2024/06/05)

"We remain focused on the execution of our all-weather strategy. Thanks to the partnership of our system and the ongoing dedication of our people, we're confident we can create value for our stakeholders and deliver on our guidance for the year." --- (KO, earning call, 2024/Q1)

"So I'd say we continue to be focused on delivering against our plans. And I'd say the environment continues to remain, again, conducive to the strategy that we have in place." --- (CL, conference, 2024/06/11)

"But if you think about the constructive nature of the strategy, we really want to be superior to the next best solution that the consumers are using and that keeps them from using our solution." --- (PG, conference, 2024/05/14)