February 10, 2022

How CPGs Are Handling Disruption in 2022

For those in the food industry, disruption has impacted their every move over the past couple of years. Mark Schiller, CEO at The Hain Celestial Group, called this new normal for businesses “unprecedented.” In an article for Supply Chain Dive titled “CPGs grapple with a murky 2022 outlook as inflation, supply chain weigh on operations,” we see many members of leadership teams declare how that the state of the industry is one that they have never seen before. Also discussed are ways that CPGs see changes in buying habits, and what decisions could stem from these changes.

Supply Chain Disruption

Schiller notes how labor shortages due to COVID have made it difficult for his business to continue production for their large food brands. This has led to Hain diversifying the number of companies it works with, an action that hopes to minimize the impact of supply chain disruption. While that is the hope for these new partners, Schiller states that it is counterintuitive to the supply chain models of the past.

Hain is not the only food industry manufacturer that is dealing with challenges like supply chain disruption, labor shortages, and inflation. The needs to stay competitive and successful are intertwined with the uncertainty of how the industry will get back on track in 2022, which leaves CEOs with ‘a barrage of challenges.’ One company has faced record levels of disruption, leaving them unable to fulfill orders from customers in some cases. Neils Saunders, managing director with GlobalData, has spoken with executives who are unsure how long these challenges will plague their operations. Some companies have had to increase certain prices by up to 20% in order to keep up with inflation and disruption.

Stock Problems in Stores

One part of this that is most concerning is that "Even seasoned companies and seasoned industry executives who have been through the many ebbs and flows and cycles are all saying, 'Well, we've never seen anything like this before.' " Businesses have found it difficult to obtain what is necessary for production and shipping, along with the ongoing pandemic affecting the available work forces. Just when the world though COVID was subsiding, it was hit with the omicron variant. Although we hope a light at the end of the tunnel is near, we don’t know if new variants could arise. It truly is an unknown how long this pandemic will last, and that has to weigh on the minds of these CEOs. With out-of-stock items rampant at grocery stores, it’s proven more than difficult for the food industry to keep up with this changing world. Those of us at The Intelligence Exchange can sympathize with consumers and businesses, both of whom are frustrated with these missing items we search for online and in-store.

The previously mentioned seasoned veterans of the industry are out of their comfort zone and in unfamiliar territory, to no fault of their own. No one was prepared for such a massive disruption like this. Vivek Sankaran, the CEO of Albertsons, said in October that “the fact is, it’s like whack-a-mole. On any given day, something is out of stock in the store.” The highest rate of inflation in over a decade has affected every major company. Erin Lash, a director at Morningstar, states that “You don't want to frustrate a consumer right at the store looking for a particular product, then they can't find it.” So what is the response? Many CPGs have responded with price increases to accommodate their loses, but have also introduced promotions to continue to draw in customers.

What Do Our Responses Look Like?

While price increases are inevitable with inflation impacting the country, some CEOs are still being cautious with increasing prices. But that is how businesses are dealing with this. How are consumers impacted? Krishnakumar Davey, a President at IRI says that people will be less willing to tolerate price increases in 2022 and will change purchasing habits. Consumers will continue to look for the promotions that CPGs have responded with and also look for purchases that will last longer, like frozen foods instead of fresh. “[Consumers] look for value,” says Davey. “When pricing goes up this much, then people shift down.”

Although consumers cut back on leisure activities like travel and eating out in 2020 and 2021, they may not be inclined to pay for these price hikes. The article states the risk for CPGs: Passing along such a severe price hike could mean consumers never return once economic conditions stabilize. A positive trend is that towards the end of 2021, shoppers were more willing to spend for holiday presents or spending while going out. This article reports that analysts expect price hikes to continue for the first half of the year, but CPGs are hopeful that 2022 will bring consumers back and that the world can possibly get close to back to normal.

For More

At The Intelligence Exchange, we know how hard disruption has hit the food industry. You can’t get supply right if you don’t get demand right, and you can’t execute efficiently unless everyone is in sync. Businesses like Hain can unlock the full potential of their supply chain and ecosystem with an Intelligence Exchange at their disposal. To connect the number of companies at their disposal and achieve goals together, they would benefit from understanding the demand of their consumers, aligning their partners, and knowing how well their partners are performing. With this cutting-edge technology, businesses can make it out of the disruption and chaos they’ve been living in over the past couple of years. And that starts with an Intelligence Exchange.

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