Future of Supply Chain discount code expires May 15
Stockouters, I want to see you in Atlanta! My subscribers can still access tickets to FreightWaves’ Future of Supply Chain at a reduced rate here, but not for long. The event takes place June 4-5 at the Georgia International Convention Center. Click here for what to expect.
Cutting back on the small things
Fear of a recession has been assuaged, and economists citing official government data have often been professing the resilience of the economy despite the many headwinds. But, a growing disconnect seems to be emerging between how the economy looks from an ivory tower and many consumers’ dour moods. Recent earnings highlights suggest the long-expected consumer pullback seems to be upon us, at least among lower-income consumers. Keeping an eye on retail and CPG in addition to the freight markets, here are a few recent data points that stand out.
- Starbucks shares were down 17% Tuesday as the company posted an unexpected 3% decline in same-store sales on a 7% drop in transaction volume.
- Kraft Heinz volume/mix declined 3.2% y/y in Q1, driven by elasticity impacts from pricing and the reduction in Supplemental Nutrition Assistance Program benefits.
- Traffic is down for McDonald’s and other quick-service food chains.
On recent episodes of The Stockout, Grace Sharkey and I discussed the state of the consumer, among other industry-specific issues. A synopsis of the main topic of each of the past three episodes is summarized below.
ESG may soon be MIA
(Image: FWTV)
Sustainability targets have proved unsustainable. Consumer products giant Unilever reported earnings last week, and in addition to solid results that indicate the turnaround plan under its new CEO is paying dividends, its comments on environmental, social and governance (ESG) stood out. On Monday’s The Stockout show, Grace Sharkey and I discussed how scaling back on ESG initiatives is likely a larger trend across industries, and one that will impact CPG in particular.
Unilever eliminated and revised several ESG targets to focus on more realistic objectives. For example, the company revised its target for recyclable plastic packaging — from 50% by 2025 to 30% by 2026. It also eliminated previous pledges to spend $2.14 billion annually on diverse businesses and structure its workforce to be 5% composed of persons with disabilities, both by 2025. Interestingly, management said it would welcome stricter environmental targets — as long as they were driven by regulations imposed industrywide so all companies would be on an even playing field. More detail is available here.
Changing ESG targets at Unilever was perhaps made easier by its recent management transition and its ongoing restructuring. But it also appears this could be part of a larger trend driven in part by lackluster returns of investment funds with ESG mandates. CPG companies had been among the most vocal ESG supporters, presumably because they are so public-facing. ESG might have reached its unsustainable peak when Philip Morris pitched its shares as an ESG play.
Retail sales grow less than inflation
(Image: FWTV)
On last week’s The Stockout show, Grace Sharkey and I discussed Shein’s partnership with Flexport, sales data from the National Retail Federation (NRF), J.B. Hunt’s earnings and what CPG items refuge-seekers would need in a nuclear fallout shelter.
Last week, the NRF published March data on consumer spending that shows retail sales slightly below the rate of inflation, implying that consumers were buying fewer items. March retail sales increased 2.9% y/y and rose 3.1% when gasoline and restaurants are excluded, both below the 3.5% y/y increase in the Consumer Price Index in March. NRF’s president described those numbers as “steady spending by value-focused consumers who continue to benefit from a strong labor market and real wage gains.” The resilience of the consumer is keeping the economy out of a recession, even if that has come at the cost of higher credit card balances (now $1.05 trillion) and less savings. The risk is that the next recession, whenever that may be, will be more severe with consumers having less dry powder.
Breaking the NRF data down by category reveals that consumers spent more on recurring, generally nondiscretionary items in the grocery/beverage and health/personal care segments while sales fell in the more discretionary clothing, building/garden, furniture and electronics segments. Hobbies, a segment that includes sports equipment, is one category that bucked the trend. Retail sales in this discretionary category rose 8% y/y in March. The takeaway for retailers and CPG companies appears to be that consumers are willing and able to spend on things they really love and can look past increases on small-ticket items at the grocery store, but they are getting stingier with big-ticket items that can be put off, like furniture.
Your kids deserve better than Lunchables
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On The Stockout show two weeks ago, Grace Sharkey and I discussed the reefer market and the struggling dollar store category. We also went over a Consumer Reports article that skewered Lunchables and similar products. Parents of school-age children should read it.
The Consumer Reports tests found that Lunchables and competing products contained a “relatively high dose” of lead and other heavy metals and were also very high in sodium. Lunchables don’t break any laws, but some have as much as 74% of the lead allowable by California’s standards and 50% of the total recommended daily allowance for sodium. And that is from one Lunchable that might represent only 15% of the 1,600 daily calories a typical 8-year-old would consume. Consumer Reports says no one should eat them regularly. Lead and heavy metals in highly processed meats have been linked to developmental problems in children and hypertension and kidney damage in adults.
Last year, Kraft Heinz announced it would be selling Lunchables for school lunches, but that seems unlikely to fly on suburban school boards. The report is also the latest reason why consumer packaged goods companies and retailers will have to redouble their efforts to improve the healthfulness of their products. That may require changes to product formulas and will likely place more importance on temperature-controlled supply chains for fresh foods in contrast to the heavily processed and long-shelf-life meat found in Lunchables.
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