Chart: Yahoo! Finance
Stock prices for CPG companies have soared since the middle of March on the back of consumers flocking to cleaning supplies and frozen foods.
Will the trend continue? Over the past couple of years, incumbent CPG companies have struggled against newer start-ups that were thought to be more nimble, but that has changed since the pandemic. Higher production capacity and more sophisticated supply chains allowed large brands to respond better to surging demand, outpacing newer entrants.
“Big brands are taking market share from the smaller brands in almost every category,” says Warren Ackerman, analyst at Barclays.
Demand for refrigerated trucking in the U.S. spiked at least twice during the pandemic, which tightened reefer capacity. The chart above shows the percentage of reefer loads tendered by shippers that were rejected by carriers and brokers due to a lack of capacity. As routing guides broke down and spot rates soared, CPG firms with sophisticated logistics service providers and more options had an easier time securing trucks.
Nestlé acquires Freshly: Although CPG incumbents have gained market share due in part to the pandemic, they’re still looking for ways to keep innovating. On October 30, Nestlé announced that it acquired the online meal startup Freshly for $950M. One way to think about the deal is that it’s part of a growing direct-to-consumer trend, whereby CPG companies bypass traditional retailers.
Direct-to-consumer is seen as a primary growth driver for CPG going forward. Deep into Q3 earnings season, we’re getting more clarity from CEOs on what they believe will fuel sales growth going forward.
“We’re thinking and acting DTC-first as we accelerate our investments in our own direct-to-consumer and e-commerce businesses,” Levi Strauss & Co President and Chief Executive Officer Chip Bergh commented in the third quarter earnings call.
“They’ve done an exceptional job with e-commerce,” said Noah Wallace, Colgate-Palmolive President and Chief Executive Officer answered when asked about underlying trends in business during the company’s third quarter earnings call. “All of that is leading to increased market shares where you take the e-commerce shares, where you take brick-and-mortar shares around the world.”
An increase in DTC will benefit companies such as UPS and Fedex as there will be an influx of packages needing to be delivered to consumer’s doorsteps.
Amazon is already scaling into the final mile/last mile segment to help supplement their Amazon Prime package. Last year, Amazon announced it plans on buying 100,000 electric vans from Rivian for its private fleet and intends to have 10,000 on the road as early as 2022 and all of them by 2030.
(Table: NCSolutions)
Americans have a sweet tooth! New research from NCS Solutions suggests that quarantine has driven consumers to all things sweet. For the entire COVID-19 buying period, baking mix spending is up 38% y/y.
The only candy category that is down y/y is “non-chocolate candy”. We can expect that this category along with “chocolate candy” likely took a hit in October due to fewer children trick-or-treating across the country.
