Packaged Foods Are Seeing a Spike in Demand That Could Continue for Years

High unemployment, remote work and an uncertain future draw consumers toward CPG

cans of campbells soup
Campbell's raised its 2020 outlook based on continued demand for its products.
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Key Insight:

Throughout the pandemic, consumer demand for shelf-stable packaged food has surged, providing a boost in sales for companies such as Kraft Heinz, General Mills, J.M. Smucker and Hormel Foods.

Today, the Campbell Soup Company joined this list, reporting that year-over-year net sales for the quarter ending April 26 were up 15% to $2.2 billion, beating estimates. The company’s meals and beverages segment, which includes Campbell’s soup, Prego pasta sauces and SpaghettiOs, grew 20%. Its snack segment—including Goldfish crackers, Pepperidge Farm cookies and Kettle Brand potato chips—increased 9%.

“In the quarter, we experienced unprecedented broad-based demand across our brands as consumers sought food that delivered comfort, quality and value,” said Mark Clouse, Campbell’s president and CEO, in a statement.

As states begin to relax their stay-at-home orders and restaurants open their doors, the days of panic buying and pantry stockpiling appear to be in the rearview mirror. Several factors ranging from more people working from home to high unemployment rates to concerns about reentering physical establishments, however, suggest that makers of packaged foods are likely to continue benefiting from the disruption to the nation’s eating habits for years to come.

Although at first a temporary arrangement, working from home is becoming more acceptable to many companies. Facebook, for instance, is allowing more employees to work remotely. Twitter is letting some members of its workforce stay at home permanently. And even when people do eventually return to the office, it will likely be in phases at first, with employees rotating in shifts to allow for social distancing.

The economics tip toward CPG brands

More time spent at home, naturally, means a greater likelihood of eating at home. Since the Covid-19 outbreak, 53% of consumers have made shopping for groceries a higher priority, according to a mid-May survey from market research firm Mintel.

“Our sense is that until you have a vaccine, you’re going to continue to have changes in where and how people consume food,” said John Baumgartner, a senior analyst at Wells Fargo.

With the unemployment rate reaching 14.7% in April and a long road to economic recovery ahead, plenty of consumers simply aren’t able to afford premium produce or a night out at a fancy restaurant, either.

Much like offices, reopened bars and restaurants will likely operate with limited seating. On top of that, plenty of small, independent eateries likely won’t survive the prolonged shutdown, further reducing food options for consumers. Recent numbers from the NPD Group reveal that while some establishments are offering some on-premise dining, total U.S. restaurant chain transactions are down 18% for the week ending May 24 compared to same time last year.

Baumgartner said these conditions are a net positive for the CPG industry.

“We think you’re going to see above average grocery consumption for the next two to three years,” he added.

Plus, there’s the idea that big-name brands provide comfort and certainty to consumers during periods of unrest. About 1 in 5 shoppers (17%), for instance, said in mid-May that they’re more likely to buy brands they know due to food safety concerns, according to Mintel.

“We’ve seen time and time again that big brands tend to do well when people are feeling anxious and under threat,” Unilever CEO Alan Jope told The Wall Street Journal. Jope also anticipates the affinity for established brands to last for a couple years.

In another sign of optimism for Campbell’s, the company stated in today’s earnings release that it attracted millions of new customers in the previous quarter, increasing its household penetration rate by more than 6% compared to the same period last year. It’s planning to increase its marketing spend to retain these new consumers.

Based on the belief that consumers will continue to demand its products at elevated levels, Campbell’s now expects net sales for its 2020 fiscal year to grow between 5.5% to 6.5%, up from a previous estimate of -1% to 1%.

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