Consumer product companies flush with the spoils of sustained at-home consumption, carefully crafted brand portfolios, and the pricing power to withstand double-digit inflation made their annual pitches to the investment community at the Consumer Analyst Group of New York’s annual conference last week.

The virtual presentations made a compelling case for a vibrant sector but raised questions about the durability of results if and when rampant price inflation—along with less government stimulus and SNAP benefits—impact consumer behavior as pandemic conditions recede. And while many brands expressed an appetite for acquisitions it remains to be seen what deals may materialize and at what price.

Inflation could weigh on marketing budgets

Executives expressed confidence that consumers are accepting price hikes, and predicted more are coming. “We have raised prices on 80% of our portfolio, and we are not done. We are planning for more price increases in 2022,” said Church & Dwight Co. CEO Matthew Farrell.

Unilever Chief Financial Officer Graeme Pitkethly pointed to the clear connection between how well marketers can push through price hikes and how much they can spend on marketing.

“We believe fast action on price is the right thing to do to preserve our ability to invest behind our brands,” Pitkethly said. “But at the same time, we have maintained good levels of competitiveness.” He pointed to 53% of Unilever brands having gained share last year as one sign price hikes aren’t scaring off consumers.

L’Oreal CEO Nicolas Hieronimus laid out perhaps the most detailed and nuanced plan at the conference, known as CAGNY, for dealing with inflation while minimizing consumer blowback.

Rising costs “will be a headwind in the first half,” he said, but it will be partly offset through such things as ingredient substitutions or negotiations. “Besides,” he said, “in a premium rising market, our divisions have developed AI-powered revenue growth management resulting in a mix of price increases, promotions and formal strategies, most of which already have been agreed with by our retail partners.”

He also went to great lengths to suggest L’Oreal may cut marketing spending to compensate for higher input costs. “We have harnessed the power of data to measure and improve the ROI of our marketing,” he said. “This will allow us to get more bang for our bucks or even the same bang for less bucks.”

Much of the conference took place before Russia's invasion of Ukraine, so executives did not detail what toll the war could take on operations and supply chains. However, with Ukraine and Russia being two of the world’s largest exporters of wheat and other supplies, the crisis will surely have some effect on food companies.

Procter & Gamble, Unilever, Colgate-Palmolive and Kimberly-Clark all do substantial business in Russia. Colgate CEO Noel Wallace did note expansion of some of the company's oral-care brands into Russia, without mentioning the invasion.

Advantaged assortments

McCormick & Co. was among those companies highlighting a distinct portfolio of brands, assembled through recent acquisitions like Cholula hot sauce and French’s. The latter deal brought along the Frank’s Red Hot brand, giving McCormick a distinct niche in the marketplace and protection from private brands. McCormick aims to corner the global market for “flavor” behind condiments and spices that can find their way into any meal, said McCormick CEO Lawrence Kurzius.

Not only are consumers still cooking meals at home, but 88% of them surveyed signaled intentions to maintain or increase the number of meals they prepare even when the pandemic recedes, Kurzius added. This calls for recipes—and activates marketing for the brand on its web properties, he noted.

Kurzius was one of the few top executives who mentioned investment in value-priced products, saying larger pack sizes and smaller brands like Knorr’s, featuring entry-level price points, were expanding in number.

J.M. Smucker has also built a formidable brand array through acquisitions and dispositions, concentrating today on hot categories like pet foods, snacking and coffee.

Coffee is a $2.4 billion business at Smucker, and poised for growth behind the home consumption trend—73% of all coffee is now consumed at home, compared to about 66% prior to the pandemic, said Mark Smucker, president and CEO. His presentation included highlighting a brassy brand renewal campaign for its large Folgers coffee franchise, and predicted that packaged Dunkin’ coffee would be a $1 billion brand in five years, up from today’s $800,000 in annual sales.

Smuckers’ Uncrustables line is on a similar growth trajectory with the company anticipating it would surpass the $1 billion hurdle in five years. Smucker said the brand would do about $500,000 in sales this year, building on a 32% sales increase in 2021.

Smucker is also bullish on acquisitions—and not afraid to make big ones, said CFO Tucker Marshall. “Acquisitions continue to play an important role in our strategy of driving category leadership and scale through large iconic brands, coupled with smaller emerging growth brands. We will pursue bolt-on opportunities across our U.S. retail segments and explore transformative acquisitions that could bring the company into new categories, channels or geographies. We anticipate a potential large-scale deal to focus on growing categories that are aligned with our current North American footprint and center of store capabilities.”

What's for breakfast?

While recognized best for its U.S. breakfast cereal business, Kellogg Co. CEO Steven Cahillane urged investors to think of the company in terms of its portfolio of snacks, frozen foods and a growing overseas business. The maker of Frosted Flakes and Rice Krispies is still overcoming aftereffects of COVID-related supply challenges in 2020, a July fire that sidelined a Memphis factory, and an 11-week strike at four cereal plants.

“Once we rebuild inventories and service levels back up from the fire and strike, which should be done by midyear this year, we will quickly be back on our playbook of brand building [and] innovation,” Cahillane said, noting that brands like Frosted Flakes and Froot Loops are outpacing the category sales. “There are plenty of reasons to be confident that we will be able to stabilize this business.”

In the meantime, snack brands like Pringles, coming off a dazzling Super Bowl ad Cahillane played for viewers, and Cheez-It, the country’s leading cheese cracker that’s only begun to penetrate overseas markets, are leading the Kellogg portfolio. The business, which also includes frozen brand leaders like Eggo, guided to low-single-digit growth this year.

Kellogg rival General Mills is also guiding investors to organic sales growth in the range of 4% to 5% for the year. Having turned over about 15% of its brands through dealmaking in recent years, executives spoke of a portfolio that can deliver “executional experiences.”

“We need to demonstrate superiority across all elements of the brand experience,” said Dana McNabb, chief strategy and growth officer for the company.

She ticked off several recent marketing wins in the cereal aisle including heart-shaped Cheerios promoted in partnership with actor Ice-T; a partnership with Disney+ to promote Marvel's Loki series by rebranding Lucky Charms as Loki Charms; and a collaboration between snowboarder Chloe Kim and the cereal she obsesses over, Cinnamon Toast Crunch.

“These are three of the biggest brands in the U.S. cereal category, and they’re showing up in culture in a way that has driven significant penetration gains and helped expand Big G’s category leadership with our U.S. market share up more than a full point so far this year,” McNabb said.

Mtn Dew hard setlzer and Cheetos mac and cheese

Innovation—in flavors, packages and marketing—was the message delivered in presentations from the CEOs of beverage giants PepsiCo and Coca-Cola Co.

PepsiCo, for example, is now placing snack foods and beverages further throughout the supermarket. Its Mtn Dew brand is now a player in the energy drink space and intends to gain a foothold in the hard seltzer category this year through a partnership with Sam Adams’ brewer, Boston Beer Co. Doritos has expanded into tacos and Cheetos has a macaroni and cheese product. Sister convenience meal brands like Rice A Roni are also hitting store shelves with new products.

“To become a faster organization and accelerate growth, we invested to fortify our global brands and businesses. For example, we bolstered our global advertising and marketing spend, reflecting investments across our large brands such as Lay’s, Doritos, Pepsi and Gatorade within beverages and convenient foods,” PepsiCo CEO Ramon Laguarta said. “We also invested in advancing our in-house content creation and automation capabilities to deploy targeted higher return on investment marketing programs in a manner that is both efficient and scalable.”

At Coca-Cola, a consumer-centric approach under CEO James Quincey is amassing a war chest of product innovations—about 500 currently—intended to deliver “human-centered experiences” that will “collaborate with culture like never before.”

Quincey said Coca-Cola’s gross profit per new product launch was up 25% last year as the company took a disciplined but volume-heavy approach to invention.

“Intelligent experimentation goes beyond new flavors and new brands,” he said. “It also includes product, package and process. It encourages local markets to test the best ideas in a way that allows us to nurture and scale them. And then in turn, we can expand across geographies faster than before.”

A strenuous consolidation of agency relationships that took place last year and was set when the big brand named WPP as its lead global agency in November, will also impact how the company brings its brands to market.

“We’re increasing our level of consumer-facing spend and generating more gross profit with each consumer-facing marketing dollar, but it’s only the beginning,” he continued, adding: “We’ve emerged [from the review] with a much more streamlined approach and a much smaller roster to support our network marketing team, which will bring cutting-edge capabilities and digital execution to our enterprise at scale. As this transition continues in 2022, we expect the new model will result in more personalized relationships with consumers, add new drinkers for our brands, continue to accelerate our innovation agenda, and become a growth driver in the coming years.”

Also read: Coke launches 'space-flavored' variety called Starlight

Upselling from makeup to diapers

Hieronimus also noted that more than two thirds of L’Oreal’s growth last year came from “valorization,” or getting people to trade up to higher-priced, higher-value products, a trend he believes can continue.

The same holds true in diapers, which long have seen downward sales pressure due to declining birth rates globally, but plenty of growth in dollar sales as families having fewer babies trade up to higher-priced diapers, said Alison Lewis, chief growth officer of Kimberly-Clark Corp., marketer of Huggies. “Diaper dollars per baby,” a metric K-C tracks closely, are rising continuously, she said. Premium and super-premium diapers now account for almost 83% of the global market in value terms, up 7 percentage points in only two years, she said. Developing markets will account for 90% of the projected 1.3 billion global births over the next 10 years, Lewis said. And even though diaper dollars per baby in such markets are only 15% the level of developed markets now, she said that leaves plenty of room for trading people up.

Digital marketing now rules

It’s still de rigueur for CPG executives to tout how digital their companies have become, and how much business they do in e-commerce, even decades into the digital age. Now, digital spending is the lion’s share of marketing outlays for many of the big players, ranging from 61% of marketing spending at Colgate-Palmolive Co. to 67% at Clorox Co. and 70% at Kimberly-Clark, executives said at CAGNY.

Colgate put on the most complete display of its digital prowess, giving much of its presentation time to Chief Digital Officer Brigitte King. 

CEO Noel Wallace noted how social listening by the Fabuloso marketing team in Mexico helped the brand capitalize on the #cleantalk video hashtag of TikTok to create global viral dance videos behind the brand. King noted how the U.S. oral care team responded quickly to TikTok queries to produce a video showing how striped toothpaste gets made.

Digital media now delivers 1.6 times higher sales ROI than traditional media, King said, “with strong performance across key focus areas of paid search, programmatic, online video and social.”

Nelson Peltz still looms large

Activist investor Nelson Peltz, founder of Trian Fund Management, didn’t present at CAGNY, but surely his presence was felt. He recently stepped down from Procter & Gamble Co.’s board after nearly four years, a time that saw P&G ditch its old matrix structure and reconfigure its business into six largely independent global business units—a move Peltz lobbied for. 

P&G CEO Jon Moeller showed a slide of the company structure adopted in 2018 that looked remarkably similar to one Unilever CEO Alan Jope had shown two days earlier outlining his company’s recently announced restructuring. Like P&G, Unilever is ditching a country-category matrix structure in favor of five largely independent global business units. It so happens Peltz has recently been acquiring shares of Unilever.

Jope did note that Unilever had been talking about adopting this structure since 2019 but delayed implementation during the pandemic given the other disruptions to the business. So perhaps it’s just a coincidence that when Peltz takes a big stake in CPG companies, they end up re-organizing the same way.

Either way, de-matrixing two of the world’s biggest advertisers means more decentralized decisions made by marketers assigned to global businesses and less direction centrally from headquarters in Cincinnati and London. At least for now, both still handle much of their media buying and media agency assignments on a country or regional basis, working across product categories, though P&G has moved toward more business-unit-level media assignments within its markets.

Where everyone is superior 

Peltz isn’t the only common thread between P&G and Unilever. Both also were touting their “superiority” at CAGNY. In a packaged-goods world where it became common over the past decade for marketing to focus on more daring creative, brand purpose and social causes, both companies these days are focusing increasingly on product superiority in their ads and investor presentations.

“Product superiority and innovation are key to the success of our brands,” Jope said. More than 70% of Unilever brands now rate “superior” in blind tests vs. competition with consumers, he said, up from less than 50% in 2019.

“We continue to raise the bar on all aspects of superiority—product, package, brand communication, retail execution and value at all price tiers,” said P&G’s Moeller. In fiscal 2016, only 30% of P&G’s portfolio rated superior with consumers, Moeller said. “We’re now at 75%.”

That puts P&G five percentage points ahead of Unilever. But like all the children in Lake Wobegone, they’re both above average. 

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