3 Big Questions Every CPG Executive Must Address in 2022

Plus Best Practices for CPG Industry Planning and Forecasting

Last Updated: January 20, 2022

2022 CPG Industry Outlook Overview

For the last two years, the market conditions for the CPG industry have been largely positive. The pandemic caused favorable consumer behaviors, such as pantry packing, that directly impacted CPGs compared to other industries. 

The pandemic pantry packing behavior kept nearly all categories of CPGs in high demand for almost all of 2020. It also led consumers to disregard concerns about price and brand and buy whatever they could find available on the shelf. This lack of concern about price was aided by the fact that most consumers experienced a simultaneous increase in income as a result of government stimulus, enhanced unemployment benefits, and wage increases. Together, these factors created an environment in which rising costs for production could easily be passed onto the consumer. As a result, CPGs simply decreased the number of discounts they typically offered, which covered any rising costs. 

These favorable CPG conditions in 2020 slowed at the end of 2021, and will certainly be gone by 2022. As of now, Prevedere’s outlook projects that the industry will face new challenges in the next year as consumer behavior changes and uncertainty in the market remains high. These challenges primarily start with a weaker consumer with lower income levels than the past two years as government stimulus and benefits expire.

#1: Will consumers continue their new habits or revert to pre-pandemic behaviors?

The first question CPG executives must navigate in 2022 is whether consumers will continue with their new pandemic habits or revert to pre-pandemic behaviors. There are a lot of habits companies will need to monitor, including whether consumers will continue to pantry pack or whether consumers will primarily buy groceries online versus in person. 

To navigate this challenging landscape, CPGs need to first understand which pandemic habits are sticky versus temporary. For example, the recent increase in online grocery orders may continue for the next few years regardless of pandemic conditions. On the other hand, it’s safe to assume that restaurant dining will likely return to pre-pandemic levels in the near future as the pandemic eases. 

Once a brand can discern which habits are temporary and which may persist more permanently, they need to map the relationship between each habit and its impact on specific business categories to plan accordingly. CPGs need to be agile as new habits could continue to emerge. There could also be temporary reversions, such as increased pantry packing, each time a new variant and wave of COVID returns. 

CPGs can remain agile by monitoring and mapping these evolving habits in real-time with external data so they can adjust their business plans and take advantage of new opportunities throughout the year.

#2: How will inflation impact consumer spending?

Inflation has been all over the news in recent weeks and the reality is that price pressures will not diminish any time soon. In fact, the Consumer Price Index hit a nearly 40 year high of 6.8% in November 2021. Normally, inflation of this degree can be felt by consumers across the income spectrum. However, like many economic trends in the last two years, current inflation is unprecedented as it is not impacting all Americans in the same way. Notably, consumers that are experiencing the greatest inflationary pressures are Americans at the lowest income levels as well as those that have recently made major purchases such as homes or cars. While only some consumers are being heavily impacted by inflation, the number is expected to grow in the coming months. 

#3: With limited opportunity for promotion, how can costs be managed?

Consumers aren’t the only ones feeling the effects of inflation right now – manufacturers across the CPG industry have also been hit hard. The price of goods has steadily risen throughout the last year as the supply chain has produced limited inventory. At the same time, inflation has driven production costs up through a variety of channels including wage growth. This creates a similar environment to the last two years, but without the benefits of consumers having a pandemic mindset coupled with additional income. 

As consumer demand fades and Americans return to their pre-pandemic price-conscious mentality, CPGs can no longer pass additional cost increases along to the consumer, which presents a significant challenge across the industry in 2022. 

To manage increased costs, CPGs should focus on consumer segments that will continue to spend despite rising inflationary concerns. CPGs need to understand which of their consumers are being impacted by inflation and how their habits are changing in response to these pressures. The key to managing costs and maximizing revenue until inflation stabilizes will be identifying and targeting segments of Americans that still have disposable income and are not focusing on the cost of goods as heavily. 

Best Practices for Forecasting and Planning in 2022

In order to successfully approach forecasting and planning in 2022, CPGs must accept there will be continued uncertainty throughout the economy from evolving consumer behaviors and the uneven impacts of inflation across industry and consumer segments. 

In response to this uncertainty, CPGs need to prioritize scenario planning across all of their categories and brands. While the only guarantee for 2022 is that there will be uncertainty, scenario planning can help mitigate some risks and allow CPGs to plan for whatever may come in the next year. CPGs that leverage scenario planning now will be best positioned to pivot as market conditions change.

 

Watch the 2022 CPG Industry Outlook webinar to learn more about CPG planning for the new year.