Challenging Economic Outlook for CPGs in 2022 and Best Planning Practices
This CPG-focused economic outlook blog provides an overview of Prevedere’s 2022 outlook for the industry, which includes evolving market conditions and new challenges that CPG companies will be facing. The outlook also highlights best practices for CPG forecasting and planning strategies in the next year.
Despite the overall positive effects of COVID on CPGs in the last two years, the outlook for 2022 includes some new challenges. From inflation to supply chain issues and rising production costs, CPG leaders find themselves in uncharted territory.
3 Major Challenges to the CPG Industry in 2022
The first challenge that CPGs will need to navigate is evolving consumer habits. In 2021, consumers slowly started to return to some normal pre-pandemic behavior, which will likely continue throughout 2022. For example, share of wallet will continue to be spread more evenly across industries as people start spending more on services, travel, and restaurants again. While it is unpredictable which consumer behaviors will revert to pre-pandemic habits and which trends are here to stay, CPGs must be prepared for shifting changes in consumer behavior.
The second area of concern for CPGs is inflation. The U.S. inflation rate has grown throughout 2021 but the most important question is whether it has crossed the threshold into which consumers are feeling the impact in their daily lives. In the last few months, inflation has surpassed the average wage growth, which means that the rise in the cost of goods has outpaced the growth of average worker salaries. This is typically when consumers start to feel the inflationary environment, but like many economic trends over the last few years, this one is unprecedented and not all Americans are impacted in the same way.
The third area of concern is the rising production costs. Manufacturers have been hit particularly hard by the inflationary environment. The price of goods has steadily risen throughout the last year and the supply chain has produced limited inventory, while inflation has driven production costs up for a variety of channels. This creates a similar environment to the last two years but without the benefits of consumers having a pandemic mindset and habits and a beneficial income situation. CPGs can no longer pass costs along to consumers as they are returning to their pre-pandemic price-conscious mentality.
Best Practices for CPG Planning in 2022
To successfully approach forecasting and business planning in 2022, CPGs must learn to navigate continued uncertainty, constantly changing consumer habits, and the uneven impact of inflation across the economy.
CPGs need to understand which pandemic-related consumer habits will continue and which are temporary. For instance, it wouldn’t be surprising to see the growth of online grocery orders continue over the next few years. On the flip side, it’s also pretty safe to assume that spending on restaurants will return to pre-pandemic levels. Moreover, new habits could emerge during the next year that blend pre-pandemic behavior with pandemic trends.
Once a brand understands these habits, it should map the relationship between consumer behavior and its impact on specific categories and plan accordingly. CPGs need to follow and understand these evolving habits in real-time so they can adjust their business plans to take advantage of new opportunities throughout the year.
CPGs must also identify the consumer segments which are going to be most vulnerable in the COVID economy. These are most likely to be consumers that are either making big purchases or are working Americans with lower incomes. These are the consumers that have proven the most loyal during the pandemic but could quickly pivot towards a more cost-effective brand.
Going forward, businesses should not expect trends to be linear. Just because the market shifted in certain ways in the past does not mean these patterns will continue. CPGs must prioritize scenario planning for all of their categories and brands to allow them to pivot as the market conditions change.
Access the full economic outlook webinar to learn more about planning for CPG companies in 2022.