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Food and beverage is the only sector projected to grow this year, report says

by Megan Poinski

Food and nonalcoholic beverage is the only sector of the economy projected to post positive growth in 2020, according to a Euromonitor analysis. A chart made by the retail analysts show the sector growing at just above 2%, which is slightly below what it posted in 2019.

Due to the halt of economic activity from the coronavirus, Euromonitor predicts global spending to fall 4.3% in 2020. The pandemic, which many economists say will cause a global recession, will be responsible for a 3.7% decline in total disposable income this year, the analysis found. Both spending and income had previously been on an upward trend.

Consumer spending projections are based on lifestyle trends that came out of the pandemic. Stay-at-home orders and widespread quarantines led consumers everywhere to stockpile food and beverages. At the same time, transportation, leisure and recreation and household goods and services are the hardest hit sectors, with revenues projected to fall more than 8% this year.

Dive Insight:

It wasn't all that long ago that the packaged food business was seen as a perpetual safe investment. Regardless of what else is going on in the world, the reasoning went, people have to eat. And while trends, discoveries and world events can alter some businesses, they don't change the simple fact that food is something everyone needs to buy.

But a plethora of consumer choices, widespread sentiment about the health and quality of processed products and new options at restaurants eroded Big Food's safe positions. In the last several years, former titans of industry like Kraft Heinz that had been seen as strongholds saw their stock prices fall. 

Other brands, including Campbell Soup, Hain Celestial and General Mills, have seen organic revenues and sales consistently dropping in recent years, making CPG companies prime targets for activist investors. Third Point, an activist investment firm led by Daniel Loeb, took a $300 million stake in Campbell Soup — about 7% of the company — in 2018. 

Demand during the coronavirus pandemic erased many of those declines. According to a late-April filing with the Securities and Exchange Commission, Campbell Soup posted a 34.4% increase in food and beverage sales between mid-March and mid-April, compared to last year. Loeb quietly exited his investment in the CPG giant last month. Similarly, Kraft Heinz saw an overall sales bump of 3.3% from last year in its most recent earnings report, with a 6.4% increase in the United States.

Euromonitor's report says the pandemic will be responsible for permanent changes in consumer behavior. As people are expected to have less money, as well as more stress and anxiety about the future, they will be shifting toward thriftier spending that truly meets their personal needs. The report indicates consumers' top concerns are likely to be hygiene, physical health and mental well being, things that the food and beverage industry can bring.

While many people have been forced to stay home and restaurants have only been serving take-out and delivery food, consumers have been rediscovering their own kitchens. Analysts from Credit Suisse say the CPG sector has growth potential beyond the near term as home cooking is likely to stick. Home cooking will be seen as safer, healthier and cheaper than going out. In addition, consumers have found themselves reintroduced to many reliable Big Food products, which they may realize they always liked.

Even though food companies are in prime position for much-needed growth right now, the past shows this is no time to be complacent. While simply having products available on the shelf has been enough to drive sales during the pandemic, that wasn't the case just six months ago. The current situation will evolve, but so will consumer behavior. It's important for companies to keep up with it.

Companies should use this time to embrace the values of the post-pandemic consumer more tightly. They should ensure their products are high quality, healthy and a good value to consumers. Food manufacturers should continue to innovate to improve on these goals. They should take this opportunity to tell their stories, both about how their products can help consumers and how their company benefits the economy. And they should remember consumer values that have been pushed a bit out of the limelight by the pandemic, including sustainability and clean labels, will likely return to the forefront once conditions improve.

While the pandemic may have a lasting change on the way consumers look at the world, they still have a lot of options to choose from. The number of choices will only grow, so manufacturers should take time now to convince consumers that they offer the best choice.

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