What’s Next for the CPG Landscape?

Grocery retailers will see increased demand for both edible and nonedible goods for at least the next six to 18 months, according to IRI’s latest webinar, What’s Next for CPG Demand, Supply and Inflation?

Increased inflation will mean that while some shoppers will continue to buy the premium products they turned to during the pandemic, others will start focusing on more mainstream items, including private label.

But premiumization remains, especially in nonedible products, noted Krishnakumar “KK” Davey, president of client engagement for IRI. “There are a bunch of flex workers who can afford to buy premium products,” he said, while others will seek value, although “consumers shift to store brands only in products they’re already comfortable buying.”

Food categories that were buoyed by the pandemic are likely to stay strong or flat. Easy meals and better-for-you products, which spiked during COVID, are flattening out; at-home cooking ingredients such as vinegar and flour are flat; personal care products are either flat (for essentials such as toothpaste) or growing (cosmetics and deodorant, for example).

Convenience, Better-for-You, Indulgence

Innovation continues to feed convenience, tastes and better-for-you needs as manufacturers focus on home occasions and holistic self-care.

Convenience “continues to be a primary theme going forward,” said Davey. “Convenience used to mean on-the-go and ready-to-eat and now it’s more about quick prep and easy cleaning, so the definition of convenience is evolving,” he added.

Also popular are CPG products that offer affordable indulgence, but now it’s more about premium experiences, variety, strong flavors and unique flavors.

And better-for-you products are more about functional benefits, offering stress reduction, clean ingredients, sustainable packaging and are plant-based, Davey said. This category includes wellness supplements, nutrition (especially hydration) and performance from enhanced foods such as protein chips from Quest.

Millennial Purchasing Power

Millennial households were responsible for the biggest growth in CPG sales for the 52 weeks ending March 20, 2022, according to IRI. As this demographic starts forming new households and growing families, it accounted for 49% of growth, while Gen Z, still young to head up households, accounted for 7%, Gen X 33% and boomers 32%. Millennials, Davey said, “need to get staples in their pantries.”

Grocery stores have contributed most to the growth in CPG sales, but club stores have also done very well and have driven membership, said Alastair Steele, partner, growth consulting, for IRI. Walmart and dollar stores are also doing well, he added.

Supply Chain

The difficulties in the supply chain continue to affect CPG products and retailers’ ability to fill their shelves, Steele said. Because of this, “consumers are more easily shifting brands,” as they have done during the pandemic. Categories most affected by the supply chain woes are cream cheese (only 70.3% in-stock), frozen potatoes (76.4%), nonchocolate candy (77.5%), refrigerated and frozen poultry (80.4%) and aseptic juices (80.9%).

IRI expects the supply chain to return to normal in the next six to 12 months. “Today we all feel it, walking into stores, and in certain categories you don’t find what you expect to find,” said Steele.

In the meantime, private label will continue to fill in the gaps and smaller and mid-size manufacturers may have a chance to drive their products and niche innovations in the marketplace.

Winning Products

Overall, IRI expects CPG sales to be flat as volume declines due to high prices, but with those higher prices maintaining sales. And Steele expects to see more promotions as the supply of products stabilizes but said retailers “should promote frequency over depth—both from a manufacturing standpoint and retail standpoint.”

But the brands that will win, pointed out Cara Loeys, principal, executive insights, for IRI, will have strategies, including offering: