Do you remember last year’s pandemic stocks? Consumer goods companies are still catching up
People buy toilet paper at a Costco store in Novato, California on March 14, 2020.
Josh Edelson | AFP | Getty Images
Soaring demand from the coronavirus pandemic saw sales of packaged consumer goods, which include everything from toilet paper to canned soup, surge 9.4% to $ 1.53 trillion last year, according to a new report from the Consumer Brands Association -Dollar.
But the boom in demand hasn’t let up, and the trading group said manufacturers are still struggling to catch up on their stocks. To meet this challenge, companies are hiring more workers, adding new factory lines and raising wages in the face of the continued surge in demand.
“This was the biggest test the system has ever seen,” said Geoff Freeman, General Manager of Consumer Brands. “Our wildest imagination may not have imagined the 12 month climb we just went through.”
Even if the pandemic subsides, Consumer Brands predicts that industry revenue will still grow 7.4% to 8.5% in 2021 from 2019 onwards. January sales are up 16% year over year, the highest change since the start of the year last March. Revenue growth slowed slightly in February but was still in double digits. Prior to the pandemic, strong growth for a CPG company meant an increase in the low single digits.
“This industry is still sprinting a marathon,” said Katie Denis, vice president of research and industry narration for Consumer Brands.
The surge in demand over the past year means manufacturers are still trying to catch up, and any obstacle can result in millions in lost sales. Freeman cited a conversation with a business executive who saw that more than a quarter of its manufacturing facilities were closed for a week in February because of the Texas winter storm. The blockade of the Suez Canal in March caused even more headaches.
General Mills and Clorox are among the companies that have reached out to third-party manufacturers for a temporary fix to the skyrocketing demand. The situation has led some CPG companies to rethink inventory targets and how close products are to retailers. Freeman said some manufacturers won’t be able to catch up on inventory until new investments go online.
The current stress on the supply chain is making some bottlenecks, such as the ongoing shortage of ketchup packages first reported by the Wall Street Journal, harder to predict.
“We should see something like this six to twelve months in advance,” Freeman said.
The rise in demand has resulted in higher wages for CPG manufacturing workers. PepsiCo and Hormel were among those who gave rewards to their frontline employees last year. From July to September, wages for food processing workers rose 3.4% from the same period last year, according to the Consumer Brands report. Nationwide non-farm wages fell by 0.8% over the same period.
“I do not know if [wages] will rise higher than 2020 but there is no reason to believe there will be a decline, according to the companies we surveyed with McKinsey, “said Denis.
CPG companies have also increased their recruitment. After initially losing jobs in the industry, particularly among food service providers, other manufacturers of food, beverages and household products made efforts to attract more workers. Some companies hired 10 to 20% more workers than they actually needed to account for employees who quarantined or cared for sick loved ones, Freeman said.
Current manufacturing employment in the industry is only 2% down from January 2020, while the total employment rate in the US was 6% in March, according to the Consumer Brands report.