CAGNY: Big Food biting through another crisis
Five Seasons Ventures attended CAGNY 2022 (the Consumer Analyst Group of New York), where major publicly listed consumer product companies come together to present past year performance and strategic priorities. It is the not-to-be-missed event for anyone active in the consumer sector.
1. Crisis, crisis, crisis
This year’s CAGNY edition took place in a very particular context: the Covid triggered a supply chain crisis which favored the comeback of inflation. This whole situation is of course worsened by the war in Ukraine which is already impacting the price of food commodity and energy. But corporates are better prepared for crisis due to a two-year training during the pandemic. On an annual basis, global consumer price inflation picked up from 2.2% in 2020 to 3.8% in 2021 and will average 4.1% in 2022. Corporates have planned to pass part of the prices increase downstream to consumers: Church & Dwight has raised prices on 80% of its portfolio. At the same time, corporates are trying to decrease their supply and logistics costs by diversifying and optimizing their supply base and by sourcing more locally (as shown below on this Coca-Cola slide). In a word: divide to conquer! The latter strategy also helps them to navigate the supply chain crisis by not putting all their eggs in one basket. It is also no surprise that some corporates will increase investments in their own infrastructure to increase resilience, like Hershey which added two distribution and fulfillment centers in two years.
2. Strong interest for emerging countries
During this last edition of CAGNY 2022, Big Food have made it clear that emerging markets were now of the utmost importance for them. Take a look at Mondelez’ presentation “Spotlight on AMEA region: a long-term growth engine” to get a good example. But why did the quest for growth changed continent? Well, nothing new here: attractive population growth and young demographic, rise of middle class with increased disposable income and high levels of digital connectedness!
3. Covid & corporates: a hate & love relationship
Now that Covid may be on its way out (fingers crossed), comes the time to take stock. Covid-19 hit most of the corporates hard: some of them are only coming back to pre-pandemic levels. For instance, Coca Cola grew quite slowly since 2019 ($38.7bn in 2021 vs $37.3bn in 2019) in part due to lack of outside-of-home consumption. But at the same time, it also boosted some categories like the frozen segment, as the Nomad Group reminds in its CAGNY presentation, or the better-for-you category, creating new opportunities for corporates. The long-lasting effects of Covid have pushed Big Food to innovate through new channels exploration and new product launches.
4. M&A: Refocus on core activities
Whether it be the Covid-19 or the premises of the Ukraine War, Big Food are more cautious with external growth as they “refocus” on their core activities. The message is clear: candidates to acquisition are numerous but few will be chosen! And most importantly: growth will not be enough! Corporates do not want to deteriorate their profitability and EPS in times of inflation and cost cutting. This strategy does not prevent them from divesting some business units, on the contrary, as it’s also a way to increase free cash flows. As an example, Unilever announced in 2021 the divestiture of Ekaterra, its global tea business, to CVC Capital Partners for €4.5bn while underscoring at CAGNY its willingness to make acquisitions in the nutrition and beauty space for a yearly value of €2bn. In August 2021, PepsiCo also announced that it was selling a controlling stake in Tropicana to private equity firm PAI Partners because the operating margin of the business unit is below the one of the entire group.
However, corporates are still eager for fast-growing DTC companies, as emphasized by the acquisition of our portfolio company Just Spices by Kraft Heinz.
5. The same old buzzwords: Digital & ESG
Corporates keep on developing their digital strategy as 62% of shoppers order groceries online at least occasionally (vs 34% in February 2020). This includes the launch of new distribution channels, including direct-to-consumer, as well as a more data-driven and social media-led marketing strategy. As for ESG, one can just hope that their commitments from last year CAGNY presentations will remain unaffected and on the same level of ambition as before.
6. The last buzzword
“Convenience” I had it, “health & nutrition” I had it, “sustainability” I had it. But premiumization, I must admit was not in my predictions for one of the key buzzwords of this year CAGNY presentations. And yet, all Big Food mentioned it. Nestlé even gave this striking figure: between 2017 and 2021, the share of premium within their portfolio went from 11% to 35%. I suspect that the further premiumization message in Big Food’s portfolio is linked to the unavoidable inflationary price adjustments and the need to protect their margins by reversing some of the risen input costs onto the consumers. At least in part.
