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Consumer staples earnings reports bring yet more evidence of demand weakness

Consumers trading down to cheaper private-label brands

Ongoing retailer destocking/inventory reductions and the shift to cheaper private-label brands are posing problems for branded packaged food companies. (Photo: Shutterstock)

The pandemic bubble was wonderful while it lasted for all manner of goods companies but they’re seeing the other side of it now and it doesn’t look so appealing to investors. 

This week brought earnings reports from three branded packaged food and beverage companies, and volume/demand pressures took center stage. That’s no surprise: Americans have burned through their pandemic-era “excess” savings; their real (inflation-adjusted) average weekly earnings have been falling for two years running; and their credit card debt is at an all-time high at elevated interest rates.

Among the prominent themes in the Q1 retailer earnings season was consumers increasingly shunning discretionary, big-ticket items in favor of consumables out of necessity, and the earnings reports this week were along similar lines.

General Mills was the first of the CPG companies to report this week. It experienced a substantial 6% organic volume decline in its North America retail segment (and in total) in its quarter ending May following flat volume in that segment last quarter. The company noted that U.S. retailers have been destocking/reducing their inventories in six of the past eight quarters in their attempt to manage working capital. “As you look at the last two weeks, it’s pretty clear that [demand] elasticity has increased,” General Mills said, noting that it experienced an “unexpected inventory build as we went into the last two weeks of the year” owing to demand weakness.


The company’s operating cash flow fell by 16% ($537.5 million) in its fiscal year 2023, partly the result of a $319 million inventory drag. General Mills’ stock price fell several percentage points on the day of earnings, as did those of other branded packaged foods companies in sympathy.

As can be seen in the chart below, General Mills’ North American retail business is essentially back to pre-pandemic volume levels, and when asked about its company wide volume expectations for its just beginning fiscal year 2024, the company’s response gave one reason to think that volumes will be down again. (Its FY24 organic sales growth guidance is 3-4%, and it expects cost inflation of 5%, such that if its price increases are in line with inflation and its mix is neutral, volumes will be down.) 

General Mills expects that among the most important factors affecting its financial performance in FY24 will be consumers’ financial health; given the issues we referenced in the opening paragraph, we think that’s a major risk.

The spice maker McCormick had a bit of a different story. Even though the company raised its 2023 profit guidance, its shares nonetheless fell several percentage points as volume/demand concerns were evident. McCormick’s volume/mix was down 0.9% in the quarter, with its Americas consumer segment volume/mix down 3.5%.


The company acknowledged that U.S. consumers are under some degree of pressure and that they’ve been trading down to cheaper private-label brands as a consequence, especially more recently.

And Constellation Brands — the maker of Mexican beer Modelo Especial, which recently became the top-selling U.S. beer brand thanks to Bud Light’s well-publicized problems — reported slightly below-consensus beer depletions growth of 5.5% (depletions are shipments from distributors to retailers), which was the lowest level of quarterly growth in several years.

We expect many more indications of weak consumer demand in the upcoming Q2 earnings season and that companies will hazard few if any guesses as to when the weakness will abate.

Adam Josephson

Adam Josephson is a senior vertical expert at FreightWaves. He was most recently a paper & packaging analyst at KeyBanc Capital Markets for the past 10 years, presented at numerous paper industry meetings/conferences. His insights were quoted in publications like The Wall Street Journal. His work focused on the drivers of box demand (including the impact or lack thereof from e-commerce growth, contrary to popular belief), accounting issues pertaining to his industry, and other topics. If you’d like to get in touch with Adam, please email him at [email protected] or [email protected].