CPGs’ worst nightmare
For certain CPG categories, I would argue that the worst thing that could happen isn’t a recession but consumers getting religion on healthy eating and avoiding the center of the grocery store altogether. Healthy eating aside, earlier this week The Wall Street Journal highlighted a second concern that may be gaining traction — the newspaper described a new consumer phenomenon that is called “split-brain” budgeting, which refers to shoppers splurging on some items while cutting back on others.
Consumers have always prioritized some categories over others, particularly when economic concerns reduce confidence levels. What’s different now is that some consumers are cutting back on everyday items while still going for desirable big-ticket expenditures, such as a certain piece of luxury-branded apparel or a vacation. Similarly, a Morgan Stanley analyst highlighted Gen Z’s spending priorities, which include buying luxury name brands at the expense of traditional rites of young adulthood like renting an entry-level apartment or buying a serviceable used car. I wonder whether those trends are related to the social media-supported look-at-me culture — a beach vacation or a name-brand luxury item makes for an impressive post.
That trend is counterintuitive to me since CPG is typically one of the last things that consumers cut back on, and one would have to forgo lots and lots of name-brand CPG items to make up for taking a vacation. It’s also somewhat contrary to the shopping patterns of the past year, which saw CPG sales holding up relatively well while sales of non-CPG general merchandise (e.g., televisions and furniture) declined and inventories expanded and are not dropping as quickly as freight demand. It remains to be seen whether the Dr. Jeckyll/Mr. Hyde approach to spending is a meaningful trend but, clearly, CPG elasticities have picked up in recent months — that was visible in the most recently reported earnings from Procter & Gamble, Conagra Foods and Constellation Brands.
‘Acreage battle’ pressuring wheat prices while supporting corn and soybean prices
Improved growing conditions are one factor that is helping moderate the price of agricultural commodities, an encouraging trend for CPGs. In general, the dynamic between the rate of growth in CPGs’ prices and costs is improving with the rate of pricing growth (finally) catching up to cost inflation. But the required inputs vary widely by company and the prices of some grain categories have fallen more than others.
FarmProgress explains why prices are correcting more for wheat than for corn and soybeans. Most farmers were locked into 2023 acreage decisions by the end of 2022 and chased high wheat prices by shifting acreage in that direction. Meanwhile, input and fertilizer prices discouraged corn and soybean acreage (wheat production requires less nitrogen than corn). As a result, estimated 2023 plantings for winter wheat and spring wheat are higher than last year by 5% and 12%, respectively, compared to a 2% year-over-year increase for corn and soybeans.
Shippers should expect high compliance levels from their carriers
FreightWaves data shows that carriers are only rejecting 3.5% of dry van tenders and they are rejecting even smaller percentages when looking only at outbound dry van loads from the largest freight markets, including LA, Chicago and Atlanta. Therefore, CPG companies and other shippers should insist on high compliance levels and make adjustments to routing guides if tender acceptances fall much below 95%.
Tyson CFO pays laughably small fine
For public intoxication and criminal trespass, Mr. Tyson paid a total fine of $440, inclusive of fees. If that seems small to me, it’s because I once paid a fine about that size to Baltimore City to get my car back after my wife failed to see a No Parking Any Time sign in front of Starbucks.
Around the web:
How Believer Meats is building the future for cultivated chicken
Abbott Laboratories Michigan Plant Being Investigated by Department of Justice
Shifting purchasing patterns for meat, poultry on the horizon
Why the used trucks pricing bubble finally burst
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