Here’s how CPGs are bracing for more volatility in 2023

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Editor’s note: This story is part of a series on the trends that will shape the food and beverage industry in 2023.

For Mike Kirban, co-founder and executive chairman of coconut products giant Vita Coco Company, uncertainty has been a consistent part of doing business. 

Early on, executives at Vita Coco, which traces the company’s roots to a cold winter evening in 2003 at a New York City bar, had to convince people to buy its product. Then they worked to keep up when demand soared.

The past few years have brought on a new set of challenges, with industry-wide shipping costs soaring from $2,000 a container two years ago to more than $10,000 at its peak last summer, and the availability of shipping containers significantly throttling product availability.

Market conditions caused pineapple and mango puree shortages that impacted the availability of some of Vita Coco’s flavored coconut water on store shelves last summer. And for available products, it took longer for them to go from the factory to its warehouse; taking three months at one point from the customary two weeks. The elevated expenses sliced gross margins at Vita Coco nearly in half last year, and led to two price increases.

“That’s the beauty of these businesses. There’s always a new challenge,” Kirban said with a laugh from Vita Coco’s headquarters in New York City. “We’ve learned a lot. We’ve gotten better at a lot of things to be able to survive through the tough environment that we’ve [had] the last couple of years.”

He said Vita Coco, which also makes water packaged in aluminum cans, energy drinks and protein-infused water along with its namesake coconut beverage, has seen costs start to stabilize, though labor, packaging and ocean freight remain high. The last few years have prompted Vita Coco to make changes to the way it does business, spanning everything from how it sells and markets its products to the strategy it uses for samples and innovation.

Volatility reigns

Still, there’s mounting evidence that the challenges Vita Coco and other CPGs are facing will remain in 2023 and may force further changes at companies already facing one big hit after another.

Supply chain headaches, inflation, the ongoing war in Ukraine and surging input costs have proven to be a test for even the most seasoned executive. Leaders in the C-suite must now strategize how to plan for the future when there are few answers or historical blueprints they can tap into for a guide.

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Permission granted by Del Monte Foods

 

Krishnakumar Davey, president of client engagement at IRI, recently discussed procurement and supply chains with top CPG executives. He was surprised to hear the rather dire outlook they gave for this year.

“They said ‘Look, [2023] is going to be as volatile as [last] year and the last couple of years,’ ” Davey recalled. “I was quite taken aback by what they said.” 

Neil Saunders, managing director with Global Data, agreed. He said most food and beverage manufacturers are expecting 2023 to be “quite a difficult year … because the consumer is still under a lot of pressure.”

At Del Monte Foods, the manufacturer of canned vegetables and fruits, Contadina tomato products and College Inn broths and stocks, is moving forward with what CEO Greg Longstreet said will likely be its last round of price increases for a while in February. 

But with costs for packaging, ingredients and transportation remaining elevated, Del Monte Foods continues to look for ways to reduce expenses throughout its supply chain and increase the attractiveness of its product to the consumer, he said.

To do that, Del Monte has introduced more products whose price point resonates with consumers looking for value and convenience, such as multi-packs of fruit cups and canned vegetables. It’s also more than doubled spending at its plants during the past four years to increase speed and efficiency.

“For us to compete … we have to be highly automated, high speed and efficient to provide those units at a better value to the consumer,” Longstreet said.

More job cuts ahead?

The wildcard for many companies is whether the country is headed into a recession and how severe it becomes if it occurs.

A recession would place further pressure on consumers already dealing with more expensive borrowing costs following a series of rate hikes from the Federal Reserve and higher prices for everything from food and clothing to medical care and travel. 

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