Riding the Storm: Strategic Moves Brands Must Make to Survive Today's Economic Turbulence

The recent global economic fluctuations have brought unprecedented challenges to global brands. 雀巢 has seen a significant impact in North America, where its sales volumes dropped by 5.8% in the first quarter, primarily due to reduced demand in the frozen foods sector, which generally consists of mid-range products. Similarly, Diageo has faced tough times with a sharp 14% drop in shares in November 2023, exacerbated by weak growth forecasts for 2024. The challenges continued into the first half of its financial year, with revenues plummeting by 23% due to sluggish whiskey and tequila sales, further compounded by significant foreign exchange losses and a notable decline in sales across Latin America and the Caribbean. With rising costs, shifting consumer preferences, and a rapidly changing competitive landscape, brands?are seeking?strategies to survive and?emerge more robust and?more attuned to the realities of today's market.

Rising to the Volume Challenge

2023 witnessed a substantial rise in prices across the board, a reaction to increased production costs. This strategy worked to an extent, yielding a nearly 10% growth in sales. However, this growth was not in volume but in value, revealing a critical gap—consumers were buying less.?For instance, in the first three months of 2024, Pernod Ricard 's organic net sales were stable compared?with the same period in?2023.?Yet, there was a 2% fall in overall terms, signaling a pressing need for strategies that effectively bridge the gap between maintaining value and boosting sales volume. In 2024, the focus shifts to recapturing volume growth. The path forward lies in understanding and tapping into what consumers value without compromising affordability.

Understanding the 2024 Consumer Product Landscape

Unlike the 2008 financial crisis or the pandemic, the current market conditions leave less room for traditional business maneuvers. Brands are already running lean, and the usual tactics of cost-cutting or price hikes have reached their limits. Consumer confidence is wavering, and brand loyalty is under strain as shoppers look for cheaper alternatives or justify premiums based on value—not just price. With inflation impacting every facet of production and distribution, CPG companies have seen a decoupling of price and volume growth. Consumers are responding by tightening their belts.

The Paradox of Pricing

The rise in prices has created a consumer paradox. On one end, some consumers are trading down to private labels, seeking out promotions, or reducing consumption. Conversely, the price increases have yet to fully offset the rise in production costs, squeezing profit margins. In response, brands must find a balance—value creation is vital, and it may not always mean the lowest price but the best-perceived value. For example, 亨氏 raised prices by 2.5% across its product line in 2023 after a substantial 14.2% increase in 2022, resulting in a 7.1% decline in yearly sales. The company plans a modest increase of about 1% in 2024.

Similarly, 百事 saw a 5% jump in average prices in the first quarter of 2024, leading to a 2% drop in organic volume, following a 4% drop in the previous quarter. Meanwhile, 麦当劳 increased its prices by around 10% in 2023, leading to the loss of low-income customers who opted to eat more affordably at home, prompting the company to shift its focus towards more affordability in 2024. These examples highlight the delicate balance companies must strike between raising prices to cover increased costs and maintaining customer loyalty and volume growth.

Digitalization as a Differentiator

CPGs with a focus on digitalization have outperformed their peers. Investing in using digital data to simplify and enhance processes is no longer optional but imperative for brands to stay?competitive. Brands that have integrated digital strategies into their core operations are seeing higher returns.?From generating insights from consumer data to optimizing supply chains and automating functions, digitalization is?proving to be?a key lever for growth, and brands should?not overlook?its potential.

As CPG companies head into 2024, investing in advanced capabilities becomes crucial.?Technologies such as AI, machine learning, and data analytics?offer opportunities for more precise market targeting and operational efficiencies. The early adopters of such technologies have shown that a digital-first strategy can significantly reward a brand with top and bottom-line growth.

Emerging Markets as Growth Engines

Emerging markets, particularly India, have demonstrated significant volume growth and the potential for further expansion. The shift from local or unbranded products to established international brands underscores the untapped potential in these markets.?This?should encourage brands to strengthen their presence and customize their offerings?to better suit the?unique needs and preferences?of diverse consumer bases.

Looking Ahead

As brands forge ahead, the stakes are high. The market continues to be dynamic, and flexibility is the new currency of business success. Building a comprehensive understanding of the evolving landscape and adopting a nimble, data-driven approach will be vital. Brands that can navigate these complexities with innovative strategies and a clear focus on consumer value will not only withstand the pressures of today but will set the stage for long-term success.

The terrain of 2024 demands that CPG companies become adept at rapid adaptation, embracing new technologies, and redefining value for cost-conscious consumers. The brands that will lead are those that understand the new rules of the game and are prepared to play it with agility, innovative thinking, and a relentless focus on delivering what consumers truly want and need.