People buy toilet paper at a Costco store in Novato, California, on March 14, 2020.
Josh Edelson | AFP | Getty Images
Growing demand from the coronavirus pandemic has led to sales of packaged consumer goods, ranging from toilet paper to canned soup, to rise 9.4 percent to $ 1.53 trillion last year, according to the new report of the Consumer Brands Association.
But demand growth has not slowed yet and the trading group said manufacturers are still struggling to recover inventory. To meet the challenge, companies are hiring more workers, adding new factory lines and increasing wages amid prolonged demand growth.
“This was the biggest test the system could have ever experienced,” said Geoff Freeman, executive director of Consumer Brands. “It is possible that our wildest imagination could not have imagined the 12-month growth we have just gone through.”
Even as the pandemic subsides, consumer brands forecast that industry sales in 2021 will continue to grow by 7.4% to 8.5% from 2019. January sales rose 16% from the same period last year, representing the biggest year-over-year change since last March. February sales growth slowed slightly, but remained double-digit. Before the pandemic, strong growth for a CPG company meant a small increase in small numbers.
“This industry is still sprinting a marathon,” said Katie Denis, vice president of industry research and storytelling for Consumer Brands.
Growing demand last year means producers are still trying to catch up, and every hurdle can mean millions of dollars in lost sales. Freeman cited a conversation with an executive who saw more than a quarter of his production plants shut down for a week in February due to the Texas winter storm. The blockade of the Suez Canal in March caused even more headaches.
General Mills and Clorox are among the companies that have turned to third-party manufacturers for a temporary solution to growing demand. The situation has led some CPG companies to rethink their inventory targets and how close retail products should be. Freeman said some manufacturers will not be able to recover inventory until the new capital expenditures are online.
The current stress on the supply chain means that some shortcomings, such as the shortage of ketchup packages, first reported by the Wall Street Journal, are more difficult to predict.
“That’s the kind of thing we should see six to 12 months in advance,” Freeman said.
The increase in demand has led to higher wages for workers in the CPG industry. PepsiCo and Hormel were among those who gave bonuses to their frontline employees last year. According to the Consumer Brands report, pay for food workers rose 3.4% in July through September compared to the same period last year. Non-agricultural wages at national level decreased by 0.8% over the same period.
“I do not know if [wages] it will rise above 2020, but there is no reason to believe that there will be a decline, according to the companies we surveyed at McKinsey, “Denis said.
CPG companies have intensified their employment. After the initial job losses hit the industry, especially for food service providers, other producers of food, beverages and household products rushed to gather more workers. Some companies employed 10% to 20% more workers than they actually needed to account for employees who were in quarantine or caring for sick relatives, according to Freeman.
According to the Consumer Brands report, current employment in the industry fell by only 2% from January 2020 levels, while the overall employment rate in the US was 6% in March.