Amid growing sales, big CPGs remain wary of inflation

As revenue surges and marketing spend increases, Coke, Pepsi and Unilever warned of the impact of inflationary pressures.
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Three big CPG companies are warning of inflation hitting concerns in the not-too-distant future.

Despite beating sales expectations, Coca-Cola and PepsiCo warned that supply chain disruptions and increased costs of aluminum cans and labour will cause inflationary pressures, while Unilever also sounded an alarm, as it’s reliant on emerging markets were inflation is a more pressing concern.

Out of home consumption, meanwhile, helped boost Coca-Cola’s bottom line, as the company is reporting net income of $2.41 billion USD, up from $1.46 billion USD year-over-year.

In the company’s earnings call, chairman and CEO James Quincey says its “Real Magic,” campaign, which came to life recently to celebrate Christmas, is showing strong results with consumers. Quincey also touted its new network marketing model of global category teams and local operating units, which is allowing it to focus on end-to-end consumer experiences that are “data-driven and always on,” as well as its new structure for agency relationships, which was announced during Q4.

Our announcement of WPP as our global marketing network partner is a foundational component of our new marketing model,” he said.

Quincey added that the company has continued to step up year-over-year marketing dollars again in Q4, spending in a targeted way to maximize returns.

Quincey says the company’s optimized portfolio will ensure its follows the consumer and wins in emerging and fast-growing categories, and is complemented by the recent strategic acquisition of sports drink and hydration brand Body Armor, as well as relationships like the new agreement with spirit maker Constellation Brands – which kicks off with the launch of Fresca Mixed – and the extended relationship with Molson Coors, which will launch Simply Spiked Lemonade in the U.S.

Rival PepsiCo, meanwhile, reported that core operating profits dropped in four of seven segments thanks to inflationary concerns, and warned that prices could spike as much as high single digits.

Organic revenue for the maker of Doritos, Lays and other packaged foods was up 11.9%, with a 7% increase in prices. Net income, however, was down slightly.

In its conference call, CEO Ramon Laguarta stated there is opportunity for the brand in the sports drink category, and continued consumer adoption in the space Gatorade plays in, with people exercising more. With its Rockstar energy drink, Laguarta says the CPG is seeing especially very good performance in new innovation segments like no sugar. 

“We’re very pleased in general with the way the North America business is performing in beverages and snacks,” Laguarta added. 

According to Laguarta, the company is getting better at measuring its return on investment in marketing. And, he says, it’s becoming a better data company and is able to put better numbers to investments and have the marketing teams, and the commercial teams overall choosing different levers that give the company the best returns. “It’s obviously, one of the reasons why we’re gaining market share across many categories,” he says.

Finally, Dove, Hellmann’s and Knorr maker Unilever is reporting it’s facing a $2.3 billion USD headwind from inflation in the first half of 2022 as shareholders rejected its GSK acquisition. 

However, the company is reporting its underlying sales growth is the strongest its been in nine years, which it in part attributes to more at-home consumption.

CEO Alan Jope reiterated the company’s designs on expanding its presence in health, beauty and hygiene. “These categories offer higher rates of sustainable market growth with significant opportunities to drive growth through investment, technology, marketing capability and innovation and by leveraging Unilever’s strong global footprint,” he maintains. 

He says that marketing investment levels are in line with prior years, and in order that its brands remain healthy, Jope added the CPG “will spend adequately on R&D and marketing investment.”