How Inflation is Hitting Consumers

Kristyn Tarpey - Barchart - Mon Jun 27, 2022

Last Week’s Moves

BLS Cash Index 598.94 (-4.06%) BLS Industrials Index 616.52 (-4.66%)

BLS Foodstuffs Index 573.99 (-3.19%) BLS Fats and Oils Index 826.52 (-3.91%)

BLS Livestock Index 716.70 (+0.71%)

_____________________________________________________________________

Welcome to your weekly food & beverage report, where we cover everything you’ll need to know for the week ahead. This week, we’ll explore how consumers and food and beverage companies alike are adjusting to lasting inflation, Juul e-cigarettes get banned but won’t go down without a fight, and Mondelez International makes further acquisitions in the healthy snack space. Let’s dig in.

Not-so-transitory inflation is making its mark on the food and beverage industry, impacting both the consumer and the business in different ways

After a 10.1% jump in year over year food prices, everybody’s had to adjust to inflation– including restaurants and food and beverage companies, who remain somewhat shielded from major drops in demand. Despite financial difficulties felt around the world, Campbell Soup Co. (CPB), Kellogg’s (K), and Kraft Heinz (KHC) all raised their annual sales forecasts in June (after raising prices). As Reuters reported, shoppers tend to “prioritize food essentials over discretionary goods amid surging inflation.”

Antici-flation… While this trend still holds, purchasing and saving behaviors are starting to change as two thirds of Americans expect inflation to continue to rise over the next year, according to a poll by the Washington Post. With so many Americans thinking inflation will continue to rage, consumers are spending less. Private label brands have been performing well as consumers look to save.
Shrinkflation… Supply chain issues are boosting input costs, a huge factor in the inflation rates of today. Restaurants and food and beverage companies are trimming portions in response, without trimming the consumer price tag. Both Folgers (SJM) and Nestle (NSRGY) have dropped their coffee container sizes; Frito’s (PEP) ‘Party Size’ stopped from 18 ounces to 15.5; and some companies such as PepsiCo’s Gatorade (PEP) is redesigning packaging to decrease volume from 32 ounces to 28, announcing the new design gives the bottles an easy-to-hold grip.

Juul e-cigarettes are officially banned in the United States with new FDA ruling, but Juul is fighting back

Up in smoke… Last Thursday, the Food and Drug Administration denied Juul’s application to sell its e-cigarettes in the US, immediately banning the sale of Juul products nation-wide. Despite not seeing clinical information suggesting an immediate risk to users of Juul products, the FDA held its decision. The ban comes as the FDA broadly cracks down on the vaping industry following years of pressure from politicians and public health groups.

Risk, no reward… According to the FDA, Juul’s applications provided insufficient or conflicting data around the possible risks associated with the company’s products, including whether potentially harmful chemicals could leak out of Juul pods.
Back to the basics… The vaping industry burst onto the scene in the early 2010s, heavily targeting teenagers and high schoolers with fruity flavors. A 2020 agency ban on mint and fruit-flavored vaping pods hit Juul hard, however the company was still able to sell tobacco and menthol-flavored pods.

Pump the breaks… A day after the FDA’s ruling, Juul went to the federal appeals court on Friday asking for a temporary block on the FDA’s ban. Juul said it provided sufficient research and evidence to address the issues raised by the FDA, and that its “only prospect for meaningful relief that permits it to continue selling its products is an immediate stay” said Juul in its filing.

Competitor advantage?... Juul is also claiming that the FDA is subjecting the company to unfair treatment as compared to other e-cigarette makers, citing the FDA’s immediate enforcement as opposed to initiating a more standard transition period.
International in limbo… Although Juul is trying to expand into international markets, the company is being held up by regulations as well as a lack of consumer interest.