Snacking takes a hit as consumer spending shifts to food staples
As consumers rein in spending, the once seemingly unstoppable snacking category is taking a hit.
Food giants, including PepsiCo, Mondelēz International and The Campbell's Company, are reporting a slowdown in snack sales as inflation and growing economic uncertainty discourage consumers from purchasing as many cookies, crackers and other treats.
Dirk Van de Put, Mondelēz's CEO, told analysts that consumers are purchasing fewer snacks in favor of grocery staples such as meats, vegetables and eggs. In North America, one of the Oreo and Chips Ahoy! maker's biggest markets, net revenues during its most recent quarter dropped 4.1%.
'We see consumers switching to more essentials in grocery, and snacking categories are suffering as a consequence of that,' CEO Dirk Van de Put told analysts. 'What's going on is that the consumer feels very uncertain about the future.'
Snacking executives have painted a dour outlook across the food space, with little optimism that things will improve anytime soon.
Van de Put told Wall Street he didn't 'expect to see a significant improvement in consumer confidence in the near term in the US.' Last week, PepsiCo's CFO Jamie Caulfield noted consumer sentiment has worsened since February when it reported a slowdown in demand for its snacks and beverages.
'We probably aren't feeling as good about the consumer now as we were a few months ago,' Caulfield said.
PepsiCo's snack business has continued to struggle. During its first quarter, PepsiCo said organic revenue in its North American foods business slipped 2%. Executives noted a 'subdued' performance in savory snacks, led by its Frito-Lay business that oversees brands including Doritos and Cheetos.
'Revenue management clearly is becoming more complex as consumers are feeling more challenged with their disposable income,' said Ramon Laguarta, PepsiCo's CEO.
The pressure facing snacks prompted competitor The Campbell's Company to lower its outlook last month.
The soup and snacks maker forecast sales to rise 6% to 8% this year, instead of 9% to 11%. Organic sales projections also were lowered to be flat or drop by up to 2%. Previously, the company was predicting sales to be unchanged or up 2%.
CEO Mick Beekhuizen noted Campbell's was dealing with 'softness' in some snacking categories, most notably cookies and crackers. 'The broader snacking categories didn't improve as we had originally anticipated,' Beekhuizen conceded.
As concerns about inflation continue to mount, snack makers are beginning to roll out more affordable options.
Shopper loyalty to Mondelēz's biscuit brands 'remains solid,' the CEO noted, and a focus on selling more offerings under $4 is helping to drive share gains. Similarly, PepsiCo launched smaller, single-serve items under $2 and smaller multi-pack options designed to keep the consumers in its brands and promote purchase frequency.
And while snacking consumption remains subdued, some categories are faring better than others. Mondelēz's biscuit business, which includes Oreo, Ritz, Triscuit and Chips Ahoy!, is holding up 'better than many other snacking' categories, Van de Put said.
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