What's Driving CPG Growth in 2022?
Calling it an “inflationary 2022,” market research firm Information Resources Inc. (IRI) projects more volatility in pricing and in consumers’ reactionary behaviors for the coming year.
This fits-and-starts retail environment, fueled by the stubborn issues of the pandemic, supply chain gaps and labor shortages, is likely to continue and have an effect on inflationary trends, according to IRI’s new “CPG Market Review and Outlook.” Following a year of steadily climbing shelf price increases, experts at Chicago-based IRI believe that greater price sensitivities will emerge for everyday items like breakfast meats, frozen poultry and pet food.
Consumers who had some relief in 2021 with stimulus payments and an economy that improved compared with 2020 started to pull back and change some of their behaviors in the third and fourth quarters. For example, IRI’s report notes that there has been a notable slowdown in the trend of premiumization that took off during the pandemic. On the flip side, IRI’s data shows a bounce in store-brand products in high-inflation categories like poultry and meat. Although larger CPGs recaptured share in 2021, IRI’s analysts have determined that an increase in value seeking related to inflation is likely to drive private label growth in the short term.
As shoppers feel the pinch of higher prices, CPGs are significantly affected by market trends that are shaping up for 2022. Many larger players rolled out price increases during the fourth quarter of 2021 and said that they expected to raise prices into 2022.
What’s Ahead
In its outlook, IRI predicts that price is a contributing factor that will drive CPG growth in 2022 at a rate of 1% to 5%. Inflation and consumers’ return to mobility will place downward movement on at-home consumption volume, the report asserts. Among IRI’s key predictions for 2022 with major implications for grocers:
- At-home consumption will remain elevated compared with pre-pandemic levels, but away-from-home and on-the-go consumption will also increase.
- Look for balanced growth across price tiers, including mainstream, value and private brands; some premium demand will remain.
- Trends of convenience, particularly regarding meal solutions, will continue.
- Demand for on-the-go options will increase. Self-care and home care will remain priorities.
- Continued investment in digital versus store assortments, including speed of delivery and consumer experience, will drive incremental share gains.
To meet the demands of value-seeking consumers and address price trends, IRI notes that CPGs and retailers should and will promote more often. It’s especially important to offer attractive price points and broad assortments to younger and low-income shoppers who helped drive growth in 2021 but are poised to spend less as prices rise.
In this environment, not surprisingly, value retailers and value channels will have an edge heading into 2022. That said, IRI’s experts think that at least some premium demand will remain, and expect growth to be balanced across price tiers that span value brands, private label and mainstream CPG brands.
Further, IRI’s team foresees CPGs’ and retailers’ continued investment in digital assortments, and a focus on improving the consumer experience and the speed of delivery. Diversifying products available both in store and in the digital channel can help attract and retain shoppers and meet their varying needs.
From an operational standpoint, IRI’s researchers recommend that CPGs and retailers drive net price realization through tools like real-time management of price gaps, targeted promotions and an understanding of “granular consumer elasticity.” These measures can help offset pricing costs in their supply chain and labor outlays.
The researchers also say that lower assortments and out-of-stocks are likely to persist through 2022, with labor shortages contributing to supply chain pressures as well.
In some good news for CPGs and food retailers, the report notes that inflation in food away from home is likely to be higher than at-home inflation. The difference is mainly attributable to persistent labor shortages in the foodservice sector.
A Look at the 2022 Shopper
In its CPG review and outlook, IRI’s professionals outline some key consumer behaviors fueling market trends. Assessing the past year, the report affirms that at-home consumption of CPG items remained strong compared with pre-pandemic levels. There has been some improvement in away-from-home consumption due to greater mobility, but foodservice trends are still below 2019 levels.
As for what’s on the horizon, the report highlights several consumer behaviors with implications for CPGs and retailers. Although shoppers will be price sensitive, they still want convenience, the report predicts. If and when mobility increases at a larger scale, convenience will be a particularly strong purchase driver for Gen X and Millennial-age consumers, many of whom seek easy meals for at-home consumption, while older and high-income consumers will continue to look for products related to self-care and indulgence.
IRI notes that other aspects of consumer lifestyles are changing, too, like the migration to suburbs and midsize cities from larger urban areas, and pandemic-era habits that have stuck, such as bigger pantries and bulk shopping. In addition, as people encountered reduced food options at work and school, they grew used to packing more meals and snacks on the go, representing an opportunity for take-and-eat foods offered by CPGs.
Meanwhile, IRI reports that grocery-channel CPG trips moved back to the mass channel in 2021, while club stores built on gains from 2020. In the digital space, e-grocers scored increases this past year, fueled by strong performances among large national brands.
For 2022, the research firm projects that larger CPG companies can find growth by continuing to invest in assortment, speed of delivery, and operational efficiencies. The report also predicts that digital marketers like Amazon and retailers in the mass channel are set to pick up more nonedible product gains.
