People buy toilet paper at a Costco store in Novato, California, on March 14, 2020.
Josh Edelson | AFP | Getty Images
The growing demand due to the coronavirus pandemic led to sales of consumer-packaged goods, which contained everything from toilet paper to canned soup, rose last year, according to a new report from the Consumer Brands Association.
But the surge in demand has not yet subsided, and the trading group said manufacturers are still struggling to catch up. To meet the challenge, companies are hiring more workers, adding new factory lines and raising their wages amid the prolonged increase in demand.
“It was the biggest test the system could ever experience,” said Consumer Brands CEO Geoff Freeman. “Our wildest imagination might not have imagined the twelve-month boom we just went through.”
Even as the pandemic subsides, Consumer Brands predicts that 2021 sales in the industry will continue to increase by 7.4% to 8.5% from 2019. Sales in January increased by 16% compared to the same time a year ago, which is the highest year-on-year change since last March. Sales growth in February slowed slightly, but was still in the double digits. Before the pandemic, strong growth for a CPG company meant an increase in the low single digits.
“This industry is still chasing a marathon,” said Katie Denis, vice president of Consumer Brands.
Rising demand from last year means manufacturers are still trying to catch up with supply, and each hurdle could lose millions of dollars in sales. Freeman quoted a conversation with a CEO who saw that more than a quarter of its manufacturing plants were closed for a week in February due to the winter storm in Texas. The blockage 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 increase demand. The situation has prompted some CPG companies to reconsider stock targets and how close products retailers should be. Freeman said some manufacturers will not be able to pick up the stock until new capital spending is available online.
The current tension in the supply chain means that some shortages, such as the ongoing ketchup package shortage that the Wall Street Journal first reported, are harder to predict.
“This is the kind of thing we’ll see coming six to twelve months in advance,” Freeman said.
The increase in demand has led to higher wages for CPG manufacturers. PepsiCo and Hormel were among those who handed out bonuses to their front-line employees last year. According to the Consumer Brands report, the payment for food processors increased by 3.4% in July to September compared to the same time a year ago. Nationwide wages that are not local fell by 0.8% in the same period.
‘I do not know if [wages] will climb higher than 2020, but there is no reason to believe that there will be a decline, according to the companies we interviewed with McKinsey, ‘said Denis.
CPG companies have increased their leasing. After the initial job losses in the industry, especially for food suppliers, other manufacturers of food, beverages and household products scrambled to pick up more workers. Some companies, according to Freeman, employed 10 to 20% more workers than they actually needed to offset employees.
According to the Consumer Brands report, current manufacturing work in the industry is 2% lower than in January 2020, while the US employment rate was 6% in March.