From Diaper to Soda Makers, Big Brands Feel the Pinch of a Consumer Pullback
27 April 2017 - 02:41AM
Dow Jones News
By Sharon Terlep, Jennifer Maloney and Annie Gasparro
The biggest sellers of consumer products from soda to diapers
are sounding a cautious note on shopper spending amid broader
retail woes.
Executives from Procter & Gamble Co., PepsiCo Inc. and
Nestlé SA said slowed spending in the U.S. cut into results in the
most recent period, though they don't all agree on the reasons.
Several said they expect business to pick up later in the year.
Some blamed the weak start of the year on higher gas prices, bad
weather and other external factors, while other executives pointed
to shifting consumer tastes. Analysts say some big brands, such as
Gillette and Yoplait, are losing ground to upstarts. Overall
purchases of consumer packaged goods in the U.S. declined 2.5% in
unit terms in the first quarter, according to Nielsen.
"There is probably more sources of volatility today that at any
other time in history," P&G Chief Financial Officer Jon Moeller
said Wednesday in a call with reporters.
The most recent period was P&G's weakest of the fiscal year
as organic sales -- a closely watched metric that strips out
currency moves, acquisitions and divestments -- increased just
1%.
Mr. Moeller said consumers are cutting back purchases,
aggressively seeking deals and drawing down supplies at home. At
the same time, he said, a growing affinity for beards has played a
big part in driving down razor sales, which contributed to a 6%
organic sales decline for P&G's grooming unit.
Although pricing increases helped PepsiCo post growth in its
beverage and snacks businesses in its latest quarter, sales
declined in its Quaker Foods North America unit, which sells
grocery staples such as Rice-A-Roni, Aunt Jemima and its namesake
oatmeal.
PepsiCo, like big food rivals Kraft Heinz Co. and Nestlé, is
struggling as consumers shift away from diet sodas and processed
foods to fresher and healthier options. It has launched new
products, such as a premium bottled water brand, to adjust to the
shift.
"Our next challenge is how do we leverage our relationships with
retailers to reinvent the center of the store?" said CEO Indra
Nooyi on a conference call Wednesday. "And we need to do that in
order to bring interest back to that whole cereal aisle and
therefore, Quaker."
For food and nonfood staples, big brands are struggling more
than the overall industry. The 20 largest consumer packaged goods
companies last year had flat sales while smaller ones posted sales
growth of 2.4%, according to Nielsen.
Wal-Mart Stores Inc., meantime, has been reducing inventories
and slashing prices as it fights to compete with Amazon.com Inc.
and European discounters moving into the U.S. Those cuts are eating
into its own profit and, in turn, leading the world's biggest
retailer to put pressure on its vendors.
Kimberly-Clark Corp. this week reported its first quarterly
organic sales decline in 13 years driven largely by falling demand
in North America. The maker of Kleenex tissues and Huggies diapers
lowered its forecast for the year but said it expects better
performance as the year progresses.
Nestlé Chief Executive Mark Schneider said weak U.S. demand
isn't an issue isolated to Nestlé and that it reflects a breakdown
in the usual relationship between economic growth and consumer
spending. At the same time, he said, intense competition is making
it harder to push through price increases.
"In spite of good economic data we are seeing a large amount of
uncertainty" in the U.S., Mr. Schneider said last week on an
investor call. "When that uncertainty subsides it will be good
news."
While growth is stronger outside the U.S. for many companies,
foreign markets also are rife with volatility. P&G said
everything from the Brexit in Europe to political uncertainty in
developing markets has made for bumpy times in overseas
operations.
The dynamics are driving tough choices for companies as they are
forced to decide between reducing prices and ceding market share.
PepsiCo and Coca-Cola Co. have been shrinking packages and raising
prices. P&G has been lowering prices in some of its biggest
categories such as diapers and razors, forcing down prices of
rivals as well.
"Don't ask me who started it," Kimberly-Clark Chief Executive
Thomas Falk said of price wars in consumer products. "Everybody
thinks it's the other guy."
--Brian Blackstone contributed to this article.
Write to Sharon Terlep at sharon.terlep@wsj.com, Jennifer
Maloney at jennifer.maloney@wsj.com and Annie Gasparro at
annie.gasparro@wsj.com
(END) Dow Jones Newswires
April 26, 2017 12:26 ET (16:26 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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