PART 1 HOW THE GREAT RECESSION RESHAPED THE CPG DEMAND … · -2.9 4.7-2.5-3.4 0.3-2.0 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008

April 30, 2020

PART 1 – HOW THE GREAT RECESSION RESHAPED THE CPG DEMAND CURVE

Special COVID-19 Series:

Recession-Proof Your Business

Coming Soon:

Maintaining Pricing Discipline in a Recession

How the 2020 Recession is Reshaping the CPG Demand Curve

Building Brands in a Recession

© 2020 Information Resources Inc. (IRI). Confidential and Proprietary. 2

The Impact of the 2008-09

Recession on the CPG Industry Executive Summary

The impact of COVID-19

on the global CPG

industry is unprecedented,

and the recession it is

causing will also be unlike

anything we’ve seen.

More than 40 million

Americans may be furloughed

or laid off. Restaurants,

cultural institutions, sporting

events and non-essential

services have been

shuttered. Social

restrictions are widespread.

Already, nearly $2.7 trillion in

economic stimulus has been

approved to support

consumers and businesses.

• As singular as these COVID-19 associations will be for future generations, one of the best road maps for manufacturers and CPG retailers is to understand how the CPG demand curve was reshaped during the recession.

• The CPG industry is more resistant to recession than other retail channels, but consumers in the new recession are short on confidence, money, and are greatly concerned with personal health, which all impact retail.

Shopping Shifts

• As prices increased, shoppers cut back on many CPG purchases

• Purchases shifted to value-tier brands

• Consumers made fewer impulse purchases

• Consumers searched for deals and took advantage of promotions

Channel Shifts

• Shoppers migrated to value channels

• Regional grocers won share by increasing selling space and tailoring assortment to best suit their shoppers

• Traffic and sales thinned in convenience channel

Category Shifts

• General Merch and Beauty and Personal Care products were negatively impacted

• Consumers sought affordable luxuries

• Brand loyalty sufferedas consumers worked to save money

• Consumers switched to smaller- and value packs

• Perceived as expensive, organic produce suffered



A 2020 Recession Will Have Distinct Drivers vs. Prior Recessions

U.S. Consumer Macroeconomic Indicators

% Change vs. Prior Year / Index (Consumer Confidence) / Rate (Unemployment)

March

2001

March

2008

March

2020

CPI 2.9% 4.0% 1.5%

CPI Food at Home 3.4% 4.7% 1.1%

CPI Energy 6.0% 17.0% -5.7%

Gas Price -6.8% 25.8% -8.0%

Consumer Confidence 95 66 120

Unemployment Rate 4.6% 5.1% 4.4%

Housing Starts -1.5% -36.5% 1.4%

Sources: U.S. Department of Energy, Conference Board, Bureau of Labor Statistics, U.S. Census Bureau. IRI Consulting analysis.


The Retail Landscape Has Shifted

Dramatically Since the Last Recession

U.S. Retail Sales ($B) by Store Type Among Stores with CPG Sales

$2,185

771 (22.7%)

568 (26.0%)

320 (14.6%)

246 (11.3%)

$3,394

456 (20.9%)

595 (27.2%)

2008

778 (22.9%)

590 (27.1%)

355 (10.5%)

453 (20.8%)

310 (14.3%)

253 (11.6%)

Nonstore Retailers (e.g., online)

569 (26.2%)

2009

714 (21.0%)

2019

$2,174

777 (22.9%)

Health & Personal Care Stores

Foodservice & Drinking Places

General Merch

Stores

F&B Stores

Recession

Note: Based on U.S. Census Retail Trade per NAICS definition. Including all sales, non-CPG, by store type. Nonstore and GM stores include more non-CPG. Source: U.S. Census Retail Trade. IRI Consulting analysis

Since the

Last Recession,

Both Nonstore

Retail (e.g.,

Online, +150%)

and Foodservice

(+70%) Grew

Significantly


During the Last Recession, Foodservice Was Impacted Significantly;

Food and Health Stores More Resilient vs. Other Types of U.S. Retail Stores

U.S. Retail Segments Recession vs. Average Growth

1993-2019 Dollar Sales CAGR and Standard Deviation in Annual Growth Rate

2.85.0

3.95.3

3.0 2.1

8.9

3.1 2.23.9 2.9 3.8 4.5 4.2

1.9 0.8 0.93.3

-3.9 -2.0

0.2

-6.5 -5.7-9.8

-12.7 -14.1

-7.0-4.3

Health and personal

care stores

General merchandise

stores

Non-store retailers

(e.g., online)

Food and beverage

stores

Clothing and

clothing access.

Building mat. and garden equip.

Food services

and drinking places

Sporting goods, hobby stores

Misc. store retailers

Electronics and

appliance stores

Furniture and

furnishings stores

Motor vehicle

and parts dealers

Gasoline stations

Total

1993-2019

CAGR

2008-2009

Recession1

Ppt. ∆ -1.0 -4.2 -3.0 -2.1 -6.9 -4.1 -8.6 -9.6 -7.9 -13.6 -15.6 -17.9 -11.5 -8.5

Segment

Size ($B)$781 $778 $717 $356 $270 $78 $786 $138 $98 $382 $118 $1,264 $518 $6,284

More stable More volatile

1. CAGR 2007-2009. Source: U.S. Census Retail Trade, data ending February 2020. IRI Consulting analysis

Pre-COVID-19, foodservice

accounted for half the food dollar


During the Great Recession, the Majority of Consumers Across Household

Income Groups Shifted Away from Eating Out and Cooked from Scratch More

Changing Meal Rituals // % of Consumers Making Change Over Past Six Months

Source: IRI Economic Trend Database™, IRI AttitudeLink™ Survey of 1,000 Consumers, Q2 2008

Over $100KUnder $35K $35K − $54K $55K − $100K

Over $100K$35K − $54KUnder $35K $55K − $100K

$55K − $100KUnder $35K $35K − $54K Over $100K

% OF CONSUMERS BY HOUSEHOLD INCOME GROUP

“I eat out less often”

“I buy fewer prepared meals at grocery stores”

“I cook more from scratch or with fewer convenience foods to save money”

76% 66% 63%46%

57% 57%47% 47%

51% 55%41%

30%



During the 2008 Recession, Supercenter, Club and Dollar

Channels Gained Penetration at the Expense of Other Channels

% Households Buying by Channel – 2007-2008

99.2%

60.8%

85.5%

49.0%

77.8%

54.2%

28.0%

99.0%

65.0%

82.4%

49.7%

76.6%

54.6%

27.7%

ConvenienceSupercenterGrocery Mass Club Drug Dollar

+4.2 pts

-3.1 pts-1.2 pts

2007

2008-0.2 pts

+0.7 pts+0.4 pts

-0.3 pts

Source: IRI Consumer Network Panel. FDMx refers to Food-Drug-Mass (excluding Walmart).


Top 6 Regional Grocers Managed to Outperform

National Grocery Chains During Last Recession

Regional Powerhouses Expanded Selling Space, Increased Assortment, Priced

Competitively, and Successfully Worked to Attract Middle- and High-Income Households

2008-10 F&B

Value Sales Growth CAGR

52 WE 11/28/2010

F&B Value Sales ($ B)

Kroger $36.6

Publix $13.4

Delhaize $11.6

Safeway $17.2

SuperValu $14.7

Wegmans $2.5

Demoulas $2.0

Hy-Vee $3.0

Harris Teeter $2.7

Weis $1.4

Wakefern $5.65.0%

5.1%

6.0%

6.7%

8.3%

9.4%

-5.2%

-2.2%

1.0%

2.2%

4.6%

RE

GIO

NA

LS

NA

TIO

NA

LS

Source: IRI POS 2 years and 52 weeks ending Nov 28 2010


Value Channels Have Proliferated in the Past 10 Years and Are

Likely to Capture More of the Grocery Dollar During Recession

~8,8002009

~16,5002020

~3,8002009

~15,2002020

~1,0002009

~1,9002020

02009

~3002020

U.S. Store Count


In Large Format Stores, CPG and F&B Volume Declined

Due to Pricing; Only in 2010 Did Volume Growth Recover

F&B and Total Store Sales and Price / Mix Trends for FDMx

for Last 52 Weeks Ending March 18, 2012 / % Change vs. YAG

3.8 4.2

1.0 1.0

3.3 3.5

1.4 0.9

Total store

F&B

5.4 6.2

0.9 0.5

5.06.2

2.10.8

-1.6 -1.9

0.1 0.5-1.6

-2.5

-0.7 0.1

*Dollar sales-weighted price per volume change across categories / Source: IRI POS, FDMx; 2007- Q12012 ending Mar 18, 2012

DOLLAR

SALES

PRICE /

VOLUME*

EST. VOLUME

SALES

2007 2008 2009 2010


Price Inflation Was High and Volume Declined in

Large Format Stores for Food and Beverages

F&B Price / Mix and Est. Volume Change by Chronological Order for FDMx

for Last 12 Weeks Ending March 18, 2012 / % Change vs. YAG

4.8

6.16.5

6.16.4 6.3 6.4

0.1

1.0

1.7

5.6

6.56.0

-1.4

-2.5

-1.3

1.6 1.5

0.10.4

0.1 0.2

-2.4

-4

-3

-2

-1

0

1

2

3

4

5

6

7

-0.3

-1.1

-1.8

0.1-0.2

0.9

2.1

-2.9

4.7

-2.5

-3.4

-0.3

-2.0

Q4

2010

Q3

2010

Q2

2010

Q1

2010

Q4

2009

Q3

2009

Q2

2009

Q1

2009

Q4

2008

Q3

2008

Q2

2008

Q1

2008

Q4

2007

Q3

2007

Q2

2007

Q1

2007

-0.4

4.0

Est. volume sales chg.

Price/vol. chg.

Source: IRI POS, FDMx; 2007- Q12012 ending Mar 18, 2012 ; Quarters based on 12-12-12-16 week periods


Among Top Categories, Most Saw Unit Sales Declines in 2008

Top 10 Categories* Dollar & Unit Sales, % Change vs. YA / FDMx / 2008 vs 2007

*Among top 100 IRI categories based on dollar sales, excludes cigarettes; beer and wine reflect grocery and drug sales only. **Average price change based on price per volume analysis.

Average Price Change** vs YA

Source: IRI MarketInsight™, 52 wks. ending 12/7/2008 vs same period prior year

Carbonated Beverages +4.2%

Milk +6.0%

Fresh Bread & Rolls +9.5%

Salty Snacks +6.2%

Beer / Ale / Alcoholic Cider +2.1%

Natural Cheese +12.8%

Cold Cereal +4.7%

FZ Dinners / Entrees +4.6%

Chocolate Candy +3.9%

Bottled Water (1.1%)

TOTAL CPG* +4.9%-2.1%

2.2%

-4.3%

-2.6%

1.8%

-0.3%

2.9%

-0.6%

-2.5%

-2.9%

-4.5%

3.0%

-1.7%

1.6%

2.4%

4.2%

13.6%

6.4%

6.3%

7.5%

4.9%

-0.4%

Dollar Sales

Unit Sales


Convenience Channel Was Impacted More by Macroeconomic

Conditions, Driven by Disposable Income and Gas Prices / Travel

U.S. F&B Growth in Convenience Channel // % Change vs. YA

Source: Archived IRI POS data. FDMx refers to Food-Drug-Mass (excluding Walmart).

DOLLAR

PRICE / MIX

EST. VOLUME

THE GREAT RECESSION

3.2

-1.0

2.05.5

5.53.2

1.7 1.8

-2.2-4.1

0.33.6

Rise in disposable income, housing;

unseasonably warm winter

2008 2009 2010 2011


Sources: IRI AttitudeLink™ Survey of 1,000 Consumers, 08/18/2008 to 09/10/2008. IRI Consumer Network™ 52 weeks ending 3/29/2009 and same period prior year. May 2009: The Value/Premium Dichotomy: Growth at Both Ends of the Spectrum. IRI Consulting Analysis.

Growth by Price TierDollar Sales Growth

2009 vs. 2008

5.2%

9.6%

3.2%1.6%

Total CPG Premium

Brands

Value Brands Mid-Tier

Brands

-0.6%

2.5%

-2.4%-1.3%

Value BrandsTotal CPG Mid-Tier

Brands

Premium

Brands

Unit Sales Growth 2009 vs. 2008

Value-Tier Brands Made Gains During Recession in Both Dollar

and Unit Sales; Mid-Tier Brands Had the Steepest Declines


Shoppers Bought More When Products Were on Deal

FDMx (No Walmart) % of Categories with Increased Merchandising Activity

Feature

55%

43% 44%

Feature & Display Display Price Only Any

55%58% 58% 58%

39%

51% 49%

Source: IRI MarketInsight™, 52 weeks ending 3/29/2009 and same period prior year.

52 WE March 2008 52 WE March 2009


Consumers Invested More Effort in

Finding Deals During Last Recession

Shopper Strategies – % of Consumers Making Change Over Past Six Months

Source: IRI Economic Trend Database™, IRI AttitudeLink™ Survey of 1,000 Consumers Q2 2008

91% 89% 81% 72%


76% 78% 69%58%


55% 54% 43% 35%



“I am more likely to look for sale prices throughout the store”

“I am more likely to look through retailer ads to find deals”

“I am using more coupons that I used to”


Shoppers Were More Likely to Plan Their Trips Pre-Shop and Stick to

Their Lists During the Past Recession, Dampening Impulse Purchases

Purchase Decisions % of Shoppers, 2007-2009

Source: Longitudinal Economic Study Series, IRI AttitudeLink, n=1,000+ shoppers October 2009: Zero-Moment of Truth: Redefining the Consumer Decision-Making Process. IRI Consulting Analysis.

40%

25%17%

60%

75%83%

2007 2008 2009

Before Entering Store In-Store



-3.8%

-2.1%

-0.6%

0.0%

3.0%

-9.6%

-6.9%

-1.9%

1.9%

-2.2%

3.3%

-0.7%

3.8%

6.3%

Discretionary General Merchandise and Beauty / Personal Care

Products Were Negatively Impacted During the Last Recession

2008 MULO Trends by Department % Change vs. YA

Source: IRI MarketInsight™, 52 weeks ending 11/30/2008 and same period prior year

Dollar Sales Unit Sales

Total CPG General

Merch.

Beauty /

Personal

Care

Healthcare Center

Store

Frozen Fresh /

Perishable


Low- and Middle-Income Households Cut Discretionary

Grocery Spending, Focused on Essential Purchases

Focus on Essentials // % of Consumers

Making Changes Over Past Six Months

Source: IRI AttitudeLink™ Survey of 1,000 Consumers, 08/18/2008 to 09/10/2008. IRI Consulting analysis.




“I have cut back spending on non-essential groceries”

“I have changed my definition of what is essential”

75% 70%58%

41%

60% 61%47%

36%


Low- and Middle-Income Households Bought More

Private Label Brands During the 2008 Recession



Consumer Attitudes Private Label Share% of Respondents agreeing to statements by

household income 2008 AttitudeLinkTM Survey

Private Label Share of

CPG Spending: All Outlet

“I am buying more private label or store brands than I used to”

“If weekly grocery bill were to increase another 10%, I would buy more private label or store brand products”

Sources: IRI AttitudeLink™ Survey of 1,000 Consumers, 08/18/2008 to 09/10/2008. IRI Consumer Network™; 52 weeks ending 7/19/2009 and same period prior years. September 2009: Private Label 2009: Game Changing Economy Taking Private Label to New Heights. IRI Consulting analysis.

21.3% 21.5% 21.6%22.8%

15.9% 16.2% 16.9% 17.6%

2006 2007 2008 2009

Unit Share Dollar Share

56% 55%45%

32%

76% 77%64% 59%


Private Label Enjoyed Growth Across Departments During Last Recession

2008 CPG* Private Label Share by Department // All Outlet

21.9%

13.3%

12.3%

19.8%

19.2%

32.6%

34.1%

17.1%

9.2%

9.3%

13.6%

18.0%

31.1%

25.4%

Total CPG

General Merchandise

Beauty/Personal Care

Center Store

Frozen

Fresh/Perishable

Healthcare

Dollar Share

Unit Share

Private Label Share

Point Change vs. 2007

+1.6

+0.8

+1.0

+0.5

+0.5

+0.1

+0.7

Source: IRI Consumer Network™ Panel 52 WE 12/7/2008 and same period prior year


62% 58%50%

33%


50% 45%32%

25%


Sources: IRI AttitudeLink™ Survey of 1,000 Consumers, 08/18/2008 to 09/10/2008. IRI Consumer Network™ 52 weeks ending 3/29/2009 and same period prior year. May 2009: The Value/Premium Dichotomy: Growth at Both Ends of the Spectrum. IRI Consulting Analysis.

Consumer Attitudes% of Respondents agreeing to statements by

household income 2008 AttitudeLinkTM Survey

“I am trying new brands that are priced below my regular brands”

“I am giving up some of my favorite brands to save money”

Brand Loyalty Suffered as Consumers Worked

to Save Money During Recessionary Periods


0

10

20

30

40

50

60

70

80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

INDEX = % NPP

Top Food and Beverage New Product Pacesetters of 2008 Reflect

Consumer Attraction to Indulgent, Healthy and Nutritionally Enhanced Products

Source: IRI New Product Pacesetters report 2009

-

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 2008

Trend in Focus of Non-Food Benefits per Pacesetter

SENSORY HYGIENE DO IT FOR ME HEALTH

INDEX = % NPP


Spending During / After the Recession Showed Consumers Gravitated

to Comfort and Personal Indulgence in Addition to Meal Prep

Category Performance During and Post-Recession | Volume Sales Impact (Percentage Points)

-8

-6

-4

-2

0

2

4

6

8

2.0-1.0-5.0 -2.0-3.0 5.0-8.0 0.0 1.0-4.0 3.0-15.0 7.04.0 6.0-7.0 8.0-6.0

Cold Cereal

Cookies

Chocolate Candy

Ice Cream/Sherbet

Soup

Crackers

Hand & Body Lotion

Yogurt

Lunch Meats

Coffee

Fresh Eggs

Baby Formula

Breakfast Meats

Vegetables - SS

Shortening & Oil

Spices/Seasonings

Canned/Bottled Fruit

Snack Bars/Granola Bars

Cigarettes

Toilet Tissue

Laundry Detergent

Dog Food

Vitamins

Diapers

Internal Analgesics

Dish Detergent

BladesSports Drinks

Skin Care

Food & Trash Bags

Soap

Batteries

Household Cleaner

Toothpaste

Carbonated Beverages

Sanitary Napkins/Tampons

Cups & Plates

Paper Towels

Deodorant

Air Fresheners

First Aid Accessories

Hair Coloring

Facial Tissue

MilkBeer/Cider

Fresh Bread & Rolls

Salty Snacks

Natural CheeseFrozen Entrees

Shampoo

Resu

rge

nce

Decli

ne

F&B

Non F&B

Source: IRI POS archived data FDMx (Food, Drug, Mass excluding Walmart). CY 2006-2011. IRI Consulting analysis.

Performance During Recession(Recession CAGR 2007-2009) – (Pre-Recession Growth Rate 2006-2007)

Pe

rfo

rma

nc

e P

os

t R

ec

es

sio

n(P

ost-

Recessio

n G

row

th R

ate

2010-2

011)

–(P

re-R

ecessio

n G

row

th R

ate

2006-2

007)

Weak Strong


Consumers Were Selective in Where They Splurged; Premium Chocolates

Gained Across Income Segments, But Value Brands Won in Ice Cream

2009 vs. 2008 // All Outlets // Panel By Household Income Segment

Category/IncomePenetration Pt. Change

vs. 2008

$ Sales per 1000 HH

Index vs. 2008

ValueMain

streamPrem Value

Main

streamPrem

Choc Candy Box/Bag/Bar <3.5 oz

Getting by -6.3 -1.0 -1.1 97 103 100

Living Comfortably -6.3 1.1 -2.7 89 112 100

Doing Well -5.5 -1.7 -2.3 97 107 102

Choc CandyBox/Bag/Bar >3.5oz

Getting by -3.1 -3.9 2.8 79 102 131

Living Comfortably -2.5 -0.3 4.2 80 108 170

Doing Well -1.7 -1.3 3.0 74 106 126

Frozen Novelties

Getting by 0.5 1.2 0.0 103 103 101

Living Comfortably -0.3 0.0 -2.6 102 101 95

Doing Well 0.1 -0.9 -0.3 98 103 92

Ice Cream

Getting by 2.0 -2.7 0.3 111 98 93

Living Comfortably 3.5 -3.2 -0.5 117 98 104

Doing Well 2.7 -2.2 -1.1 114 97 98

Source: IRI National Consumer Panel


High Income Consumers Were More Likely to Splurge on Premium Items,

and Low- to Mid-Income Households Looked for Affordable Indulgences

% of Respondents Agreeing to Statements by Household Income






“I still splurge on premium or gourmet products”

“I treat myself to small indulgences (i.e., chocolates,

wine, body lotion) to help ease everyday stress”

“I look forward to affordable indulgences for treats”

8% 13% 19%28%

48% 46% 46%32%

22% 21% 22% 18%


Lower-Income Households Shifted Away From Fresh and Organic

Products Due to Cost, But Higher-Income Households Continued to Buy

% of Respondents Agreeing to Statements by Household IncomeR

esu

rge

nce

Dec

lin

e

40%30%

18%12%

Under $35K $35K − $54K $55K − $100K Over $100K

49%58%

41%32%



“I buy less fresh produce as is more expensive”

“I am buying fewer organic products as they are more expensive”



Consumers Looked to More Affordable Packs,

Particularly Across Lower- and Middle-Income Segments

% of Respondents Agreeing to Statements by Household IncomeR

esu

rge

nce

Dec

lin

e

Under $35K $35K − $54K $55K − $100K Over $100K



“I buy fewer individual serving packages”

“I buy smaller quantities of my favorite treats”

62% 67%54%

45%

60%52%

42%32%



Shifts in Spending Attitudes and Behavior During

2008-09 Recession; Belt-Tightening and Doing Without

Spend Less on Eating Out

Buy More Affordable Treats

Fewer Prepared Meals, More

Scratch Cooking

Spend Less on Personal

Services, e.g., Hair, Nails

DIY Nail Care Sales Increase

Buy Smaller Amounts

Buy Fewer Individual-

Serving Packages

Buy Smaller Amounts of

Favorite Treats

Buy at Lower Prices

Purchase More Private Label

Products

Plan Trip to Stick To List / Budget

Use More Coupons; Look

for Deals

Home Hair Color Sales Increase

Cut Back on Non-Essential

Groceries

Shopped Retailers That

Offer More Value

Buy at Value Channels

Stock Up at the Beginning of the Month

Buy Less at Convenience

Stores


IRI COVID-19 Thought Leadership

Helping You Stay Informed

IRI’s Online Insights Offers Real-Time

Updates and Weekly Reports of the Impact

of the Virus on CPG and Retail, as Well as

Consumer Survey Data from this Report

The IRI COVID-19 Info Portal

Includes COVID-19 impact analyses, dashboards

and the latest thought leadership on supply chain,

consumer behavior, channel shifts for the U.S.

AND international markets

The COVID-19 Dashboard

Accessible through the insights portal

and tracks the daily impact of COVID-19.

This includes the top categories across

countries, out-of-stocks and consumer

sentiment on social media.

https://www.iriworldwide.com/en-US/Insights/Publications/coronavirus-impact-to-CPG-and-retail

https://advantage.iriworldwide.com/Engineering/covid19/

© 2020 Information Resources Inc. (IRI). Confidential and Proprietary. 34© 2020 Information Resources Inc. (IRI).

Confidential and Proprietary. 34

CONTACT US FOR MORE

INFORMATION

IRI Global Headquarters

150 North Clinton Street

Chicago, IL 60661-1416

[email protected]

+1 312.726.1221

Follow IRI on Twitter: @IRIworldwide

Documents

PART 1 HOW THE GREAT RECESSION RESHAPED THE CPG DEMAND … · -2.9 4.7-2.5-3.4 0.3-2.0 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008