Consumer Brands identifies top three issues facing CPG industry

The Consumer Brands Association (CBA) has released its CPG Outlook 2022 report, a yearly update on the major trends and challenges facing the CPG industry. The three most significant trends CBA identified for 2022 are pandemic-related shifts in how people work, sustainability-driven goals and skyrocketing inflation.

Work revolution

The impact of Covid has been felt in every corner of the CPG industry, from rising production and shipping costs to supply chain disruption. One of the dominant trends emerging as a lasting consequence of the pandemic has been a massive shift in how, when and where work takes place.

According to a Feb. 16, 2022 Pew Research Center report, approximately 60% of U.S. workers believe that their job can be done from home all or most of the time. Only 38% of respondents who have a workplace outside their home indicated that their workplace is closed or unavailable to them; 61% of workers are choosing not to go into their workplace voluntarily. Among those who currently work from home, 78% said they want to keep doing so after the pandemic. This shift toward working from home is especially prevalent among college graduates compared to those without a four-year degree, and upper-income workers are 10%-15% more likely to work from home than their middle- and lower-income counterparts. The move away from the office and into the home has predominantly affected white-collar workers, as many blue-collar industries are unable to operate remotely.

The CBA’s report backs up these numbers: A Consumer Brands-Ipsos poll from March 2022 found that 59% of American workers want the flexibility to set their own hours and work remotely. Increasingly, blue-collar workers are seeking the flexibility and options offered to white-collar workers. A study from the Oliver Wyman Forum posited that blue-collar employees who transitioned to white-collar jobs during the pandemic are helping lead an imminent labor revolution. The CBA echoed these predictions: “Incoming change for blue-collar workers is less about when it will happen, but how companies will usher it in.”

Inflation

Driven by supply chain disruption and rapidly escalating manufacturing costs, inflation has surpassed 40-year highs. Interest rates have been raised for the first time since 2018, and more hikes are looming. In the beginning of the pandemic, nonessential production was shut down which, combined with a labor shortage, led to a drastic reduction in output.

Beyond the pandemic, global politics have had a significant impact on rising costs. Russia’s invasion of Ukraine has sparked both humanitarian crisis and global economic upheaval. The ripple effect of this conflict is being felt keenly at the gas pump, and these increasing energy costs have wide-ranging impacts on the cost of shipping CPG goods and supplies, which account for one-fifth of all freight. Russia and Ukraine together also supply roughly 25% of the world’s wheat, and the war eliminated that market, driving up costs of wheat as demand rose.

The impact of this inflation has been deeply felt in the CPG manufacturing industry. In the last year, the cost of ingredients has surpassed overall wholesale prices of goods. CPG prices are up 8% on average. Food manufacturers in particular are feeling the consequences of these increasing costs: Their input prices rose 14.6% in March 2022. Some goods have had staggering jumps in cost, such as oats, which rose 98% over the last year.

In the face of rapidly escalating costs and supply chain disruptions that have stretched across years, new solutions are needed to provide creative resolutions for new issues. CBA has called for the creation of a new federal office to oversee U.S. supply chain concerns and coordinate across agencies. Collecting national freight data, for example, could be used to track trends and spot problems before they happen. Whatever future awaits the CPG industry, it will take novel ideas and collective action to weather the current storms of inflation.

Sustainability

The United Nations Climate Change report released Feb. 28, 2022, warns of “unavoidable multiple climate hazards over the next two decades with global warming of 1.5°C (2.7°F).” The report states accelerated action is required to combat mounting loss of life, biodiversity and infrastructure. Increasingly, consumers express concern over the environment, including topics like plastic and packaging waste. Producers are therefore turning their attention to addressing these concerns. CBA surveyed 50 top CPG companies and found that all of them had established clear commitments to address climate change.

As the potentially damaging effects of plastics and plastic packaging become more apparent, an area of great demand is post-consumer materials. However, the market for these post-consumer materials lags behind demand: The domestic supply of recycled plastic only meets 6% of the current demand. CBA noted one obstacle is the U.S.’s broken recycling system made up of patchwork regulation and inconsistent implementation. Over 70% of Americans find the number of recycling systems overwhelming according to a Consumer Brands/Ipsos poll. Fixing this broken system would go a long way to addressing the shortage of post-consumer materials, but this would come at an enormous financial cost.

CPG manufacturers will need to balance the cost of post-consumer materials with the added value to consumers. CBA predicted the next year will find most manufacturers working to meet demand, but stressed that the CPG industry will struggle to find compelling solutions for consumers without national standardization of recycling practices. “It is impossible to overstate how important standardization and reliable data are to fixing America’s broken recycling system,” said John Hewitt, Consumer Brands’ VP of packaging sustainability. “They are the foundation that recycling needs; we are otherwise building our house on sand.”