The United States is “technically” entering a recession – what now? Lessons from the winners of the last recession

“Technically, we are in a recession when you only look at the basic definition of two quarters of GDP contraction,”And while consumer spending may not yet fully reflect this change, it is beginning to tighten its purse strings, Nik Modi, managing director of RBC Capital Markets, told attendees last week in a webinar. organized by IRI.

“We think it will get worse,”he said, pointing to changes in how the government, retailers and manufacturers are handling inflation and the continued fallout from the pandemic.

“Consumers have really been protected by the inflation we have had since the end of last year”When the government issued stimulus checks, suspended student loan payments and expanded advance payments for child tax credits – all of which have ended or will soon, he said.

“It’s a lot of money that went into the pockets of consumers”​ or be redirected to other expenses, including food, clothing, rent and mortgage or other necessities, such as school supplies, he explained.

At the same time, he said, retailers and manufacturers who thought inflation would be short-lived or that they could absorb higher costs by managing other aspects of the business are now realizing that ‘they can’t make up for everything and are now pushing late price increases. .

A “serious consumption cliff” is looming

As these changes take effect, consumers who have remained stable in their spending will begin to retreat by trading down or completely.

“As consumers, we really don’t want to compromise our lifestyles until we have to. And, I think, we’re approaching that point right now. My fear.. is that no one really expects what I think will be a big drop in consumption, which I think is going to happen over the next few weeks and months before the holiday season,”Modi said.

“Companies are going to be blindsided by what is happening and as a result I fear they will react instinctively and start layoffs which will then catalyze a much more serious situation,”he said.

This is already happening to some degree with companies such as Walmart, GoPuff, 7-Eleven and others announcing layoffs.

Consumers are also unprepared with personal savings rates as low as they have been since pre-pandemic, so there is very little cushion to help them – and the businesses they generally support. – weather the recession, Modi said.

How will this recession compare to previous ones?

With this in mind, said Modi, this recession “It’s going to be very different from what we saw in 2001 and 2008,”​but some of the lessons learned from these declines could help companies deal with the current situation.

He explained that previous recessions were “shock-oriented” – coming from a fast-developing crisis that led to a deep trough. But this one has been slow to build and will likely be shallower, but also last longer.

“It will create a malaise of growth”,as the United States enters “an environment where consumers are really strapped for money due to inflation and potential rising unemployment,”he explained. “I’m not sure we’ll see the stimulus coming into the market like we’ve seen in previous downturns because as we all know that’s part of the reason we have this inflationary problem…it’s so a chicken and an egg.

Lessons from Coca-Cola, Birds Eye, Monster and other winners of the last recession

Still, he said, CPG makers can learn from brands that performed well, including Coca-Cola, in the last recession.

While Coca-Cola plays in a segment that tends to be much more “defensible” than other commodities, it still experienced “remarkable” growth during the last recession with organic sales growth of 4% year-over-year and a 3% increase in volume in 2009, Modi said.

He explained that part of this came from the drinks giant using the 2008-2009 crisis to double down on its 2020 vision and invest in digital, consumer insights and personalization so that when consumers are ready to spend at again after the recession, the company would be ready to meet them.

It’s the same game the company recently used during the pandemic when it decided to revamp itself during an already distracting time so it could kick off when the world started to reopen and consumers could witness events and enjoy Coca-Cola products. Still together.

Another common theme between Coca-Cola’s response to the last recession and what it is doing now is its focus on absolute pricing, packaging, elevating brand value to justify purchases – all decisions that have benefited retail partners and consumers as well as the brand.

Birds Eye and Monster Energy also experienced notable growth during the last recession with compound annual growth rates of 16.1% and 18.6% from 2007 to 2011 respectively, added KK Davey, president of analytics. strategy at IRI, during the webinar.

He explained that Birds Eye has grown in part by targeting baby boomers with ads promoting Steamfresh products as part of whole meal recipes and expanding its offerings to include more convenient options, such as side dishes of steamed vegetables and microwave meals with cereals, pasta and proteins. . Monster won by launching new lines focused on unique needs, including hybrid coffee and iced tea for morning occasions and different sizes for different users.

These cases illustrate how brands can attract new users and expand usage opportunities during an economic downturn by investing in emotional marketing, offering one-stop and multi-function products, providing time-saving solutions and money, offering small indulgences and addressing health, wellness and nutrition. concerns.

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