Consumer Product Companies Prepare for an Economic Slump

Unofficial Recession

Americans have dialed back their spending amid rising prices and recession concerns. Last week’s GDP report showed the US economy contracted for two consecutive quarters, which is the unofficial definition of a recession. If nothing else, that indicates the threat is real. It also illustrates the way reduced spending slows economic growth.

Consumer product companies are closely watching the change in consumer behavior as they revisit sales strategies given the challenging and confusing economic environment.

Two Consumer Avatars

Companies such as Danone (DANOY) and Kimberly-Clark (KMB) are preparing for further erosion in consumer confidence and its impact on spending patterns. There seems to be an emerging differentiation between the increasingly picky shopper who is still willing to pay up for quality, and the financially-stretched consumer who needs to trade down to afford their purchases.

One approach these companies are taking is enhanced packaging. In essence, they hope that looks justify a higher price. To reach lower-income consumers, smaller package sizes and promotional offers are being readied in advance of a change in spending behavior, as it can take months to roll out new products.

Befuddling Data

These companies are finding it hard to determine the best path forward given the mixed economic data. On the one hand, inflation is at its highest level in decades and some believe a recession is either imminent or already here. On the other hand, many Americans continue to spend despite the economic headwinds.

The sweet spot could be found in consumer priorities – will they indulge in lower-priced treats like lipstick and chocolate as they spurn big ticket purchases? Products that promote affordable ways to pamper at home could be winners. As consumer product companies tweak their predictions, consumers may see dressed up versions of old favorites as well as an expanded selection of products, price points, and sizes.

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