Big FMCG companies face recession as inflation erodes brand loyalty
(MENAFN) Last year, leading consumer goods companies confidently highlighted their ability to pass on rising costs to consumers, aiming to enhance profit margins amid escalating inflation. Major firms like Procter & Gamble, known for Pampers diapers and Ariel detergent, and Mondelez, which produces popular snack foods, touted their strong brand appeal and pricing power. They asserted that their products were so essential and desirable that consumers would continue to buy them despite higher prices.
However, this confidence is waning as consumer sentiment shifts. With inflation persisting and lower-income shoppers especially feeling the pinch, many are now seeking ways to cut back on spending, from fast food to household appliances. A recent McKinsey survey revealed that over three-quarters of Americans are deferring purchases or reducing expenditures in some capacity.
Big brands are not as insulated from these changes as they once thought. PepsiCo recently reported a decline in sales of its snacks and beverages in North America, with CEO Ramon Laguarata noting that overwhelmed consumers are demanding more value to stay loyal to their brands. Similarly, Procter & Gamble experienced its weakest sales growth in six years, signaling a broader trend affecting major brands.
The overall value of the world's biggest brands dropped by more than 20 percent last year, with declines evident across the apparel, consumer goods, and personal care sectors, as reported by Kantar BrandZ. Analysts have observed a significant erosion of brand loyalty, particularly in categories like cleaning products, paper goods, and cooking ingredients. For example, PepsiCo has struggled more than Coca-Cola, leading companies like Unilever and Reckitt to reassess their portfolios and concentrate on brands with stronger global appeal. The extended period of high inflation has altered consumer behaviors, causing many to become accustomed to new price points and adjust their spending patterns accordingly.
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