Profitable Growth During Inflation

Profitable Growth During Inflation

SUMMARY


ACHIEVING PROFITABLE GROWTH IN AN INFLATIONARY ENVIRONMENT

By IRI's Krishnakumar Davey and Ray Florio

With more than half of U.S. adults vaccinated against COVID-19, and others benefiting from post-virus natural immunity, life appears to be returning to normal. Consumer mobility is ramping up and Americans are returning to many pre-pandemic behaviors.

Manufacturers anticipated long-term benefits from a consumer shift to premiumization but now face huge risks related to widespread cost inflation. For the 12 months ending May 2021, inflation jumped nearly 5%, the highest increase in 12 years. To succeed, the industry will need to figure out how to shift its pricing, pack sizes, messaging, positioning and innovation to meet this inflationary challenge profitably.

Observations:

  • Across a wide variety of edible and nonedible categories, we still see shoppers actively trading up to more premium options, even versus the final months of 2020. This has been driven in part by a consumer embrace of cooking and an appreciation of the value of “better-for-you” products.
  • Snacking products that were able to make targeted claims aligned to shopper needs and wants, especially health-driven ones, were able to decrease their price sensitivity from 2020 to 2021.
  • Shoppers were willing to pay a modest (and unprofitable) premium for products that could claim to be organic, have no artificial ingredients, or have 3 grams of protein. They were willing to pay a substantial 25% premium for products that could meet all three claims.

Opportunities:

  • Manufacturers can explore several levers to drive higher price realization, including shifting price to align with value, shifting pack size to reduce costs, refining product messaging and positioning, and altering the product portfolio to grow willingness to pay.
  • A three-phased approach focused on market dynamics, product design and execution plans can help manufacturers filter down the wide array of options to succeed in an inflationary environment.
  • Strategic analytics can help manufacturers create better price and promo models, diagnose price shifts, develop assortment planning strategies, enhance portfolio profitability, and enhance pricing across specific segments to secure longer-term shopper loyalty.

This report shares more details about how CPG manufacturers can better navigate this inflationary post-COVID-19 environment to successfully achieve profitable growth while boosting customer loyalty.

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