Experts predict the COVID-19 pandemic will trigger the worst economic downturn since the Great Depression, terrifying businesspeople everywhere. However, while a recession is never ideal, packaged food companies may be sheltered somewhat by the simple fact that, no matter the financial climate, people still need to eat.
“Even during a recession, there are still are a lot of wins and opportunities for food and beverage brands,” says Emily Page, founder and CEO of Pearl Resourcing, an international branding and packaging design agency. “The key to understanding the opportunities is realizing that consumer desires don’t change—they wish they could keep buying the same things they did before.” In many cases, she adds, they do continue purchasing the same or similar items, just in different forms or with less frequency.
For example, Page says that when adjusting to a tighter budget, many consumers cut back on restaurant dining, salon visits and other service-oriented experiences. Instead, they’ll increase their grocery buying to cook at home more and purchase DIY hair dye or nail polish—and these shifts can bode very well for CPG brands. “If you can create new products or pivot your current products to speak to consumers’ desire—which is to get better value from their purchases so they can still enjoy the quality of life they want—then you can have success,” says Page.
To help food and beverage makers pinpoint opportunities to succeed should the economy tank as expected, Page parses through consumer purchasing patterns during the Great Recession of 2008 and 2009. She breaks up consumer sales into three distinct categories—necessity, comfort and luxury products—and notes that during a recession, people don’t adjust their spending equally across the three.
Therefore, the very first thing food and beverage companies must do is figure out which category they play in. Next, look at which types of products succeeded in that category during the last recession. With this information in hand, brands can see what changes they need to make in their branding, packaging, marketing messaging, SKU lineup, etc., to be best prepared to weather an economic slump.
Product category No. 1: Necessity
Page describes necessity products as those that consumers budget into their grocery lists and likely won’t stop buying just because money is tight. These include milk, chicken, basic vegetables, cereal, toilet paper, diapers, dishwashing soap and other staples. Oftentimes, shoppers will even stick with the same brands they’ve always purchased. But in cases where they don’t have brand loyalty, they may downgrade to a private-label or value brand.
As for which necessity products sold well during the 2008-2009 recession, frozen foods stand out. “Chicken pot pie sales went up 23% and frozen side dishes increased by 48%,” Page says. “Ready-made meals also did very well, whether frozen entrées like lasagna or grab-and-go grocery items.”
It’ll be interesting to see whether organic fruits and vegetables will be considered necessities or luxury items in the next economic slump. “Sales of organic fruits and vegetables went down 31% during the 2008-2009 recession, but I don’t know if that will happen again,” Page says. “It’s not a one-to-one comparison because now we’ve done a better job of communicating the benefits of organic. However, if a consumer doesn’t understand the value of organic, that’s where they cut back.”
How necessity brands can win: This category is all about value, so brands within this space must communicate their value. “Argue for your value—show why consumers should spend their dollars with you, not elsewhere,” Page says. “To do this, you could update your packaging to really stress that the product is not luxury item but a staple. You could also offer coupons or create a bulk offering, then talk about these things in your marketing to ensure that families want to put your items back in their shopping carts.”
Product category No. 2: Comfort
According to Page, comfort goods are not necessary to live, but they make life more comfortable or enjoyable. “By definition, these are indulgences,” she says. “Some of these products get completely eliminated if consumers don’t consider them a worthwhile escape. But for those they do see as worthwhile, sales go up.”
During the Great Recession, consumers definitely deemed alcohol worth it, as sales increased by 17%. Same story with chocolate, which rose 15%. Personal care items such as hair dye and nail polish also sold very well.
“What’s interesting is a lot of convenience-related products increased because they offer small versions of luxury,” Page says. “Think about tiny Ferrero Rocher chocolates at checkout. It’s a luxury item but small, so it provides temporary indulgence.”
How comfort brands can win: “Look for ways to make smaller versions of your comfort product and encourage loyal fans to indulge,” Page says. “In your marketing, communicate ‘restaurant quality’ or ‘salon quality’ to tell consumers on a budget that yours is a premium comfort product they can enjoy at home.”
Product category No. 3: Luxury
“If you’re a consumer in a lower to middle class, a luxury item is something you stop buying during a recession,” Page says (that is, if you ever bought it to begin with). Think caviar, champagne and top-shelf tequila. She notes that the über-wealthy, presumably less impacted by the 2008 recession, kept on purchasing these products, suggesting there will still be a market for them should recession strike again.
In fact, some luxury foodstuffs—Grade A angus beef, for example—actually increased in sales during the last downturn. “People didn’t buy premium steak at restaurants, but they still wanted it at home,” Page says. “The well-off, along with many middle-class consumers, will still have ambitions for luxury products.” It’s just that, as with certain comfort items, people may not purchase them as often or they will be drawn to smaller sizes.
Also, Page points out an interesting psychological component to recession-era luxury buying that can actually bode well for CPG. That is, when the nation as a whole is struggling financially, these items can be seen as ostentatious. Therefore, people who purchase them tend to do so quietly, such as via mail order, so as not to appear insensitive or tacky. This means that sales opportunities for brands are still there; they just may shift slightly.
How luxury brands can win: With these types of products, don’t try to pretend they are not luxury. Know your audience, and play up the fact that consumers are making a wise investment in something valuable and rewarding.
“The conclusion to all this is there will be ups and downs in every economy—but also opportunities, no matter where we are in the cycle,” Page says. “So when the next recession happens, define your brand in terms of category and look at past trends to make a strategy for your future.”