Packaged Goods & Consumer Behaviors Update

Disclosures and Disclaimers

In our last report, Why Packaged Food Valuations May Still Have Room to Run, we found that consumers’ pandemic-led shift to at-home food consumption hadn’t changed much, even with increased mobility and socialization.

Our follow-up study shows that consumers in many states are taking a step back from recovery activities due to Delta-fueled COVID-19 outbreaks. This trend is escalating “at-home” behaviors, including food consumption and home improvement purchases, even in a heightened inflationary environment. Our report explores these developments and why we believe they still support a favorable outlook for the packaged goods sector.

Variant drives more at-home behaviors

The spike in Delta-led COVID-19 case counts in areas with low vaccination rates has led many consumers to rethink recovery activities. The overall number of people attending restaurants and booking flights slowed in August, but were at or above pre-pandemic levels for the Labor Day holiday. We believe most consumers will prioritize their out-of-home activities for now, but will not stop completely. The number of US consumers citing COVID as the most important problem (26%) increased 3x from June to August. But, 54% of consumers believe the economy should continue reopening--even if the virus is not fully contained. These views, along with unequal vaccination rates across the country, lead us to believe that we will see a continued preference for at-home food consumption.

Rising costs, from corn to aluminum

Most companies in our coverage agree that the cost of packaged goods rose more quickly than anticipated. These companies intend to take price, but in many cases, costs are rising so high and so fast that they must lean into cost savings/productivity even more.

Here is the pricing outlook for some key goods:

• Corn: Late-season rain in the Western Corn Belt, Northern Plains, and central Midwest likely boosted low crop yields, which should provide some pricing relief.
• Pulp: Paul Quinn, RBC’s Global Paper, Packaging & Forest Products Analyst, reports that pulp markets experienced a modest slowdown over the summer. While most expect demand to improve in September, new capacity could add pressure on the market.
• Plastic: Arun Viswanathan, RBC’s Chemicals and Packaging Analyst, believes that plastic packaging input costs will remain elevated, at least through the second half of 2021. In addition to higher polyethylene and other resin costs, raw material availability continues to be a headwind due to shutdowns from storms.
• Aluminum: While Aluminum costs have stabilized somewhat, costs remain well above historical levels.

Many consumers use stimulus payments for household purchases

Despite the loss of stimulus/unemployment benefits, consumers’ rate of household purchases month over month hasn’t changed.

Our research showed that lower-income consumers were more likely to spend, rather than save, their stimulus/unemployment benefits. Consumers at all income levels, however, spent less of subsequent stimulus payments, and a majority saved, rather than spent, their third stimulus payment. As far as purchases, many consumers used the first payment for home office purchases, and the second and third payments for home improvement and house and garden goods.

Lingering virus concerns suggest more at-home behaviors

Based on elevated at-home behaviors, we expect to see continued growth for the packaged goods sector. Current trends, including the back-to-school transition, global vaccination inequalities, and inflationary pressures may reinforce this behavior even more. We will continue to monitor these developments to assess the potential impact on consumer mobility and spending.