Consumers are no longer solely focused on finding cheaper food brands to stretch their grocery budget. Instead, they are now purchasing less food altogether, according to Sean Connolly, CEO of Conagra Brands Inc., a leading consumer-foods company.
Conagra Brands is the parent company behind popular food brands like Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s, and Slim Jim. In their recent fiscal fourth-quarter report, they surpassed profit expectations but fell short in terms of revenue. Furthermore, their full-year earnings outlook was below Wall Street’s expectations.
Initially, Conagra’s stock saw a decline following the release of these results, with intraday trading showing a decrease of up to 0.4%. However, it eventually turned around and was up by 0.8% in midday trading.
During a conference call with analysts after the earnings report, Connolly highlighted that although pricing may have reached its peak, resulting in pressure on dollar sales, the growth in volume sales has been slower.
This indicates a notable shift in consumer behavior compared to the response observed during the initial price increases implemented a year ago.
“We have observed this trend since shortly after Easter, and it has been prevalent across various categories and among competitors,” Connolly explained.
Also read: Concerns rise over potential tipping point for American consumers as food prices surge in June
Consumer Behavior Shifts Amidst Economic Uncertainty
Amidst the current economic uncertainty, consumers have exhibited a change in behavior that is impacting various industries. Contrary to previous trends, consumers are not opting for lower-priced alternatives within their preferred product categories. Instead, they are demonstrating an overall reduction in consumption.
According to industry expert Connolly, one noticeable change in consumer behavior is a reduced appetite for purchasing in general. Rather than “trading down,” consumers are adopting a more cautious approach by buying fewer items overall. This shift can be seen as a form of “hunkering down,” suggesting that consumers are prioritizing savings over indulgence.
The question that arises is why this behavioral change is occurring now, after a period of relative stability. Connolly proposes several possible reasons behind this new consumer mindset. One explanation may be the anticipation of a financially demanding summer, which could result in consumers proactively saving money. However, Connolly views this particular shift as temporary and not indicative of a long-term trend.
Furthermore, Connolly points to deflationary trends in specific ingredient items as well as lower pension incomes as contributing factors. These economic factors play a significant role in shaping consumer behavior and purchasing decisions.
In terms of how Conagra plans to address this changing landscape, Connolly expresses reservations about relying on deep-discount promotions. He believes that such tactics train consumers to seek out deals, which can be detrimental to the brand’s long-term growth. However, given the current consumer climate characterized by cutbacks and alternative choices, some industry players may be inclined to resort to more aggressive promotional strategies in order to drive sales.
It is worth noting that Conagra’s stock has experienced a decline of 11.4% over the past three months. In comparison, the Consumer Staples Select Sector SPDR exchange-traded fund XLP has seen a more modest dip of 2.4%, while the S&P 500 has achieved an 8.5% gain during the same period.
