To help mitigate higher costs, P&G is looking to adjust sourcing, improve productivity, and, when necessary, increase prices.
“We will look at pricing with innovation, and we will look at straight pricing,” said P&G’s Schulten. “All of those elements are on the table.”
Consumer sentiment
Amid the uncertainty, which is dampening consumer optimism about the economy, executives expect a slow down in spending.
“Uncertainty creates a pensive and anxious consumer, and when you have uncertainty in terms of macroeconomics and everything surrounding that, consumers tend to hunker down,” said Noel Wallace, CEO of Colgate-Palmolive. “Even in our categories that are non-discretionary, you’ll see consumers destock their pantries and not necessarily buy that extra tube or that extra body wash.”
PepsiCo chief Laguarta said he sees the international market as the $182 billion company’s “largest growth engine,” though he did note that the average customer in China is “hurting a little bit.” Consumer sentiment in Mexico, he added, is “impacted by what happens in the U.S.,” and many American consumers are increasingly worried about a recession.
“What we’re seeing, I think, is a logical response from the consumer to pause,” said P&G’s Schulten. “And that pause is reflected in retail traffic being down.”
Kimberly-Clark’s Hsu acknowledged that many households are under financial pressure. “Affordability has become paramount more than… it’s been in my dozen-plus years here,” he said. “We understand that burden… middle-income to lower-income households are dealing with.”
Anna Manz, CFO of Nestlé, noted company sales had slowed due to softer consumer demand. At the same time, she added, this decline began prior to any trade wars. “Consumer confidence in many geographies was already fragile even before the increasing macroeconomic and political uncertainties,” she said.
Marketing budgets
In light of Frito-Lay’s revenue dip of 2.1% in Q4—Americans’ craving for salty snacks has been slackening—an analyst on PepsiCo’s April 24 earnings call asked if it’s time for more aggressive spending on marketing. While CFO Caulfield didn’t mention marketing in his response, he stated that the company is focused on “providing value to the consumer,” but “we’re not going to do it in a way that we damage the long-term health and profitability of the business.”
Elsewhere on the call, CEO Laguarta stated, “we feel good about the advertising. We feel good about the portfolio.”
