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Food and beverage trends that have emerged or accelerated in recent months have eaten into the profits of some packaging companies.
In recent earnings calls, packaging company executives cited certain economic and geopolitical factors, such as struggles in the beef industry and federal government actions, noting that these factors are driving changes in consumer food purchasing habits and ultimately leading to changes in packaged sales. However, there was one concern: service disruption. Supplemental Nutrition Assistance Program Benefits – We’ve made it easy for you to: The bill was signed Wednesday. To end the longest federal government shutdown in U.S. history.
meImmigration crackdowns and freezes on benefit payments, linked to a slowdown in consumer turnout and spending, were causes for concern, according to management’s earnings call discussion. Meanwhile, consumers continue to face cost pressure and are choosing cheaper products.
Specifically, tight supply High input costs have pushed beef prices to record highs. Up 51% this fall since February 2020Consumers are holding back on beef purchases, according to the Bureau of Labor Statistics. The decline in third-quarter sales hit packaging suppliers that serve meat industry customers hard.
There are a lot of trade downs.
Mike Doss, CEO of Graphic Packaging International, said Nov. 4 that consumer cost pressures are evident due to declining grocery sales. revenue call. GPI’s sales were down 2% year-over-year in the third quarter, but that still “outperforms most of the markets we serve,” he said.
“We are hearing more and more from our CPG customers. The consumer market is bifurcated,” Doss said.. “Higher-income consumers are still spending, but they are spending differently and more cautiously. Low-income consumers are continuing to cut back on spending as food prices rise further.”
Over several revenue cycles, executives have pointed to economic conditions that are causing a decline in transactions as consumers switch to cheaper options for the same products. This has fueled growth in sales of private label products while popular brands have taken a hit.
In particular, Doss has been mentioning these changes for some time as consumers continue to face cost pressures such as inflation.
“In household goods in the Americas, We are seeing consumers reducing their purchases and switching to private brand alternatives.” he said this month. “Large box retailers, supermarkets, and discount grocers continue to take market share from traditional grocers. “This is one of the driving forces behind the surge in private label products.”
Beef: Not Dinner
Companies have observed a significant increase in consumers seeking protein-containing food and beverage options to support their health and wellness goals. For example, Danone executives explained on an Oct. 31 call that the company was struggling to meet surging consumer demand for high-protein yogurt. Protein push is partially related to GLP-1 drugs and weight maintenance.
“Our paperboard pannets, along with other new innovations like our PaperSeal line, fit perfectly with today’s trends toward healthier eating and increased use of GLP-1,” said GPI’s Doss.
However, the beef sector has become a black sheep due to historical difficulties resulting from a confluence of factors. include labor shortage, Drought and parasite infestation — This spills over into other parts of the supply chain.
“Everyone has read about beef. It’s a big part of it for us. And cattle herds have fallen to their lowest level in 70 years. So there’s a lot of difficulty going on there,” Packaging Corporation of America President Tom Hassfurther said at the company’s Oct. 23 conference call. revenue call.
Beef harvest rate in the third quarter decreased by 10.5% compared to the same period last year.“The industry’s exposure is under pressure due to a sharper-than-expected decline in beef production.” November 4 Sealed Air CEO Dustin Semach revenue call. “We now expect beef slaughter this year to be mid-single digits worse than in 2024.”
This is based on Semach’s comments. After the second quarter, he quoted the company as saying: Resilience in the face of volatile beef sector. He said fresh protein is a key end market for the company, specifically mentioning its Cryovac brand of film solutions.
Protein is one of the following: of Amcor There are six focus categories that collectively make up half of the core portfolio. The company is doing well. Dairy GrowthLike cheese, while the meat is shaking.
“I think it’s fair to say we’re having a bit of a tough time in the meat business cycle right now,” Amcor CEO Peter Konieczny said during the company’s earnings call on Nov. 5.
President Donald Trump on Nov. 7 took steps to address beef industry concerns at the Justice Department. start investigating We engage with the largest meatpacking companies serving the U.S. (some of them international) to determine whether they are artificially inflating prices. The Justice Department has so far not announced a formal investigation. Even if the agency conducts an investigation, a quick resolution seems unlikely.
The solution to the beef problem is “It’s going to take some time. As I said, the crowd 70-year lowRebuilding these operations will take two to three years. And we’re only a year into that process,” Hassfurther said.
Semach predicted livestock rebuilding would continue until 2026, remain relatively stagnant in 2027, and potentially grow in 2028.
government influence
Management has taken note to monitor whether and how various actions by the Trump administration may impact its business.
First, they witnessed the longest federal government shutdown in history, which just ended with the termination of Supplemental Nutrition Assistance Program benefits. Sealed Air expected the impact to be “transitory,” Semach said.
“In the short term, the shutdown could continue to worsen the trade decline we are seeing because it will push low-income households to spend more dollars,” he said.
Some executives also addressed questions about how federal immigration enforcement actions could affect changes in the buying habits of some consumers.
“When you hear about demand issues, you’re going to hear specifically from customers, it’s probably related to racial background, ICE impacts,” Ball CEO Dan Fisher said in a Nov. 4 interview. revenue callhis last work leave the company A few days later. While this trend did not impact Ball’s metal can volumes in the third quarter, “it should impact substrate elements and the ability of end consumers to consume the product through the same channels they have historically had.”
Constellation Brands appears to have experienced a sharp decline. RBC Capital Markets analyst Nik Modi raised the beverage company’s executives with sales figures during the spring “for brands and pack sizes that actually overrepresent the Hispanic consumer across your portfolio.” Performance announcement on October 7th. He said the decline occurred as Immigration and Customs Enforcement activity began to pick up this year. He asked management whether volumes would have increased without ICE activity and whether they expected a return to growth once ICE increases subside next year.
Constellation executives did not respond directly, but emphasized their efforts to pay attention to consumer demographics along with spending habits data. Constellation conducts monthly consumer surveys. “What stands out to us is that 80% of Hispanic and non-Hispanic consumers surveyed continue to express concerns about the socioeconomic environment we face,” said CEO William Newlands. “We have a consumer base that has some interest, but they’re not engaged.”
That said, although Newlands noted that Constellation’s Modelo beer brand has grown loyal among Hispanic consumers and remains a top seller, he did note the particular economic anxiety of Hispanic consumers. In the US, beer is sold in dollars. Newlands said the company continues to explore its price pack architecture to maintain affordability for this demographic and others.
“One of the things we track very carefully is zip code data, and the results we see in zip codes with high Hispanic populations are much worse than what we see in the general market,” Newlands said. “Having the opportunity for financially constrained consumers to find one of our iconic brands at a price point they can currently afford is an important part of why price pack architecture is and will continue to be one of our key focuses now.”
