Consumer brands didn’t reap a windfall from panic buying

The coronavirus pandemic led to spikes in demand for items like diapers and peanut butter, but sales for many products have begun to plateau as consumers adapt to life under lockdown.

For the companies making those items, shopping trends driven by the virus are both a blessing and a curse. Food companies like Kraft Heinz and Campbell Soup are seeing their classic products come back into favor with consumers after years of lackluster sales. Higher demand means scrambling to fill orders, while simultaneously battling higher commodity and freight costs and trying to keep workers healthy.

Coca-Cola said Tuesday that in some markets, sales have stabilized after consumers initially stocked up on drinks.

But behavior has shifted to minimize browsing while buying groceries. 

“As consumers adjust to stay-at-home lifestyle, they’re making fewer shopping trips and filling bigger baskets often based on availability and orientate to known, trusted brands,” CEO James Quincey told analysts on the conference call.

To adapt, the beverage giant is “ruthlessly prioritizing” the products that are most important to its business: soda, sports drinks and water. Quincey said that the company’s ability to access key ingredients has improved from several weeks ago, when he said that the global supply chain was creaking.

Still, the spikes in demand cannot make up for the sales Coke is losing as consumers shelter in place. Roughly half of Coke’s revenue comes from consumers having its drinks away from home, at movie theaters or sports stadiums. Net sales for its first quarter fell 1%.

J.M. Smucker said Monday that it expects net sales for the fiscal year ended April 30 will only fall 1%, better than its prior forecast of a 3% decline. The maker of Jif peanut butter makes less than 10% of its revenue from away-from-occasions, according to William Blair.

Smucker also noted that demand has begun to moderate, although it remains elevated above pre-crisis levels. But additional costs accompany the lift in sales. Smucker is paying higher freight costs and giving front-line workers an extra $1,500 in hazard pay as it increases production at all of its plants.

Kimberly-Clark, which makes Cottonelle and Scott toilet paper and Huggies diapers, is expecting to see increased volumes during the second quarter as retailers try to rebuild inventory.

CEO Michael Hsu said Wednesday that he thinks that only a fraction of households stockpiled ahead of shelter-in-place orders. So while some people will be working their way through their stockpiled inventory of toilet paper or diapers, others will still be trying to get their hands on those items.

“We expect most, but not all, of the demand increase in consumer stockup will reverse out later this year,” Hsu said on the earnings call Wednesday. “However, with more people at home, and also paying closer attention to hygiene, it’s likely the consumer tissue consumption will be higher during shelter-in-place periods.”

Morgan Stanley analyst Pamela Kaufman wrote in a note to clients about Smucker that elevated food sales could persist over the coming quarters because an available vaccine is not expected for another year.

However, consumers are already beginning to shift some of their spending back to restaurants.  Chipotle Mexican Grill CEO Brian Niccol told analysts on Tuesday that the burrito chain’s sales are improving in April as Americans receive their stimulus checks from the government and grow tired of cooking.

“The pantry loading behavior, I think, has really slowed down dramatically and they’ve worked through all the goods that they purchased in their pantries,” he said. 

Some companies expect to see consumer habits permanently altered, at least for some products. Procter & Gamble COO and CFO Jon Moeller said on Friday that consumer trends for health, hygiene and cleaning could be forever changed because of the virus.