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Welcome to a new week. It's the middle of the summer and many areas of the country are sweltering. Nevertheless, we're getting ready for a big week of business headlines. Earnings and federal data set to be released this week will together offer a snapshot of the current state of the economy. Let’s get right to the rundown of what’s in store, and the key themes we’ll be tracking throughout:
- Digital Food and Beverage: The CPG community comes together in Austin for a conference focused on ecommerce and digital marketing. Speakers include leaders from Mondelez International, PepsiCo, Nestle and General Mills. (July 25-26)
- Adweek’s Commerce Week: Bringing marketing, media and commerce together, the hybrid event is partially in-person in New York, and partially virtual. Speakers include leaders from Walmart, Philips, Fabletics, Kellogg’s and more. (July 26-28)
Here’s a look at key economic data that commerce professionals will be watching this week:
- Federal Reserve: The US central bank announces its decision on whether to raise interest rates at a time when the pressure is on for the Fed to execute a “soft landing” and avoid a recession. Many economists believe a rate hike is likely as inflation continues to heat up, but whether it will match the 0.75 rate hike of June or deviate from that pace won’t be revealed until Wednesday’s press conference with Chair Jerome Powell. (July 27)
- Durable goods orders for June will be out just before the Fed’s announcement. This measures new orders placed with manufacturers for delivery of hard goods with a life of three years. It’s a snapshot of the state of industrial production. (July 27)
- Retail inventories are out for June on Wednesday, as well. This measure has been in focus with one of the latest swings of the pandemic leaving many retailers overstocked with goods that are mismatched to demand.
- GDP data for the second quarter arrives Thursday, including growth and pricing data. This will offer a snapshot of overall US economic activity. (July 28)
- Personal Consumption Expenditures Index will be reported on Friday. A measure of inflation preferred by the Fed, this gauge is known for its breadth of data and ability to track changes in consumer behavior. (July 29)
With major retail channels and consumer goods companies on the schedule this week, business leaders will provide a look at what they're seeing in consumers and the economy. Here’s a look at the public companies that will be reporting second quarter data:
- July 26: Coca-Cola, Alphabet, Visa, Microsoft, Mondelez, McDonald’s, 3M, Kimberly-Clark, Albertsons, Skechers, UPS.
- July 27: Meta, Shopify, Kraft-Heinz, Etsy.
- July 28: Amazon, Apple, Keurig-Dr. Pepper, Hershey Company, Overstock.com.
- July 29: Procter & Gamble, Mastercard.
Stories we’re following
With lots of new economic and business data set to be released, this week will provide a view into the current state of the economy. Here are a few themes we’ll be watching.
- The R-word? PMI data from Friday indicated that US business activity is on the decline for the first time in more than two years, prompting S&P Global to warn of a “worrying deterioration” in the economy. Will talk of a recession get louder in reports this week?
- Sticker shock: Inflation was still at 40-year highs in June. Corporations were already starting to raise prices in Q1. Has it continued in Q2, and to what extent are these hikes being passed on to the consumer?
- Health of the consumer: One of the most frequently asked questions on earnings calls in Q1 concerned how the consumer was responding to those rising prices. To date, retail sales data has shown shoppers have still been spending, even though sentiment is down at record lows. Did spending start to drop off in Q2? And, how are consumer shopping habits changing amid higher prices?
- Fuel and transportation costs: In Q1, company earnings took a hit in part due to fuel and transportation costs, which were also continuing to rise through Q2. Will these increased costs of doing business continue to eat away at margins, and is any relief in sight as the price of fuel begins to come down?
- Will ecommerce sales bounce back? The story of Q1 in the retail world was a return to in-person shopping as COVID restrictions were lifted. But an economic shock has a way of changing the narrative. Retail sales data showed an uptick in nonstore sales, showing some signs of digital gains. As shoppers sought price breaks and savings on gas, did they turn to ecommerce more in Q2? Amazon and Shopify’s earnings in particular could have a lot to say on this point.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.