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01/12/2022

Deloitte: Despite Major Challenges, 2022 Financial Outlook is Strong

The consumer products industry is facing an era like no other, but businesses are rising to the occasion and likely to see strong financial performance in 2022.
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That’s according to Deloitte, which recently published its 2022 consumer products (CP) industry outlook that surveyed in November 2021 100 senior executives from a mix of food & beverage, household goods, personal care and apparel companies with more than $1 billion in revenue.

Virtually all industries are facing challenges accelerated by the COVID-19 pandemic, and the CP industry is no exception. Supply chain issues were rated as the greatest threat to growth among 9 in 10 surveyed executives in the report. Another 6 in 10 said labor shortages, and also inflationary pressures, are already threatening growth this year. To be successful in 2022, CP companies must tackle these issues head on.

Despite the issues, the financial forecast is strong for 2022, Deloitte reported, thanks in part to the steps taken by governments, businesses and individuals throughout the pandemic. Stimulus spending from the government helped many American families avoid financial ruin. At the same time, household savings went up as consumers spent less on services while businesses and social activities were shut down.

“The baseline outlook for 2022 is for relatively strong growth in consumer products, even amid continued supply chain stress and labor shortage, though both should gradually abate,” said Ira Kalish, chief global economist at Deloitte. “During the pandemic, governments, businesses and individuals undertook actions that set the stage for strong economic growth.”

However, businesses that shut down faced challenges meeting an increase in demand once operations resumed. Inflation is also likely to subside once some of the other economic issues are ironed out, according to Kalish. 

“Price increases have largely been concentrated in those categories that have been most disrupted by supply chain problems,” Kalish wrote in the report. “As supply chains gradually recover, and as people return to the labor force, inflation should abate, thereby not necessitating a radical tightening of monetary policy.”

2022 Imperatives

 

To achieve a strong financial performance this year, CP companies are focusing on three imperatives to build trust with consumers, including increasing transparency, expanding digital engagement and investing in the future of work. Trust is key in 2022 as companies meet ongoing challenges, as companies need to ensure they have items in stock, have labor that can supply services and run operations, offer fair prices and deliver what they promise.

Transparency has become a top priority for CP companies this year, with 6 in 10 companies making a moderate or significant investment in transparency. The biggest investment area is collecting more detailed data about supply chain, as 45% of surveyed companies said they are making significant investments, 42% are making moderate investments and 12% are making minimal investments. That’s close to increasing environmental, social and governance (ESG) reporting, in which 45% of surveyed companies said they are making significant investments, 41% said moderate and 13% said minimal.

Investments also focused on increasing the level of transparency provided to consumers and other stakeholders, adding more information to product labels and improving capabilities to safely share data with partners. 

Digital engagement may also help CP companies build trust, as half of companies believe consumers lose trust when brands fail to engage with them in a personalized manner. This belief has led many companies to change their marketing strategy as consumer circumstances are changing. Some consumers are better off than they were before the pandemic, while others may be somewhat worse off. 

“While those consumers who are better off are seeking niche and premium offerings, others who are struggling might be seeking out basic or value offerings,” the report read. “Smaller, specialty brands are providing products on the premium end and accessing consumers through online marketplaces in ways they couldn’t previously.”

This presents new opportunities for emerging brands––and new threats to other retailers. CP companies may feel stuck in the middle of this bifurcation, while also needing to digitally engage with their customers. Personalizing the consumer experience is the top investment area for companies, with 63% making significant investments and 26% making moderate investments. Creating or improving the direct-to-consumer sales channel, investing in technology to improve the ability to engage with consumers and improving consumer data privacy and cybersecurity were the other top priorities for companies.

Addressing the labor shortage by investing in the future of work is likely to have a big impact beyond 2022. A whopping 8 in 10 CP companies say labor shortages will cause consumers to lose trust in a company, while 9 in 10 say when employees don’t have a sense of belonging in the workplace, they lose trust in their employers.

However, technology and investments aren’t likely to solve the issue alone.

“Technology and new sources of talent are changing the nature of work, workplaces, and the workforce,” the report stated. “It could be a mistake to merely add technology and automate work as it is done today while keeping the same skills profiles and worksites companies have now.”

Instead, companies should put people at the center of the future of work, adapting the physical and digital work environment in a humanizing way that better fits the work. Many companies are highly focused on their diversity, equity and inclusion efforts as a cornerstone of winning the talent war.