As the sun sets on a tumultuous and unpredictable year, surely we wouldn’t be foolish enough to fall into the trap of attempting to prognosticate on what 2023 has in store for the CPG industry, would we?
The prospect is tempting; having seen global markets wake from the COVID crisis only to face the new nightmare of war in Ukraine, the next 12 months are poised to reshape the world economy yet again, and it’s safe to say that we have some questions. Are we truly on the edge of economic recession? How will brands change strategy as investors shift their attention from growth to profitability? Can real progress be made on ambitious environmental sustainability goals and potentially game-changing processing technologies? And will Bang’s ever-rumored demise be confirmed once and for all, or next year will we be yet again be writing about how Jack Owoc found some way to stop the bleeding?
All those questions remain to be answered, but we couldn’t help but ask now. We reached out to entrepreneurs, thought leaders and industry experts for their takes on the 2003 economic outlook for CPG, as well as the major market trends and food and beverage categories they’ll be watching for in the new year.
“We are still in our earliest days of bridging cultures” – Sandro Roco, Founder & CEO, Sanzo
Our 2023 message overall is one of execution. We’re announcing some exciting product innovations coming out of the new year that are the result of months of conversations with our customers, retail and distribution partners.
To hit our ambitious goals, though, will require a focused effort across the whole team, and I’m excited for all of us to take on this challenge. While we are sensitive to the broader economic environment and having regular conversations with our trade partners, our opportunity is still so large and we believe we are still in our earliest days of bridging cultures.
Ultimately, 2023 will be a year in which brands that meet a real consumer need, build community and have a viable business model will separate from the pack. While the economic environment presents some challenges, the top brands will convert those challenges to opportunities.
We and I think almost all brand owners past a certain stage will have to pay attention to how consumer demand, purchasing behavior and pricing strategy evolves in an environment of higher interest rates.
But for a company at our stage, the #1 thing we can focus on is execution of our brand mission and how we deliver for our customers, retail and distribution partners. Our foremost core value internally is one of empathy, and that means listening to our customers and retail partners and taking action proactively to meet their needs. And we’ve seen time and again that brands that build up true communities and sound business fundamentals have staying power, no matter the economic environment.
“2023 will show us the truly sticky post-pandemic trends that are now the reality of how we shop and consume.” – Brandy Rand, Chief Strategy Officer, IWSR
But with the added unease of the economy (price increases, higher interest rates), we’ll also see some people reverting to behaviors that are more reminiscent of recessionary times – shopping on promotion, buying private label, and prioritizing their spending on goods and services. For alcohol, despite Covid and despite some of the economic headwinds, premiumization (or trading up to higher-priced, often higher-quality products) is still driving all segments of growth across spirit, wine, beer and RTDs. Higher-income shoppers are still buying $50+ bottles of wine and spirits as an affordable luxury. Alcohol has become much more of a lifestyle product as evidenced by the amount of celebrity and influencer-led brands.
The last 20+ years of cocktail culture combined with the rate of innovation across spirits and RTDs, has also given rise to unique flavors and ingredients. People are much more educated and insatiably curious about what they are drinking, and we have social media to thank for a lot of this discovery. It is one of the most exciting times in our industry because disruption is changing the way we consume. The rise and reinvention of categories like no/low-alcohol, RTDs, agave and US whiskey in particular are bringing us more choice and elevating the drinking experience. People are demanding to drink what they want, when they want, and it’s forcing the industry to adapt. The future of successful brands will be consumer-led.
Look at [legal drinking age] Gen Z consumers – this generation has grown up in an era of Old Fashioneds and Negronis, are digitally native and don’t care if they drink out of a can or a box. They expect personalization and instant feedback. They’re socially conscious and forcing brands to think about how they communicate, not only what is in the product, but how it’s made and what the company is doing to make the world a better place. When we talk about younger generations drinking less, it’s really about them drinking slower – we call this tempo drinking. It’s about staying in the occasion longer by switching between full-strength drinks to low or no-alcohol alternatives.
For the beverage industry, 2023 will continue to show product diversification and the blurring of lines across categories (both alcohol and non-alcohol) – factors like flavor, ABV, functional and better-for-you ingredients, authenticity and creative packaging design will break through the clutter. The industry will need to keep pace with underlying consumption drivers such as moderation, health and wellness, transparency, inclusion and sustainability.
“Affordability is the key word for the macro picture, but how do consumers define that and where will they save?” – Ken Sadowsky, Senior Advisor, Verlinvest
My view is that the overall economy will be choppy, turbulent. I think this because many prices have increased for all consumers, but the ramifications have not all rippled through the economy. I also have a sense that consumers’ mindset will play a larger role than the actual economic inputs as they tend to do. Affordability is the key word for the macro picture, but how do consumers define that and where will they save? The great thing about beverages is that almost all consumers define them as an affordable luxury even in the toughest of times.
Generally, I see better-for-you beverages getting healthier in part because of food technology. Specifically, energy and hydration are going to continue to increase, as will water. Both science and nature have entries here – energy is coffee and traditional energy. Water and isotonics are the answers to energy’s dehydrating effects. Functional beverages will continue to gain acceptance, too, in part thanks to technology. Efficacy of ingredients like functional mushrooms, turmeric, and probiotics are abetted by food technology.
In terms of trends, innovation will be back stronger than the last couple of years because retailers believe that supply chain hiccups are mainly in the rearview mirror. With so many price increases already in the system, it will be interesting to watch what will happen if some of the input prices decline, i.e., fuel.
“A focus on profitability, capital efficiency, gross margins, and expense management will be paramount.” – Luke Vernon, Managing Partner, Ridgeline Ventures
I’d describe my approach to 2023 as cautious. While I’m not a doomsday philosopher, and generally think there are a lot of positive signs in the economy, I do believe now is a time to plan for the worst and hope for the best.
The pullback in consumer spending is happening and it’s hard to predict how long that will last and how deep it will go, but it will likely impact premium-priced brands the most. This will create opportunities for growth in private label brands and companies that co-pack private label products. Our long-term belief remains that brands win over the long run, but consumers have been known to trade down in tough economic times.
If consumers continue to shift away from restaurant dining, they’ll need to keep their pantries stocked at home, which points to potential opportunities for consumer staples and at-home meal prep. And as consumers eat at home, that could also lead to an appetite for exploring new products, leading to trial of items with good price-value perception as well as a desire for new flavor profiles as consumers look to refresh their pantries.
Cash is king for emerging brands. Capital will continue to be challenging to raise and debt will be expensive. A focus on profitability, capital efficiency, gross margins, and expense management will be paramount. Brands that have strong balance sheets and operating margins will be well positioned to take advantage of opportunities during this time. Growth at all costs will not be a winning strategy.