FMCG firms signal stable-to-higher 2H 2023 volumes

Major global fast-moving consumer goods (FMCG) brand owners are projecting stable or rising sales volumes in the second half of this year, having seen inflation reduce demand for their products in recent quarters.

Brands surveyed by Argus reported an average year-on-year decline of 1.7pc in their global sales volumes in the second quarter. This compared with a decline of 0.75pc year-on-year in the first quarter, and 3pc in the fourth quarter of last year. Some companies reported individual factors affecting volumes, such as rationalisation or a suspension of business in Russia, but elasticity — the impact of rising prices on volumes — remained a common theme.

Another year-on-year decline is expected, as the largest impact of price inflation on sales volumes did not begin until the second half of last year and intensified into the autumn and winter. But statements given by company heads at the end of the quarter were consistent with those expressed at the end of the first quarter — that sales volumes are no longer falling quarter-on-quarter and should start to improve:

• Coca-Cola chairman and chief executive James Quincey:"We are expecting volume in the back of 2023 to be similar to first half"
• Colgate-Palmolive chairman, president and chief executive Noel Wallace:"I think we'll start to see a return to volume growth in the back half of the year"
• Pepsico chief executive Ramon Laguerta:"What I think we're going to see is volumes will be sort of in the flattish range for the balance of the year"
• Procter & Gamble chief financial officer Andre Schulten:"We expect global market value growth in our categories to moderate back towards a range of around 4pc with the drivers of market growth normalising as we move through [the next financial year to June 2024], pricing becoming less of a driver and volume returning to modest growth"

For balance, Nestle chief executive Mark Schneider gave a slightly less positive view, saying: "I would like to confirm our expectation that real internal growth will swing into positive territory in the second half of the year" but "volume is still negative as we speak, and it was negative in H1".

Deadlines approach

The decline in volumes has weighed on demand for plastics for packaging. And, with firms looking to minimise the cost pressure on their customers to buoy sales, recyclers have found brands less keen to begin new projects to incorporate recycled content in their packaging. In addition to the research and development costs associated, the price of packaging-quality recyclates remains generally higher — in some cases significantly so — than the price of the equivalent virgin polymer.

So far, there has been little sign of an increase in demand for recyclates from the consumer packaging industry. But one major European packaging producer told Argus last week they were starting to hear more enquiries from the industry for the second half of the year.

This is logical as 2025 draws closer. In addition to the obligation for European PET bottles to contain 25pc recycled content from 2025, almost all of the firms surveyed have made voluntary commitments to increase recycled content in plastic packaging globally. Excluding Procter and Gamble, which has a virgin plastic reduction target but no specific recycled content target, all the firms have pledged to include at least 25pc recycled content in their plastic packaging by 2025. They will want to make headway even if the targets are not fully met, particularly since their progress is being publicly tracked via the Ellen McArthur Foundation.

At the latest update, for 2021, the seven companies had achieved an average of just over 11pc, according to Argus' sustainability target tracker. Assuming no change in their overall packaging volumes, this means that they would need to include nearly 1.5mn t/yr more recyclates in 2025 than they managed in 2021. Recyclers will hope that this leads to increased urgency in the next 18 months.

Green shoots in Europe?

Another theme of the previous two quarters was particularly significant volume declines in Europe. This continued in many cases, with several firms reporting European volumes at the low end of their global mix:

• Unilever: Europe volumes down by 9.7pc year-on-year versus 0.3pc reduction globally
• Danone:Europe down 5.1pc versus 2.3pc reduction globally
• Colgate-Palmolive:Europe down 6.5pc versus 3pc globally (excluding impact of acquisitions)

But there were some small signs of improvement. For example, Unilever's 9.7pc decline in overall European volumes masked a growth in sales volumes of its Personal Care and Beauty & Wellbeing segments, which includes shampoos and soaps where recycled content may be more suitable for packaging than in food and beverage products.

Customers switching away from premium brands to cheaper "private label" products to offset increases in the cost of living has been another talking point, particularly for the recycling industry where it is felt that premium products are more likely to use recyclates in packaging. But this trend may also be slowing. "What we have seen recently in Europe, and some in the US is the tailing off of growth in private labels", Danone chief executive Antoine de Saint-Affrique said.

De Saint-Affrique's deputy chief executive Juergen Esser gave further encouragement, saying "overall dynamics over the last weeks and months make us confident that you will see our volumes [in Europe] sequentially improving".

Overall there were fewer instances than in previous quarters of executives highlighting Europe as an area of concern for sales volumes, although this was not completely absent. "Elasticity was limited at group level. It was probably a bit higher in European context", said Nestle chief executive Mark Schneider. "At the beginning of the year it was more about the energy crisis, which did not really crystallise, but we see [Europe as] the area where we are a little bit more cautious in terms of consumer sentiment with a little bit of elasticity".