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It’s fair to say that many Americans snacked their way through the pandemic, and now that restrictions have lifted, those habits have lingered. That’s good news for branded-food companies amid growing concerns about consumers’ purchasing habits.
There’s no shortage of academic literature pointing to increased snacking during Covid-19 lockdowns. As was the case in so many areas of the consumer space, “the pandemic accelerated a trend that was already there,” says
Mondelez
International (ticker: MDLZ) Chief Financial Officer Luca Zaramella. Mondelez research shows that nearly 90% of people around the world snack on a daily basis, with a frequency that keeps increasing. “It’s something that’s permissible, in these [uncertain] times, a little bit of chocolate can be rewarding.”
It certainly has been for companies that sell snacks. Mondelez stock is up 1% over the past year, a period that saw the
S&P 500
drop more than 10%;
PepsiCo
(PEP), which gets a quarter of its business from Frito-Lay North America alone, climbed 11%.
Utz Brands
(UTZ) more than doubled in the year after the first pandemic restrictions were announced, with its CEO previously telling Barron’s that the structural shift to spending more time at home had led to more durable snacking trends.
The pandemic unleashed a wave of demand for comfort foods and familiar flavors, and that trend was bolstered by online shopping: Grocery was one of the last portions of retail to make the shift to digital, but once it did that largely benefited branded companies. As Barron’s noted, name recognition and consumer loyalty has been an ongoing tailwind for consumer-staples companies.
Many of those stocks have also outperformed during the recent market turmoil, given investors’ flight to safety. Yet many investors have questioned staples’ ability to keep outperforming at a time when inflation remains stubbornly high, and only marginally below multidecade highs; with consumers’ budgets strapped and worries about a potential downturn or recession ahead, the risk of shoppers trading down to cheaper generic offerings is real.
That said, the snack category specifically may be more resilient in that regard. In a wide-ranging survey this spring,
Piper Sandler
found that while 77% of respondents said they would buy a cheaper option if their preferred brand went up in price, meat and cereal were the top categories where they said they would trade down, at 26% and 18%, respectively. Just 12% named cookies and crackers, 10% chips, and 4% candy.
Analyst Michael Lavery noted that historically,
Hershey
(
HSY
) “has fared the best in the group in a recession,” with
Tyson Foods
(TSN) seeing the worst performance during the Great Recession of 2008-2009.
Likewise, convenience chain
Casey’s General Stores
(CASY) noted earlier this week that while consumers were trading down to private label in some categories, that wasn’t their only response to inflation.
Casey’s CEO Darren Rebelez noted that in the beer category, for example, “people aren’t switching out of super premium and imports and to cheaper types of beer. They’re just trading down from larger packs sizes into smaller pack sizes within the beer category.”
As Mondelez CFO Zaramella told Barron’s, penetration of private-label products in its core categories are relatively small, for example less than 5% for chocolate. He, too, says that rather than switching, consumers are finding other ways to keep buying the company’s brands, such as through discounters.
That brand loyalty gives Mondelez pricing power, he says, particularly as customers see the company taking up price “in a fair way, while still providing value…it’s uncommon to see higher pricing and volume together, but we’re seeing it.”
The company’s confident enough that it’s looking to accelerate sales of its key chocolate and biscuits categories, including through acquisitions that bolster its position in both the U.S. and overseas, with the latter accounting for three-quarters of its business.
Zaramella says Mondelez’s famous Oreo brand has at least three loyal consumers—his daughters. Yet as recent data suggests, they aren’t alone in sticking with their favorite indulgences.
Write to Teresa Rivas at teresa.rivas@barrons.com
Read More: Mondelez and Other Snack Makers Are Bucking Inflation. Here’s Why.