Consumers lapping up cereal, paper towels in pandemic

Face masks and hand sanitizer may be the signature items of the COVID-19 economy, but the upheaval in consumer behavior also is boosting sales of cereal, ketchup and paper towels.

That is one clear conclusion from the latest round of earnings reports Thursday that underscored anew how the pandemic is scrambling economic activity as more people stay home, benefitting some companies, even as it thrashes airlines, hotels and many retailers.

"We remain highly relevant across the board," said Procter & Gamble Chief Financial Officer Jon Moeller, who thinks the shift in demand that boosted sales of the consumer product giant's soap and cleaning products could prove lasting.

Cereal giant Kellogg is another beneficiary from the work-from-home trend. "We're pretty confident that the at-home consumption is going to remain elevated," said Kellogg Chief Executive Steven Cahillane, although he described trends as "choppy."

"It's an unknowable what happens with this virus," Cahillane said. "You have the virus wreaking havoc in many states in the southern part of the United States."

But not all the upheaval has helped consumer goods producers. Companies have been forced to spend more to employ social distancing in operations and provide employees with personal protective equipment. And there have been supply chain challenges, both to procure raw materials and to ramp up manufacturing to meet increased demand.

But the benefits generally have more than offset the costs for consumer goods companies, a group that also includes Clorox and Campbell's Soup. And even as more economic activity returns, sales remain relatively high.

Breakfast boom

Kellogg's sales jumped for Cheez-It crackers, Pringles potato chips and Eggo waffles. But the company's trademark meal remains breakfast cereal, which has been especially impacted by the upheaval of the pandemic.

McDonald's, which is gradually adding back dining room service at US restaurants, said earlier this week that breakfast was its weakest category. Some analysts have also questioned whether Starbucks could suffer a lasting hit from the pandemic.

Cereal consumption surged 16 percent in the second quarter, enabling Kellogg's to boost its target for organic sales growth to five percent from the prior guidance of one to two percent. Meanwhile, sales to restaurants have fallen, along with those in vending machines and tied to travel. The company sees a comeback for convenience stores, but expects sales tied to lodging and travel to be under pressure, Cahillane said.

At Kraft Heinz, the winners included ketchup and condiments, macaroni and cheese and frozen potatoes, enabling the company to score a 7.4 percent increase in organic sales -- a measure that excludes newly-acquired product lines. The company has added new consumers and "that is our obsession at the moment, to keep them with us," said Chief Executive Miguel Patricio.

But the company experienced "isolated" supply problems sourcing pork and beef following the temporary shutdown of US slaughterhouses that suffered coronavirus outbreaks, executives said.

Buying more

At Procter & Gamble, organic sales grew in every category except grooming, which has suffered a sales hit as consumers have eased back on shaving while at home. This effect has been mitigated somewhat among health care workers because of the improved fit of face masks when users shave, Moeller said.

The company won its biggest sales in more than a decade amid torrid demand for soaps, cleaning products and paper towel. Moeller said consumers were using more detergent because they were washing clothes after just one use. Sales of some items, such as Bounty paper towels, were up by "strong" double digits in the quarter, he told reporters on a conference call.

"Consumers generally are carrying higher inventory levels. They also are consuming more," said Moeller, adding that shoppers also had more money for household items that might have otherwise gone to travel or eating out.