How Your Business Can Recede Away from Recession Doom
Recently, there has been a lot of speculation about a recession and how it might impact small businesses. According to a survey by American Express, more than four-in-five small business leaders say they worry about a recession and fear that it will impact their business. While an economic downturn can hurt a company, it can also be an opportunity for founders.
In fact, in that same survey, about 80% of respondents said they are confident that their business will survive a potential recession thanks to the resilience they developed during the pandemic!
Recession or Not a Recession? – That is the Question
First, it’s essential to understand the concept of a recession. Here’s the Cliff Notes version.
A recession is technically defined as two consecutive quarters of negative economic growth.
The United States Commerce Department reported that gross domestic product, adjusted for inflation, fell 0.2 percent in the second quarter of 2022, followed by a decline of 0.4 percent in the first quarter of 2022.
This information would suggest that the United States was in a recession. But the National Bureau of Economic Research has the authority to declare a recession and has not done so as of August 5. The independent organization defines a recession as "a significant decline in economic activity spread across the economy and lasts more than a few months."
So even though the U.S. sustained two periods of negative economic growth, unemployment numbers are low. There's also been significant job growth – all good things, which is why the National Bureau of Economic Research is hesitant to declare a recession.
What Does This Mean for CPG Brands?
Consumer Packaged Goods (CPG) companies are uniquely positioned because there will always be a need for these items. People still need to take care of their essential needs during a recession. In fact, historically, the CPG industry has done well in a recession compared to other sectors.
According to an article on The Food Institute, spending during and post-recession skews towards familiar brands and the concept of treating yourself.
"Focusing on similar COVID-19 induced trends like self-care, preventative nutrition, and at-home convenience meals, are an ongoing strategy for success, with IRI predicting these shopping behaviors are likely to continue for the next few years," the article explained.
IRI conducted research on the 2008-2009 recession and determined the following about consumer spending. Here are some of their takeaways.
People spent less money on eating out.
Consumers looked for bargains, deals and utilized promotions to help curb spending.
Value stores saw an uptick in visitors during the recession, especially at the beginning of the month.
To save money, consumers bought smaller quantities of their favorite products
Use of personal care services dipped with consumers using at-home remedies for hair, nails, massage therapy, etc.
A recession will change how consumers spend, which can be an opportunity for emerging CPG brands. We'll explain.
Five Areas to Focus on During a Recession
Allie Ball shared on her podcast "Food Biz Whiz" suggestions on how CPG brands can recession-proof their operations.
"Most of the advice I'm hearing around recession proofing your business falls under the umbrella of financials and operations," Ball said. "Know your numbers, control your cost, and share your supply chain and production."
Let's break these concepts down.
Numbers Management - In our blog post, Business Literacy We Wish Someone Would've Taught Us In School, we provided definitions of basic financial terms. It is critical to know these numbers in any situation. Still, during a recession, these numbers are the lifeline of your business. If math or finance is not your strength, bring a financial advisor, trusted confidant, or accountant to assist. Most importantly, make sure you always have cash coming in, especially during a recession. Check out Oracle's NetSuite's resources on Cash Flow for more information.
Reduce Your Costs – Since we need to build cash reserves, it is vital to review expenses and spending. This might not be the best time to overhaul your website or ship product samples to celebrities. Hard decisions must be made to keep your business thriving during a recession.
Supply Chain – It's no secret that the supply chain has been an absolute mess since COVID. The situation worsened in February 2022 because of the crisis between Russia and Ukraine. Inflation does not help untangle the supply chain web.
"The primary role of supply chain planning is to ensure the ability to supply products and services that fulfill demand," said Paul Lord, Senior Director Analyst with the Gartner Supply Chain practice. "However, high inflation creates questions and uncertainty about margins in addition to the primary focus on demand and supply volume. This adds complexity to the forecasting and planning analysis required to support business decisions. As a result, there is a greater need to collaborate with sourcing and procurement regarding resource pricing and availability in addition to demand forecasting."
Check in with your vendors often and ask what they see on their end. Communication is key.
Know Your Plan B – You might lose a critical retail account; what's the plan to make up that revenue? A vendor might cease operations because of the recession; how can you get something else in place? Based on limited cash flow, you might have to lay off staff members; how will this impact operations? Contingency plans will help your business pivot at a moment's notice.
Sales Strategy – “Keep on hustling.” Allie Ball sums it up perfectly.
"The bad news is that if you believe that your audience no longer wants and needs your products, you're going to be right," she said. "You are writing your own future failure. For example, suppose you're stuck believing sales are hard right now, and your audience has tightened their budgets. In that case, you likely don't pitch to new accounts because you think no one's bringing in new products right now. Well, I'll simply tell you, it's not true. The proof is there."
So sell. Send out newsletters, show up at trade shows and farmers markets, follow up on retail accounts, and grind.
"Our retail-ready food founders understand that their target audience is still spending on food," Ball said. "They have confidence that there is still a need for their products, despite our economic instability. Holding this belief that people still want and need your product right now is the first step. Next, you must keep selling to them because they're still buying. When you believe that your audience is still buying, you do all you can to keep the sales coming in. You prioritize supporting your current accounts where your audience is buying your product. Then, you pitch to the perfect new accounts landing on shelves that attract an audience still prioritizing spending on their favorite foods."
Recession is a scary term with a negative connotation. While it is something to be aware of, recessions can be an opportunity for growth, innovation, and disruption. With a little bit of planning and strategic thinking, CPG businesses can thrive during a recession.