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Thibaut Mongon, CEO of Kenvue Inc. Inc., a Johnson & Johnson consumer health business, during an interview to celebrate the IPO on the New York Stock Exchange (NYSE), May 4, 2023.
Brendan McDiarmid | Reuters
Most consumers have cut back on spending because inflation is squeezing their wallets, but they haven’t stopped paying for the brand name Health and personal care products, said Kenvue CEO Thibaut Mongon.
Mongon told CNBC on Thursday that consumers are still willing to spend on company-branded products — even as they reduce discretionary spending at retail stores and trade in some staples by changing their usual purchase size or switching brands at lower prices.
the Johnson & Johnson pop-up consumer Kenvue beat second-quarter revenue and adjusted earnings estimates on Thursday, helped by resilient demand for the company’s wealth from widely recognized brands like Band-Aid, Tylenol, Listerine, Neutrogena and Aveeno.
However, the company’s share price fell after J&J announced that it would launch an exchange bid to reduce its stake in Kenvue much earlier than expected.
Kenfu pointed it out “private label” Penetration in the consumer health products market was stable during the quarter. Private label refers to products that are manufactured and sold under a specific retailer’s name and are sold at a lower price and are intended to compete with branded products such as Kenvue.
These trends could bode well not only for Kenvue, but also for other companies in the health, beauty, and beverage industries that may not see consumers turning to cheaper products as often despite higher prices.
“We are now living in a volatile environment with continued consumer uncertainty and continued inflationary pressures,” Mongon told CNBC. “But I think people are very focused on their health and well-being right now.”
“They want to make sure they are doing what it takes to improve their health,” he said. “They’re looking for reliable, scientifically backed, and effective solutions to take better care of their health, and that’s what we and our brands do. It’s what we’ve been doing for a long time.”
Kenvue, which came out of Johnson & Johnson Two months ago, he expected continued strong demand in the coming quarters. The company expects 2023 sales to increase between 4.5% and 5.5% over last year.
RBC Capital analyst Nick Moody said he’s confident Kenvue will “maintain its momentum,” highlighting consumer confidence in the company’s brands and healthcare products in general.
He noted that trade reduction pressures have increased for some companies, based on their market share changes over the past few months. Meanwhile, Modi said Kenvue has gained market share, and could continue to do so despite the broader environment.
“If we were going to see a decline in trade with them, we would have started to see it already,” Modi said. “I feel good about their abilities.”
Who else can benefit
Like Kenvue, some beauty and beverage companies may not see the same kind of trade declines as some other core consumer segments during the current period of uncertainty, according to Moody’s.
He said products such as lipsticks and moisturizers are increasingly seen as an “affordable luxury” even as inflation is squeezing consumers’ budgets.
“They don’t want to feel bad about their situation and buy cheaper makeup,” Modi said.
companies like Ultawhich sells cosmetics, skin and hair care, and other beauty products, has benefited from the flexibility of the beauty category.
Earlier this year, Ulta said its 2022 revenue exceeded $10 billion, while annual net income exceeded $1 billion — both company records. Ulta also reported first-quarter earnings that beat Wall Street expectations in May, largely driven by demand for its beauty products.
Oddity Tech, a beauty and wellness company that uses artificial intelligence to develop cosmetics, also appears to have harnessed the power of the beauty category when it made its public market debut on Wednesday. Shares of the direct consumer platform rose 35%.
Modi said that beverage companies are also in good standing.
He said big brand names like Coca-Cola are not vulnerable to private label penetration, and consumers are willing to make room in their budgets for drinks like Coke because it’s “their moment of joy”.
Coca-Cola’s first-quarter earnings beat expectations for higher demand for its beverages. But price increases for its products, which were implemented to mitigate the impact of inflation, also helped support results.
Consumer confidence
Mongon said consumers are turning to brands and products they “know and trust” in times of macroeconomic uncertainty.
He said the behavior — and an increased focus on health and well-being — is driving sales of Kenvue products, which have been “in homes for years, decades, sometimes for generations.”
Modi agreed, adding that the Covid-19 pandemic has greatly increased consumers’ attachment to brands, especially those that help people take care of their health.
Demand for Tylenol, for example, throat Other pain relievers outgrew during the start of the pandemic as people scrambled to stock up on essential health products.
“During the time frame of Covid, you were looking to save your family or get your kids through a difficult period of time with some medicine and products, and I think that kind of emotional connection and sharing helped sustain the brand,” Modi told CNBC.
“Consumers tend to trust these brands during the most traumatic moments in their lives, so I think that’s why we’re seeing brands like Kinview remain so resilient despite the overall pressure,” he said.
The pandemic has made consumers more able to “take their health into their own hands at home,” added Navan Tai, an analyst at BNP Paribas Ixan.
She said the shift will likely benefit Kenvue and other companies that offer similar health products, which is “an additional differentiation from other consumer groups.”
For Kenvue specifically, product recommendations by healthcare professionals also provide “some protection” from falling trade, according to Ty.
Third-party surveys on some US health care practitioners from 2020 to 2022 found that Tylenol was the top-rated adult pain medication recommended by physicians nationwide, according to Kenvue’s Subscription deposit in April.
Those surveys also found that Neutrogena was the leading brand in the U.S. for sunscreen and acne prevention, while Listerine was the top dentist-recommended mouthwash.
Mongon noted that these recommendations “ultimately foster a lifetime of loyalty to our brands, a loyalty that is passed down from generation to generation.”
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