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Consumers Continue to Spend on Brand-Name Health and Personal Care Products Despite Inflation
According to Kenvue CEO Thibaut Mongon, consumers are still willing to spend on branded health and personal care products, even as they reduce discretionary spending due to inflation. While consumers may be trading down on certain essential items or changing their purchase size to save money, they are still loyal to well-known brands like Band-Aid, Tylenol, Listerine, Neutrogena, and Aveeno. Kenvue, a consumer spinoff of Johnson & Johnson, beat revenue and earnings estimates in the second quarter, attributing its success to the strong demand for its branded products.
Stable Penetration of Private Label Products
Kenvue also noted that the penetration of private label products in the consumer health market remained stable during the quarter. Private label products are sold under specific retailer names at lower prices to compete with branded products. This stability suggests that consumers are not trading down to cheaper alternatives as often, benefiting both Kenvue and other companies in the consumer health, beauty, and beverage sectors.
The Resilience of Beauty and Beverage Companies
Beauty and beverage companies may also not experience the same level of trade downs as other consumer staple segments during periods of macroeconomic uncertainty. The affordability of beauty products, such as makeup, makes them an attractive option for consumers even in the face of inflation. Companies like Ulta and Oddity Tech have seen success in the beauty category, with Ulta reporting record-breaking revenue and net income in 2022, and Oddity Tech experiencing a 35% increase in stock price upon its public debut.
Beverage companies, particularly those with well-established brand names like Coca-Cola, are also well-positioned. These companies are less exposed to private label penetration, allowing them to maintain strong demand for their drinks despite price hikes implemented to mitigate the impact of inflation.
Consumer Trust and Increased Focus on Health
Consumers turn to brands they know and trust during challenging economic times. This behavior, coupled with an increased focus on health and well-being, has boosted demand for Kenvue's products. Brands that have been in households for years can build emotional connections with consumers and provide solutions for their health needs. The COVID-19 pandemic elevated consumer attachment to brands that helped with health care, leading to increased demand for products like Tylenol.
BNP Paribas Exane analyst Navann Ty notes that Kenvue and other companies in the consumer health space benefit from consumers taking control of their own health at home. Although Kenvue is not immune to trade downs and private-label competition, product recommendations from healthcare professionals provide some protection. Third-party surveys have shown that Tylenol is the top doctor-recommended adult pain medication in the US, while Neutrogena is the leading over-the-counter sunscreen and acne brand, and Listerine is the country's top dentist-recommended mouthwash.
In conclusion, despite inflation and economic uncertainty, consumers remain loyal to brand-name health and personal care products. Kenvue's strong performance in the second quarter and its positive sales forecast for 2023 reflect this ongoing demand. Other companies in the beauty and beverage sectors also benefit from consumer trust and the affordability of their products.