Dive Brief:

• A majority of CPG companies expect the higher costs they experienced in 2020 to continue this year, according to a survey by McKinsey conducted at the end of last year and published this week.
• In the survey, 63% of respondents said their manufacturing costs increased between 5% and 20% YoY in 2020, and 58% of respondents saw the same percentage of cost increases in warehousing.
• McKinsey said the cost increases in manufacturing and warehousing were related to labor. It specifically noted COVID-19 pay and overtime for workers in manufacturing.

Dive Insight:

The results from the McKinsey survey line up with data from the Bureau of Labor Statistics, which shows manufacturing unit labor costs increased in 2020 by more than 4%, though the BLS number is slightly lower than what CPG companies reported to McKinsey.

Executives spoke about cost increases over the course of the last year, as COVID-19 resulted in a variety of expenses. And some companies projected at the end of last year that these expenses would spill over into 2021.

"We've identified the COVID cost as something we wanted to call out, because it was extraordinary," Pepsi CFO Hugh Johnston told analysts last month. "There will be COVID costs and significant COVID costs still in 2021."

Pepsi experienced a 7% YoY increase in its selling, general and administrative expenses, which the company said was partially the result of "certain charges taken as a result of the COVID-19 pandemic."

When the pandemic hit, companies worked to procure personal protective equipment and cleaning supplies. In some cases, they increased pay for workers who remained on the job. Last summer, Amazon announced it was giving a $500 coronavirus bonus to its frontline workers, according to CNBC.

Amazon had $11.5 billion in COVID-19 related costs for the full year 2020, executives said.

"Our Q4 results include approximately $4 billion in COVID-related operating costs, including additional employee pay during the holidays," Amazon CFO Brian Olsavsky said last month. "We continue to see productivity headwinds from physical separation and training of new employees and of course investments in PPE for employees and enhanced cleaning for our facilities."

Manufacturers have reported increasing costs for the last nine months in the Institute for Supply Management's manufacturing report. The ISM panelist companies cited reasons including more expensive commodities, labor shortages and freight costs.