By Jessica DiNapoli
(Reuters) – Prices of everyday basics like Bounty paper towels and Cadbury chocolate may rise again this year while those of others like Clorox Co wipes and Diet Pepsi are likely to stay steady, as manufacturers make differing bets on the strength of the consumer and their brands.
Consumer goods makers’ strategies on further price hikes depends on their leverage with retailers such as Walmart Inc and Tesco plc, who are pushing back against more increases, how much consumers need and want the items and their arrangements for buying volatile commodities, some of which are falling in price.
Once-in-a-generation levels of inflation, stemming from pandemic supply chain snarls, government stimulus and the Ukraine war, have pinched shoppers’ pocketbooks globally.
In Britain, consumers paid 16.7% more for food in the month to Jan. 22 compared to the same period last year, while U.S. prices for food eaten at and away from home rose 10.1% in the 12 months ended in January.
But, there are small signs the pressure is easing, with U.S. consumer prices a month earlier declining for the first time in two-and-a-half years, due in part to gas prices.
As the “tide is turning a little bit,” some retailers are also now asking suppliers for “rollbacks” as the cost of fuel, for example, falls, another factor driving companies’ decisions, said KPMG consultant Sunder Ramakrishnan.
“The retailer would drop the shelf price, because manufacturers agree to sell it for less to the retailer,” Ramakrishnan said. “It’s been a fairly recent phenomenon. Not a lot of manufacturers are willing to volunteer to cut price.”
The cost of cardboard cases has decreased by as much as 50%, and transportation costs have plummeted as well, by 25-30%, Reuters reported last week. Some plastics and chemicals used in household goods have risen, executives have said, and labor remains costly.
Price hikes – or halts – are set to take center stage at the Consumer Analyst Group of New York annual conference on Feb. 20 in Boca Raton, Florida.
DIFFERENT PREDICTIONS
After more than a year of consistent price hikes, some consumer goods makers such as Kraft Mac & Cheese manufacturer Kraft Heinz Co are pressing pause as they weigh consumer demand for their items.
Kraft’s prices went up 13.2 percentage points in 2022 over the prior year, according to financial disclosures. Kroger Co is promoting a 20-ounce bottle of Heinz ketchup for $2.49 – below the $3.18 average price per unit of the condiment according to IRI, a Chicago-based market research firm.
Kraft-Heinz CEO Miguel Patricio said last week that private label, or store brands, are gaining market share, mainly from the company’s competitors.
It’s riskier for national brands to hike prices on products where consumers are increasingly buying store brand items, such as grocery and baby products, according to data from market research firm Numerator.
Don't miss out on any breaking news or insightful opinions!
Subscribe to our free newsletter and stay updated on the go!
By submitting this form, you are consenting to receive marketing emails from: Global Banking & Finance Review. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email.
But other companies like Nestle SA, the world’s biggest food company, continue to plan price hikes in the future to recoup margins squeezed by high labor and fuel costs, a whiplash for consumers aiming to make sense of their household expenses.
Prices on Nestle’s products including Coffee Mate creamers already rose 8.2% last year, with an 11.75 ounce package of its Stouffer’s French bread pizza selling for $3.48 at Walmart. Frozen pizza prices have risen about 14% in the last year, according to IRI data.
Price, always a major factor for consumers along with quality, is now becoming even more important, said Mark Hosbein, an executive at consulting firm Magid. Magid’s data from surveys shows that consumers are spending dramatically more on groceries, rent and gas, forcing them to cut back on savings and eat out less.
“Consumer sensitivity to prices is going up, even in the last couple months,” Hosbein said, adding that data tracked by his firm shows shoppers are becoming less discriminating in what they buy and opting for whatever is cheaper.
For example, a shopper who wants blue, 100-thread count sheets but sees cheaper, lower-quality beige ones is now more likely to purchase those, Hosbein said.
BIG BRANDS DIFFER
Brands that retailers and consumers see “core” or “very strong” in their segment also have more pricing power, Ramakrishnan said, because they help build sales for chains.
Coca-Cola Co’s CEO James Quincey, for example, said on Tuesday the company had “earned the right” to push prices on to consumers because its classic Coke and Fanta sodas lead the beverage category.
Executives at Bounty maker Procter & Gamble Co said the company was confident the U.S. “consumer is going to hold up well” over the next few quarters, and planning more increases. A 16-ounce bottle of P&G’s Dawn Powerwash dish soap costs $5.99 on Target.com, after debuting at $4.99 about three years ago according to media reports.
“Retailers cannot truly push back on prices … if the company has an important brand,” Bernstein analyst Bruno Monteyne said.
The average prices consumers are paying for Kraft-Heinz and PepsiCo Inc products have risen faster than Nestle’s, another reason why both Kraft-Heinz and PepsiCo may be holding off on hikes for now.
PepsiCo CEO Ramon Laguarta has said he expects shoppers to become more price-sensitive later in the year due to fears of a recession in the United States, its major market.
(Reporting by Jessica DiNapoli in New York and Aishwarya Venugopal and Mehr Bedi in Bengaluru, editing by Deepa Babington)
Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.