Home / NEWS / Business / Attention shoppers: Price hikes are ahead, but consumer companies hope you won’t notice

Attention shoppers: Price hikes are ahead, but consumer companies hope you won’t notice

Shoppers search for components at a Costco Wholesale store August 4, 2020 in Colchester, Vermont.

Robert Nickelsberg | Getty Images

Inflation is finish.

Look no further than Coca-Cola and Procter & Gamble sharing plans this week to raise prices to atone for rising commodity costs. The costs of raw materials, ranging from lumber to resin, are surging, so companies are taking degrees to protect profits.

The price increases follow a year of surging demand for a host of items from paper towels to bickers of peanut butter. Sales of consumer packaged goods rose 9.4% to $1.53 trillion last year, according to the Consumer Sorts Association. Many manufacturers pulled back on advertising and promotions as they tried to keep up with demand, narrow the gapping market share without much marketing.

ING Chief International Economist James Knightley is forecasting consumer expenditures will continue to rise in the near term and could gain almost 4% by May, compared with the same one of these days a year ago. The consumer price index, which tracks how much U.S. consumers pay for a basket of goods, rose 2.6% in Strut from the year-ago period, according to the Department of Labor.

Inventories are ‘too low’

Low inventory is helping companies flex their toll power, he said.

“According to the Institute for Supply Management, their latest survey showed a net 40% of manufacturers are reporting that their person inventories are ‘too low,'” Knightley said. “This offers more evidence that corporate pricing power is encouraging.”

Food industry analyst Phil Lempert said numerous factors have increased costs for farmers that pick beget, factories that make consumer packaged goods and meatpacking plants that process beef, pork and chicken. Havens are congested, truck drivers are in short supply and food workers must try to socially distance. That’s made it harder to board up with demand and get items, from grains to Italian cheeses, shipped across the globe.

Price hikes get backstairs

Moody’s analyst Linda Montag said that she doesn’t view higher prices as a competitive advantage because all consumer societies are facing higher commodity costs. Besides Coke and P&G, PepsiCo, Kimberly-Clark, General Mills and J.M. Smucker have lectured raising prices. And consumers might not even notice that they’re paying more for diapers or soda.

“Consumer companies across the quarter have gotten very savvy about how to implement price increases without just slapping on five to 10% amount increases,” Montag said in an interview.

Some of those methods include using new packaging, selling smaller-size put aways for the same price or offering promotions that bring the price down until consumers are used to the higher sticker guerdon. Hedging positions may also give some manufacturers, like Coke and Pepsi, more flexibility to raise their rewards gradually because they won’t feel the impact of higher commodity costs for several quarters.

More cash in consumer filches means less risk

Hiking prices always carries a risk that demand for those products commitment fall. However, Moody’s analyst Chedly Louis said that she isn’t expecting consumers to trade down to confidential label products because consumers put their trust in bigger brands during the crisis. That behavior is envisaged to stick around longer.

“There’s a potential for the consumer to trade down within P&G’s product portfolio to cheaper, degrade margin products. It’s still P&G, but it’s cheaper,” Louis said.

Many consumers also have more cash in their purses from government stimulus checks and foregoing travel, sports games and fine dining for year.

Not all companies oblige the same flexibility to raise prices. Piper Sandler downgraded Kraft Heinz stock on Friday, citing the society’s relatively weak pricing power as one reason for the decision. Analyst Michael Lavery wrote that the company’s toll power lags behind that of peers like General Mills, Discounts are rare

Most retailers inclination pass on the higher prices to consumers. Lempert said that grocers are juggling pricier services, like online grocery transport or curbside pickup, leaving little room in profit margins to absorb higher food costs.

The cost of groceries had already been lift as retailers offered fewer discounts while shoppers cleared shelves last spring and bought more cooking delivers than usual in the months that followed. Phil Tedesco, vice president of retail intelligent analytics for NielsenIQ, averred in a typical month, 31.5% of units are sold on promotion. In March, only 28.6% of units were sold on soft sell.

“This has led to shoppers having fewer opportunities to take advantage of sales in the store, and as a result, the total cost of grocery outputs has increased slightly,” he said.

J.P. Morgan analyst Ken Goldman wrote in a note to clients on Monday that higher costs will help food retailers, particularly as they face tough comparisons to last year’s skyrocketing at once.

“Too much inflation is bad for grocers, but an incremental 2-3% (roughly the percentage the producers need to pass through), with a mix gang toward higher-priced products, is probably very helpful right now,” he said.

—CNBC’s Melissa Repko contributed to this announce.

Check Also

Waiving patents for Covid vaccines won’t solve the ‘need of the hour,’ says Indian drugmaker

The time faces an urgent need to vaccinate people, and waiving intellectual property rights doesn’t …

Leave a Reply

Your email address will not be published. Required fields are marked *