“Good news. Pricing is complete.”
Kraft Heinz Chief Executive Miguel Patricio used the term to give cash-strapped consumers some assurance when he announced his interim results earlier this month, saying that Philadelphia Cream Cheese and Heinz・He gave hope that the rise in prices of branded products such as tomato ketchup would stop.
It’s not just American food manufacturers. Some of the world’s largest consumer goods companies have suggested they may be ready to ease price hikes after raising prices to pass on inflation in raw material, energy and labor costs to shoppers. there is
Nestle Chief Executive Mark Schneider said the company that makes Nespresso and KitKat will slow price gains in the second half of the year. Antoine de Saint-Africa, chief executive of French giant Danone, echoed the sentiment, saying: “Inflation will still continue, although it will decrease as the next quarter progresses.” “Inflation has peaked,” said Unilever chief financial officer Graham Pittkesley.
Consumer goods companies averaged 11% year-over-year price increases for the third straight quarter through July, but average price increases returned to 9.7%, according to Jefferies analysis.
The prospect of a halt to price increases would be welcome news for consumers, but prices are unlikely to reverse or even ease. Analysts say shoppers will continue to pay next year for the big price increases companies began in the first half of this year.
“They argue that pricing will naturally ease as they were raising prices last year,” said Bernstein analyst Bruno Montein. year-on-year price increases are smaller.”
RBC analyst James Edwards-Jones said consumer staples groups “rarely cut prices” and were more likely to ramp up promotions rather than actually lower prices.
San Affleik told analysts that Danone is moving from “broad pricing discussions” to individual products and “using promotions rather than pricing.”
Hugh Pill, chief economist at the Bank of England, said the number of supermarkets had fallen in part because some firms had entered into contracts to secure supply at a time when global commodity prices were at their highest. He warned that prices would rise much faster than overall inflation even at the end of the year.
Consumers are more resilient to price increases than expected and continue to buy popular brands, helping businesses make up for the steep decline in sales. However, as the cost-of-living crisis drags on, it becomes more difficult to maintain sales volume, making it more cautious of further price increases.
“They are all a little bit nervous about trading volume,” said Edwards-Jones.
Reckitt’s interim chief executive officer, Nicandro Durante, said the company was “cautious” about passing on higher prices to “stressed” consumers in Europe. Heineken said its sales volume plummeted by 5.4% in the first half of the year and fell further in the second quarter following the “cumulative effect of pricing measures”, while Nestlé also posted lower-than-expected sales earlier this month. reported.
Mike Watkins, head of retail and business insights at NIQ, said consumer goods sales in Europe were “the lowest in recent memory”, especially for brands and fresh produce.
In order to manage high costs, consumers are traversing different retail outlets, buying less and shopping more often. “In Europe this is reflected in the growth of discount channels, while in the US this is demonstrated by the growth of dollar stores and warehouse clubs.” [such as Costco],” He said.
Retail giant Target cut its full-year profit forecast last week after disappointing sales at a time when U.S. consumers are curtailing discretionary purchases of food, household goods and other items.
“[US] Consumers are still willing to spend, but they are becoming more cautious and selective with prices still high and credit conditions tight,” said Gregory Daco, chief economist at EY. “This has led to a significant slowdown in consumer spending momentum, despite a strong start to the year.”
The decline in stock prices became more pronounced after some companies reported significant drops in market share in their first-half earnings. According to Unilever, the percentage of businesses gaining market share fell from 48% in the first quarter to 41% in the second quarter, the lowest level since 2018.
Montein said the decline in market share was an early sign of declining consumer confidence.
Kraft Heinz said it lost some of its position in the second quarter of this year as a result of pricing its products above the market. “We are slowly losing market share to brands that are promoting more than we are,” said Patricio.
Some categories were more resistant to downside trading than others. Consumer health product makers believe sales volumes are holding up well during the cost-of-living crisis, as consumers were more likely to discount food than over-the-counter medicines and personal care products such as toothpaste.
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GSK spin-off Haleon and Johnson & Johnson spin-off Kenvue reported better-than-expected sales in the first half of the year. Kenvue CEO Thibaut Mongon said, “Consumers may be discounting the more discretionary traditional staple categories, but we don’t see that in our portfolio. ‘ said.
Hareon Chief Executive Brian McNamara echoed that notion, saying that so far there’s been no evidence the company is lowering deals even in Europe, where private labels are rapidly gaining share in other consumer categories. Analysts said no.
Consumer products companies are pushing back against accusations of profiteering by politicians and consumers, saying they set prices to reflect rising costs of goods to protect margins.
Costs of energy, transportation and most commodities have fallen from last year’s highs following Russia’s full-scale invasion of Ukraine, but a Barclays analysis shows that the 10 largest consumer goods companies will post higher gross margins in 2022 than they did in 2019. turned out to be low. .
After 18 months of price increases, “most companies are now close to the level of price increases needed to restore profitability” as cost reductions begin to take effect, said Bruno Montein. .
But some companies, such as those that make affordable luxuries like sodas and sweets, have managed to raise prices while maintaining volumes. Others point out that the price needs to be raised further.
Coca-Cola raised prices by 10% in the three months ended June 30, but sales did not decline during the same period. The beverage maker’s chief financial officer, John Murphy, told the Financial Times that the company will continue to raise prices in the second half of the year. Chocolate maker Lindt also warned of further price increases after raising prices without lowering sales.
Even Nestlé’s Schneider said further price hikes would be needed, especially for cocoa- and sugar-dependent products, which have risen in price due to climate-related shortages.
“You have to be free to set your prices as you see fit,” he said.