US companies bet shoppers will keep paying higher prices

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Prices at US grocers rose an average of 1.18% in September from a year earlier

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Some of the world’s biggest companies are betting that consumers will keep paying more for products ranging from coffee to toilet paper.

Corporate giants including Procter & Gamble Co., Nestle SA and Verizon Communications Inc. say it will continue to raise prices in 2022 or prompt customers to buy more expensive products to offset rapidly rising costs amid the global supply-chain crisis. He has a plan to inspire. Gillette razors, Nestle Coffee and Chipotle burritos are among the products that could get more expensive in the coming months.

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The price hikes hitherto have paid off as buyers for manufacturers of domestic staples, particularly in we and Western Europe, have been loyal to big-name brands.

Now companies are relying on customers to drive sales and offset higher costs, which have strained their bottom lines, even as broader inflationary pressures mount and some analysts are concerned. Whether buyers will start looking for cheaper alternatives.

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“We haven’t seen any physical response from consumers,” P&G finance chief Andre Schulten said last week, referring to a string of price hikes that went into effect in September. “So that makes us feel good about our relative position.”

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Many consumers hoard savings and are benefiting from higher wages amid the pandemic, leaving them with extra cash. The highly contagious Delta version of the coronavirus keeps them home and diminishes the appeal of eating out, staying in hotels and traveling by air. Is.

Companies benefiting from the dynamism have asked investors to expect solid sales and profitability in 2022, even though rising costs associated with the supply-chain woes show no signs of easing.

P&G, maker of Tide Detergents and Pampers diapers, last week announced a third round of price hikes that will go into effect over the next few months, and told investors it expects profits to pick up as the year progresses.

Nestle, the world’s largest packaged-food company, raised its full-year guidance for the second-straight quarter, as consumers continue to drink more and better coffee at home, even as pandemic restrictions ease .

Chipotle Mexican Grill Inc. said the price hike hasn’t turned people away from its burritos. Despite higher labor and commodity costs, higher menu prices helped net income more than double in the most recent quarter compared to a year ago.

Chipotle could combat inflation with more menu price hikes

AT&T Inc. and Verizon, the nation’s top cellphone carriers, both told investors that their revenue growth this year was partly due to users trading up premium plans bundled with other benefits like streaming-media subscriptions or lower-cost iPhones. Will agree to

Analysts questioned whether Nestle has lost confidence in demand for the premium coffee. Others wondered whether P&G’s market-share gains would shrink or reverse as its higher price increases and consumers are increasingly pinched by inflation.

Both the companies reaffirmed their confidence. Nestle said its coffee category is the biggest contributor to the growth, with its Nescafe, Nespresso and Starbucks brands all growing. P&G said the company has invested in high-quality products with new features over the years — such as a new razorblade and handle and softer toilet paper — with consumers continuing to pay higher prices, even as household budgets tighten.

US inflation accelerated in September. The Labor Department said the consumer-price index, which measures what consumers pay for goods and services, rose 5.4% from a year ago, matching its highest rate in a decade. Many economists expect this pull of higher inflation to continue.

“Pricing will become an issue as soon as some of the incentives ease and people start paying their rent,” said Nick Modi, an analyst at RBC Capital Markets.

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Mr Modi said that large companies with well-known brands will be able to raise prices in any category as compared to budget or smaller brands as they are better able to keep products in stock and buyers often choose well-known names as safe bets. I see.

“I don’t see what we can do other than pay it,” said Lawrence Tam, 43. houston. They said they are concerned about the rise in meat prices; The price of bacon recently doubled at their local grocery store. But Mr. Tam, who runs the ketogenic diet group, said that while he has started looking for exempt meat, he and his wife’s other household items are unlikely to make a big difference.

“We are seeing price increases that are quite shocking, yet consumers have absorbed these prices without a drop in demand,” said Ben Reich, chief executive officer of Datasembly, which granulars on a range of consumer goods. Collects pricing data.

Prices at US grocers rose an average of 1.18% in September compared to a year ago, which is nearly three times the average increase at the beginning of 2021, according to the firm, which released publicly available prices for US grocers this week. Planning to launch Assessment Index.

Months after companies such as Unilever Plc and Kimberly-Clark Corp. have implemented their growth, P&G has largely waited out its rivals on the price hike, which began to take effect in September.

Procter & Gamble combats inflation with price hikes across most categories

Misfires on pricing can be costly.

In 2019, the Clorox Company raised prices on Glad trash bags. Retailers pushed back and stockpiled rival offerings, denting the company’s sales and giving an advantage to Glad’s main rival, Reynolds Consumer Products Inc.’s Hefty brand, which added to the ability to meet growing demand.

Companies weigh several factors when setting a price. A key determinant: whether rivals are likely to follow suit. Company leaders say costs for labor, shipping and raw materials are rising across the board, leading them to believe they will not be undercut by competitors.

Technology and artificial intelligence are enabling retailers to set pricing in a more targeted manner. For example, they know which buyers only buy on sale and can therefore offer discounts to those. Buyers who buy at full price will not get the discount.

A price increase by a manufacturer may not be immediately apparent to consumers.

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Often, companies can increase prices by reducing package sizes or returning deals, rather than making a direct increase on a given item.

Retailers don’t always provide consumers with growth. The largest US grocers say they are shielding consumers from price hikes, but that is starting to change. The Kroger Company and Albertsons Cos both said they would begin passing more costs along to buyers to protect their profitability.

“We’re very comfortable with our ability to pass the growth we’ve seen at this point,” Gary Millerchip, head of Kroger Finance, said in a recent call with analysts. “And we expect that to continue.”


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