Brands keep raising prices because they think shoppers don’t care

Consumer giants like PepsiCo and Unilever continue to raise the prices of their products significantly, passing on the higher costs they face. Consumers continue to spend, cutting back only modestly in recent months, but data does show that many are trading down to store brands.

On Thursday, PepsiCo reported that it raised prices 16 percent in the fourth quarter from a year earlier, while sales volumes, which measure the number of Mountain Dew cans and bags of Doritos that were sold, fell 2 percent.

Also on Thursday, Unilever said it raised prices for its products, which include Ben & Jerry’s ice cream and Dove soap, by more than 13 percent in the fourth quarter, the eighth consecutive acceleration in prices. It also reported that its sales volumes shrank, but by a lot, less than prices rose. Revenue growth at both companies beats analyst expectations.

Pressure on profit margins, reflected in more modest forecasts for many companies’ earnings this year, suggested that consumers would continue pulling back, and they still are.

I keep in touch with many brokers and brand salespeople, and they all say that the brands they represent are losing market share. One broker told me, “when the brand raised prices again, I wanted a letter I could give to buyers to explain why.”

Why is this happening? Because the CEOs of these companies are compensated by how much money their companies make. They’re selling less, so raising the prices some more seems to be the rule of the day.

The other mistake is that brands believe their hype about how much equity they have. Can people survive without their Pepsi or Ben & Jerry’s? You bet they can.

I’ve also asked people in the industry if consumers are noticing the price bumps. The answer was an overwhelming “yes!”.

One buyer told me that he believes that brands still essentially believe that consumers have money even though interest rates are going through the roof with the rise in consumer credit. He said, “we haven’t seen consumers pull back yet, but it’s coming and going to catch a lot of brands off-guard.”

Price increases are affecting all shopper segments. New data indicates that the average Wal*Mart shopper makes six figures. These shoppers feel that Wal*Mart has lower prices than other stores.

Private Label Benefits

Over 87% of consumers opt for private-label items or shop at different stores for those items, mainly to save money. These proprietary brands form the core of food retailer pricing and assortment strategy and are getting ever more popular based on current inflationary trends.

Dollar sales of private label products grew 1% in 2021 to hit a record $199 billion in all U.S. retail channels, according to the just-released 2022 Private Label Report from the Private Label Manufacturers Association (PLMA), based on IRI data. Last year, the private brand dollar share was 17.7%, while the unit share came in at 19.6%. Both represent increases over three years.

As the industry headed into 2022, sales of private label products picked up right where they left off at the end of last year, growing 4.2% in dollar volume across all U.S. retailing channels in January, compared to the same period in 2021. According to IRI data, the increase was about equal to the 4.4% growth of national brands.

Evidently, national brands don’t care.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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