Brands raised prices leading to record profits but Americans are cutting back on higher-priced products. This is troubling to the US economy and consumer-focused companies. Despite surging inflation, shoppers kept spending in the past thanks to income gains and government stimulus. But those benefits are waning, and now Americans are skimping, even on everyday items such as toilet paper and toothpaste. What are brands going to do now?
It will be a challenging remainder of the year for consumer-goods companies and retailers, which begin reporting their latest quarterly results in a few weeks. Their stocks have trailed the S&P 500 this year, and now their ability to keep raising prices and gloss up their income statements looks like it won’t work much longer.
At Procter & Gamble, shipment volumes have declined for the past four quarters. The same goes for rival Kimberly-Clark Corp., which said earlier this year that it expects price increases to subside in 2023 as consumers shift to less-expensive store brands. There are more signs of stress in the consumer economy, with shoppers relying more on credit cards as excess savings dwindle. Delinquency rates are on the rise, too.
This all means that consumers are trading down and passing some items altogether. Brands that used the excuse of supply disruption to raise prices will see losses to market share. Will they accept less market share at more profit? My guess is no.
CPG companies live by market share reports. Even though the profits are higher, they are starting to realize that higher prices, along with FED rate increases, are affecting consumer spending. Private label sales are growing, and many retailers are now starting to advertise private label items like Wal*Mart’s recent TV ads for their private label supplements.
From talking to people within the industry, I’m hearing that they are pushing back against ANY price increases, and some are even taking it a step further and now allowing branded endcaps in stores.
This happens when brands try jumping on the gravy train without looking at the strategic implications.Many are going to have spend a lot more money on promotions but even with promotions many consumers are simply saying “I don’t need you anymore”