Consumers are doing well so let’s hike prices

  • Consumer goods companies, emboldened by a strong U.S. economy, are rolling out price increases on everyday products.
  • Retailers are more open to price hikes because they believe consumers are willing to pay more for certain goods.
  • U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in nearly a decade, rising 3.1 percent.
  • Price hikes could backfire, resulting in higher private label sales.

The wages gains that some consumers have made may be erased by price increases of common consumer products and the rising price of gasoline.  Brands feel this is an ideal time to raise prices, but are consumers really going to continue to buy some brands as prices increase?

 

“Inflation is growing and is here to stay,” said Cecile Cabanis, Danone’s chief financial officer, at an investor event this week. She said the Paris-based company, behind brands including Evian water and Activia yoghurt, was preparing to make “targeted price increases”.

Will consumers pay the higher prices?  My guess is that rising prices are going to lead to a lot more private label sales and brand erosion.  Filling my car with gas now costs almost $10 more than it did two months ago and I have noticed that airline prices are also increasing.  Consumer confidence may remain high, but this doesn’t mean that consumers are willing to shell out more money.  Retailers are salivating over the possibility of increasing higher margin private label products.

Within the past year, sales of private-label brands have surpassed those of manufacturers’ brands, according to a Nielsen report.  Trader Joe’s, Aldi and Lidl, among many other retailers, have emphasized store brands both online and offline with great success. Private labels are helping them bring in more revenue — as well as build customer loyalty and differentiate themselves from competitors.

Some say that brands have no choice but there are always ways to increase marketing efficiency to lower costs.  In the end, consumers will decide if the price increases are worth their hard earned money.