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Some of the nation’s largest food and packaged goods groups have lost the power to raise prices, threatening sales growth while providing relief to inflation-hit consumers.
After years of imposing relentless price hikes, companies are now rolling out more discounts, adding coupons and spending more to put their products front-row and center in store aisles. I go there. Many are warning of new frugality in households, especially poor households.
In the U.S., 28.6% of products were sold with such promotions in the 12 months ending in late June, up from 25.1% three years ago, according to NielsenIQ data. Discounts are also on the rise in Europe, an important market for many American consumer groups.
General Mills, known for Cheerios and other breakfast cereals, will spend more than 20% on coupons in the new fiscal year, but “there are some things we have to tighten up on prices,” Chief Executive Jeff Harmening said. (CEO) told analysts last month.
Mondelez, which makes Ritz crackers and Toblerone chocolate, expects a “tough” year in the U.S., especially for low-income consumers, Chief Financial Officer Luca Zalamella said at an industry conference last month. As competition among store brands threatens the Chips Ahoy cookie brand, Mondelez is cutting prices on certain large sizes to below $4, Zaramella said.
Consumer stocks have driven U.S. stock indexes to new records this year, with both the S&P 500’s consumer discretionary and consumer staples sectors up more than 8%.
Steve Sosnick, chief strategist at Interactive Brokers, said consumer spending drives more than two-thirds of the U.S. economy. “If consumers start to feel the limits and become more price conscious, how does that impact consumer stocks in particular, and how does it impact defensive stocks more broadly? “And you have to wonder what effect it will have on the economy as a whole.”
Consumer frugality has also affected some retailers that carry manufacturer’s products.
Drugstore chain Walgreens Boots Alliance said last week it was investing in “targeted promotions and pricing” to drive foot traffic and customer loyalty in response to consumers becoming more selective. I warned you that you were doing it. Walgreens stock has fallen 57% this year.
Nike Chief Financial Officer Matthew Friend noted in last week’s earnings report, which included a decline in North American sales, that “the pressures being felt by our valued consumers are increasing.” The company plans to introduce footwear priced under $100.
Nielsen IQ vice president Carman Allison said the number of products being promoted in U.S. stores increased 6.3% year-over-year, as manufacturers and retailers’ price-raising power has somewhat “depleted”. said.
“Consumers are voting with their wallets. When prices are raised too aggressively, consumers often switch brands. They plan to switch stores.”
Prices have not fallen across the board. Foot Locker CEO Mary Dillon recently said the company’s customers are willing to pay full price, but Nike aims to “maximize full price sales.” said.
Andre Schulten, chief financial officer of Procter & Gamble, the consumer goods group that makes household brands Tampax stampons and Pampers diapers, said consumers are willing to trade up for unbranded alternatives to trusted name brands. He said he wasn’t going to take any chances.
“They don’t want their feminine protection products not to work. They don’t want their diapers to leak. The cost of failure is so high that consumers can be assured that things will work out. We are choosing the proposals that we can make,” Schulten said at a conference last month.
