Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Consumer companies try price hikes as U.S. wages climb

Published 11/04/2018, 07:02 AM
Updated 11/04/2018, 07:02 AM
© Reuters. FILE PHOTO: A shopper is seen in the aisle of a Walmart store in Woodstock

© Reuters. FILE PHOTO: A shopper is seen in the aisle of a Walmart store in Woodstock

By Richa Naidu

CHICAGO (Reuters) - Consumer goods companies, emboldened by a strong U.S. economy, are rolling out price increases on everyday products and groceries after several years of haggling with big retailers that needed cheaper products to attract customers.

Walmart Inc (N:WMT), Target Corp (N:TGT) and other grocers have kept prices low over the past two years to fend off growing challenges from Amazon.com Inc's (O:AMZN) Whole Foods Market (NASDAQ:WFM), German discount supermarket Aldi Inc, and others.

Companies including Procter & Gamble Co (N:PG), Kellogg Co (N:K) and Hershey Co (N:HSY) have told grocers in recent months that they need to raise prices on some products, as commodities costs surge and truck fleets hike rates. Tariffs resulting from international trade disputes have also pushed the cost of some raw materials higher.

But now, retailers are more open to price hikes because they believe consumers are willing to pay more for certain goods, said Jerry Storch, chief executive officer of consultancy Storch Advisors.

"They are finally able to take the price now because the economy is hot. Consumers have money and wages are finally up," said Storch, the former CEO of Hudson's Bay Co (TO:HBC) and ex-vice chairman of Target.

U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in nearly a decade, rising 3.1 percent, according to data from the Labor Department on Friday.

Raising prices can be risky, but shoppers with more money in their pockets and more confidence in the economy may be willing to pay more for some snacks, candy, diapers and toothpaste, data from analysts at Bernstein shows.

In October, the mix of household and personal products sold by U.S. retailers rose 1.8 percent, according to a Bernstein analysis of Nielsen data. Sales volumes were flat during the month, a sign consumers were willing to pay more.

For a graphic, click on: https://tmsnrt.rs/2PJ5OA5

Many companies, including P&G, Kimberly-Clark Corp (N:KMB) and Kellogg, have invested in product improvements and in making them more attractive to consumers with increased disposable income to justify higher prices.

HONEST DEBATE

Hershey, which makes Ice Breakers mints and KitKat candy bars, raised prices this summer for some multi-pack products, including chewing gum, after negotiations with Walmart about surging costs. Hershey said it had not raised prices in nearly four years.

"Our teams sit down together and look through what it (higher cost) means and we push back hard. We have good honest debate and discussion about how to manage costs together," Walmart Chief Merchandising Officer Steve Bratspies told Reuters last week in a joint phone interview with Hershey CEO Michele Buck.

P&G, the largest consumer products company, plans to raise prices on Dawn dish detergent, Crest toothpaste, and Old Spice deodorant next year by around 5 to 10 percent.

Kellogg told retailers last month it will hike prices on products, including Eggo waffles in the United States, and cereal in Asia and Latin America.

"It's been a tough environment the last seven or eight years, but we see a more inflationary environment going forward," Kellogg CEO Steve Cahillane said in an phone interview.

Burt Flickinger, managing director at Strategic Resource Group, said price hikes may also be attributed to increased shareholder activism at consumer companies.

P&G's board, for example, includes activist investor Nelson Peltz.

© Reuters. FILE PHOTO: A shopper is seen in the aisle of a Walmart store in Woodstock

"Commodities costs have just gone up so much that they almost have no choice" but to raise prices, Bernstein analyst Ali Dibadj said. "Many investors think pricing is the panacea for higher costs."

Latest comments

They need to be careful. I think most Americans are intent on keeping their wage increases, and not handing them to overpaid CEOs.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.