- Four out of five consumers believe brands are involved in “greedflation” — using inflation as an excuse to hike their prices — according to a survey of 2,000 consumers done by Attest in February.
- Three-quarters of responders felt that grocery products have seen the most rapid price increases, and 71% said they are likely to switch food and drink brands to save money.
- As inflation caused ingredient, packaging and transportation costs to spiral higher in 2022, many brands raised their prices to keep up — but they may be nearing the limit of what consumers are willing to pay.
While many CPG companies have seen healthy profits and still-growing sales figures throughout 2022, the actual number of products sold has taken a tumble.
In its most recent half-year sales report, Nestlé reported price increases of 10.1%, and sales volume decreases of 2.6%. In 2022, Nestlé CFO François-Xavier Roger said on a call with analysts, pricing was the greatest contributor to the company’s growth.
CPG giant Unilever also saw its price increases — up 13.3% in the most recent half year — lead to a sales volume fall of 3.6%.
Several other companies slowed down their 2022 price hikes considerably. Kraft Heinz stopped increasing its prices in its last quarter. After Constellation Brands CEO Bill Newlands noted in January that consumers were becoming “overly sensitive to pricing actions,” the company said it was winding down its price increases to 1% to 2%, according to a transcript of the company’s earnings call earlier this month.
As consumers have noticed their grocery bills getting larger, many have stopped looking at brands and are concentrating on prices. The vast majority of all consumers — 88% — are looking beyond their preferred brands for all products, the Attest survey found. Grocery had the lowest brand loyalty, with more than seven in 10 saying they buy other products to save money.
These results aren’t surprising. A consumer survey Attest did in January found that nine in 10 grocery shoppers are bargain hunting. And while many shoppers have recently picked up private label options as a way to save money, 73% said they would continue to buy store brands even when the economy and food prices return to a more normal level.
In theory, that should start happening right about now. While the last year and a half saw inflation skyrocketing across the board — including grocery prices leaping ahead at the fastest pace in 43 years late last summer — prices are beginning to calm down. The March Consumer Price Index from the U.S. Bureau of Labor Statistics showed food at home prices down 0.3%, their first decrease since September 2020.
It takes time for those changes to make it to food. The food business tends to have low margins in the first place. In many cases, companies have said they increased prices to pay for greater costs across the board — more money for ingredients, packaging, labor and transportation. On Nestlé’s February earnings call, Roger said that profit margins declined in many categories because price increases — plus internal measures including manufacturing and supply chain efficiency initiatives — did not offset the impact of inflation.
Food companies have a difficult balance to maintain right now. They are still fighting inflation, which is continuing even though it is decelerating. According to the March CPI report, last month food at home was 8.4% more expensive than a year prior.
Food companies also have to keep shareholders happy. But CPG companies’ corporate profits are hitting record levels, which is something that consumers are becoming aware of.
Brands also need to maintain their customer base. While food companies don’t often decrease prices, given shoppers’ attitudes and decreasing unit sales, now might be the time to start.