- Some product prices at the grocery store will rise next year to cover increases in ingredient and shipping costs, according to Fox Business. Many food giants have signaled — or already implemented — these plans for 2019.
- Retailers were initially reluctant to accept the increases, but they have since realized why they're needed, Mondelez CEO Dirk Van de Put told The Wall Street Journal. He said prices for Fig Newtons, Wheat Thins and Triscuits were raised this summer, but he didn't say which products would be next.
- Hershey CEO Michele Buck told Fox Business the improved economy and increased consumer spending have softened retailer objections to price hikes, and her company would be charging more next year. Hershey will raise prices about 2.5% on a fifth of its products in 2019.
Several major food companies — including Mondelez, Hershey, Nestlé, Unilever and Coca-Cola — have announced plans to increase prices next year to offset rising ingredient, shipping and freight costs. Improvements in the U.S. economy and consumer spending have helped to bring some grocers around on the higher costs, but consumers might not be as accepting.
Not many specifics have been released so far about how much these price hikes might end up being, although Hershey said some of its brands would see a 2.5% rise. Other increases might be higher than that. Kellogg noted last month it would set a 12% higher price point on a new Eggo waffles variety, according to Fox Business.
However, the Michigan-based CPG company isn't likely to institute across-the-board increases. Kellogg CEO Steve Cahillane told The Wall Street Journal consumers aren't keen on paying more for the same product, so companies need to get creative about producing new package sizes and different flavors as a way to justify them.
"The days of straight list price increases are gone. It would lead to a decrease in consumer demand," Cahillane said.
Even though most food companies are mainly blaming price increases on higher costs for ingredients, fuel, shipping and the driver shortage, the added revenue is also helping to boost lagging earnings. Mondelez announced price hikes in its latest earnings report after posting a net revenue drop of 3.7% from slumping North American sales. Nestlé noted a 0.6% price increase in this region in its most recent quarter, helping to bump up organic sales by 1.4% in the past nine months.
The wild card in this scenario is how consumers and retailers will respond to the price hikes. Food industry executives know they can't raise prices across the board without hurting their competitive position. Also, consumers who aren't all that loyal to specific brands can just buy private-label products instead — a recent report found that sales of private-label brands have surpassed those of manufacturers' brands within the past year. Or perhaps customers will wait for special sales, or switch to discount grocers such as Aldi and Lidl.
Retailers who don't want to risk losing customers by accepting price increases could also decide not to stock the higher-cost brands if they're going to sit there on the shelf and potentially be passed over for something cheaper — or for a more expensive, better-for-you product if the price at checkout will be about the same. As a result, makers of both lesser-known brands and premium ones will likely be watching to see how the price hikes go over before they make similar moves.
Margins are already tight in the grocery industry, and increasing competition has fueled price wars that are pressuring those margins even more. Having to run more in-store sales and promotions, as well as invest in additional marketing outreach, adds on to retailers' operating costs and can chip away at the fragile bottom line.
Middle-income U.S. consumers spent about 14.3% of their annual income on food last year, and those used to special deals, manufacturer or retailer coupons and frequent sales will likely want to keep it that way. But it may be that they'll have to get used to a new normal when it comes to 2019 food prices — or simply do without the Oreos, Eggos, Hershey bars and other well-known brands altogether. Still, that appears to be a gamble some manufacturers and retailers are willing to take.