Pricing amidst slowing inflation
PepsiCo recently faced a notable setback as its products, including Frito-Lay snacks, Quaker Oats, Lipton teas, and sodas, were pulled from the shelves of Carrefour — the European grocer with over 13,000 locations. The French-based supermarket chain cited "unacceptable price increases" as the reason (WSJ gift link).* A Reuters analysis indicates this discontinuation could affect roughly 0.5% of PepsiCo’s revenue, about US$450 million.
Source: Ghariza Mahavira from Noun Project
Though it’s rare to see this happen at such a large scale, this is a stark warning for stateside CPG manufacturers, many of which have become accustomed to raising prices regularly over the past several years with pressures that followed the initial covid economic shocks.
The latest Consumer Price Index (CPI) was published last week with year-end data for 2023, which provides trailing insight into broader economic and food industry pricing trends. It shows core inflation (which excludes food and energy) is still above the ten-year average, but it has slowed compared to the post-covid peak in 2022 (BLS CPI report).
Let’s zero in on at-home food prices, though, which most closely align with prices of food sold through supermarkets. These rose by just 1.3% in December 2023 compared to the prior year, marking the fourth consecutive month of increases below the 10-year average of 3.0%. This is a clear reaction to — and significant cooling off from — 2022's year-end spike of 13.5%.
If this trend continues, it may be difficult for food manufacturers to continue to push through price increases that were easily accepted by their retailer partners over the past few years. This will mark a return to pre-covid patterns, where without widespread commodity pressures, price increases are hard fought and often require a substantial justification for retail acceptance.
No doubt some retailers are also looking at their suppliers’ rapid revenue growth driven by price increases, paired with corresponding corporate profits, which have outpaced the rate of inflation. This suggests that some companies have increased prices over the past few years to pad coffers — or they may have realized this game of musical chairs would come to an end and they would need to eat cost increases for some time to come in the future.
This presents both challenges and opportunities. When the ability to raise prices may be constrained, it encourages investment into efficiency, product differentiation, and innovation.
As 2024 unfolds, companies that understand consumer behavior and preferences well and swiftly adapt to changing economic signals will be the ones that emerge stronger
* Several days after the original news broke, PepsiCo countered and said, actually, *they* decided to stop supplying Carrefour, not the other way around. You can’t make this up... (WSJ gift link)
And a few other things to share:
In honor of Martin Luther King Day this week, I posted my grandfather’s photographs of both King and the scenes surrounding his funeral. He photographed MLK on May 1, 1959, which was the day two separate courts ordered the integration of schools in Prince Edward County, Virginia. In defiance, the county closed its entire public school system, which remained shut until 1964, five full years later. Can you imagine that? Five years without public education?
You may remember I was a guest on BevNet & NOSH’s Community Call series in November, where I coached the founder of Plant Press live on her pricing strategy. It’s now available as a podcast episode on Apple Podcasts and Spotify.
Tips from designer Tom Ford (as told to NYT’s Maureen Dowd) on how to look good on your video calls.