US consumer goods companies are losing upper hand on pricing

The power to raise prices is slipping from some of the biggest US food and packaged goods groups, threatening their sales growth even as it spells relief for inflation-bruised consumers. 

Companies that imposed years of relentless price increases are now rolling out more discounts, adding coupons and spending to put their products front and centre in store aisles. Many have warned of a new frugality in households, especially poorer ones. 

In the US, 28.6 per cent of products were sold with such promotions in the 12 months to late June, according to NielsenIQ data, up from 25.1 per cent three years ago. Discounting has also increased in Europe, an important market for many American consumer groups. 

General Mills, known for Cheerios and other breakfast cereals, is spending 20 per cent more on coupons in its new fiscal year, while “there are some price points we have to sharpen”, Jeff Harmening, chief executive, told analysts last month. 

Mondelez, maker of Ritz crackers and Toblerone chocolate, is going to have a “challenging” year in the US, particularly with lower-income consumers, chief financial officer Luca Zaramella told an industry conference last month. As store-brand competition threatens its Chips Ahoy cookie brand, Mondelez is reducing prices below $4 for certain larger sizes, Zaramella said. 

Consumer stocks have helped drive US equity indices to fresh records this year, with the consumer discretionary and consumer staples segments of the S&P 500 both up more than 8 per cent. 

Steve Sosnick, chief strategist at Interactive Brokers, noted that consumer spending drove more than two-thirds of the US economy. “If consumers are starting to feel more stretched and becoming more price conscious, you do have to wonder how that affects consumer stocks specifically, how it affects defensive stocks more broadly and how it affects the economy as a whole,” he said. 

Consumer thrift has also affected some of the retailers that carry manufacturers’ wares. 

The drugstore chain Walgreens Boots Alliance last week warned that consumers had grown more choosy and it had invested in “targeted promotion and price decisions” to drive traffic and customer loyalty in response. Walgreens’ shares have dropped 57 per cent this year. 

At Nike, chief financial officer Matthew Friend noted “increasing pressure being felt by the value consumer” as it reported results last week that included a decline in North American revenue. The company plans to introduce footwear priced below $100.

The number of items being promoted in US stores has increased by 6.3 per cent year on year as manufacturers’ and retailers’ power to raise prices has been somewhat “depleted”, said Carman Allison, a vice-president at NielsenIQ. 

“Consumers are voting with their wallet. If your price goes up too aggressively, a lot of times consumers will switch brands. They will switch stores.” 

Prices are not falling across the board. Foot Locker chief executive Mary Dillon recently noted that its customers were willing to pay full price, while Nike said it sought to “maximise full-price sales”. 

At Procter & Gamble, the consumer goods group behind household brands Tampax tampons and Pampers nappies, chief financial officer Andre Schulten said consumers were not going to take chances by trading down to unbranded substitutes from reliable, well-known brands. 

“They don’t want their feminine protection products to not work. They don’t want their diapers to leak. The cost of failure is so high that consumers are choosing a proposition that can ensure them — reassure them that it will work,” Schulten told a conference last month.