Consumer companies like Procter & Gamble, and Coca-Cola later this week are about to share their plans to raise their commodities’ prices. This move is meant to compensate for the shooting prices of raw materials like resin, lumber, and many more.
The companies are in plans to protect their profits amid the surging prices. The hikes are following the bursting demand for a lot of items like paper towels. Data from Consumer Brands Association states that the sales of consumer goods rose to $1.53 trillion last year, increasing by 9.4 percent.
As a result, several manufacturers stepped back from ads and promotions to reach the customers’ demand and grab the share values without prevalent marketing.
James Knightley, Chief International Economist at ING said that the low inventories are actually helping companies kink their power towards pricing. He also said, “According to the Institute for Supply Management, their latest survey showed a net 40% of manufacturers are reporting that their customer inventories are ‘too low.’”
Because of this, Knightley says that corporate pricing power is buckling up. He forecasted that the hikes will continue rising and would reach 4 percent more in May when compared to the same time from the previous year.
The Department of Labor cites that the consumer price index increased 2.6 percent in March from the same time last year. The consumer price index is the track that says how much consumers from the US pay for a basket of items.
Linda Montag, an analyst from Moody says that she doesn’t consider price hikes as a competitive benefit as the companies are now paying higher costs for the commodities. She said, “Consumer companies across the board have gotten very savvy about how to implement price increases without just slapping on five to 10% price increases,” in an interview.
Apart from P&G and Coca-Cola, companies like PepsiCo, J.M. Smucker, Kimberly Clark, and some other companies have also considered price hikes. Customers might haven’t yet noticed the rise in prices they are paying now for soda or diapers.
The rise in prices always comes with a risk of falling demand for the commodity. But, another analyst from Moody, Chedly Louis feels that customers wouldn’t go for private labels as the trust for branded goods is more during a crisis.
However, every company doesn’t have the flexibility to increase their prices. Piper Sandler company reduced the stock of Kraft Heinz on Friday, saying that the company has weak pricing power. Adding to this, analyst Michael Lavery stated that the company’s pricing power falls behind its colleagues like Mondelez and Hershey, General Mills, etc.
J.P. Morgan’s analyst Ken Goldman released a note on Monday saying that the price hikes can be fruitful to food retailers, as they face comparisons to booming demands from last year.