Consumers show signs of 'more resistance' to price increases
88% of consumers are willing to try different products as a result of higher prices, Attest found.
Photo by Daria Volkova on Unsplash
88% of consumers are willing to try different products as a result of higher prices, Attest found.
As the current bout of high inflation drags on into a second year, CPG executives are confronting a key question:
Will consumers continue to pay for their brands as prices continue to increase?
As inflation spiked during 2022, the answer was mostly a yes. While CPGs are reporting volume declines and private label demand rose at major retailers like Walmart, the phrase “muted” became common when questions on earnings calls turned to elasticities – or the threshold at which consumers will switch to another brand or private label. Having raised prices consistently, some CPGs are now seeing high enough sales to start to recover profit margins that depleted when the price increases started.
But in 2023, a change in tone is starting to emerge. While inflation across the economy is beginning to come down overall, the prices of every day goods are continuing to rise. Brands say they are continuing to face higher costs in commodities and the supply chain, but they must balance that operational reality with the fact that consumers have observed price increases for months now.
As public companies start to report results from the first quarter of 2023, there’s new evidence that consumers are cutting back.
McDonald’s is seeing “more resistance” to price increases than it was at the outset of inflation, executives said.
“We are seeing a slight decrease in units per transaction,” CEO Chris Kempczinski told analysts on Tuesday. “So things like, did someone add fries to their order? How many items are they buying per order? We're seeing that go down in most of our markets around the world – slightly, but it's still going down.”
Signs are also starting to emerge that consumers won’t keep paying the higher prices forever. The Consumer Confidence Index fell to a nine-month low in April amid worries that business and job conditions won't improve over the coming months, the Conference Board reported.
"Overall purchasing plans for homes, autos, appliances, and vacations all pulled back in April, a signal that consumers may be economizing amid growing pessimism," said Ataman Ozyildirim, senior director of economics at The Conference Board, in a statement.
A wavering disposition could change how consumers view price hikes, as well. According to new data from the consumer research platform Attest, 80% of shoppers believe brands are engaged in “greedflation,” in which brands use inflation as an excuse to hike prices. And 75% of the consumers surveyed said groceries experienced the most rapid price hikes.
There’s real risk that a shift in the consumer mood could challenge long-held brand loyalty. Attest found that 88% of consumers said they are now willing to try different products and services due to price pressures. The survey results show that 71% of consumers cited food and beverage brands as the types of products most likely to see switching to save money.
The message from top executives: To keep consumers, brands must offer something more than a higher price. As Coca-Cola CEO James Quincey has put it, the beverage brand "has to earn the right for price increases."
The approach is on view at home and personal care company Procter & Gamble. CFO Andre Schulten said consumers are still buying name brands like Tide detergent and Bounty paper towels, even though there are some signs of more careful use and less frequent restocking. But as inflationary pressures mount, he underscored that brands must bring new products and messaging to the market.
“We need to create product and packaging innovation, communication strategies and in-market executions that are able to provide value to consumers and retailers,” Schulten said of the company’s approach in Europe, where there is increased private label trade-down activity.
PepsiCo is observing some growth of private label purchases in waters and juices, as well as salty snacks, where the company’s Frito Lay portfolio has a big presence. CEO Ramon Laguarta said that while the growth in snacks is starting from a “low base,” the team is focusing on innovation and brand building that has helped it continue to gain market share.
As brands seek to stave off store brand switching, they have a number of levers. One is increasing promotions to drive sales through discounts. But care must be taken. There’s a risk of over-promoting that challenges the sustainability of a business. Offer too many sales now, and consumers won’t keep buying when normal prices return.
“I'm not a fan of renting share through promotion,” said Mike Hsu, CEO of paper products company Kimberly Clark. “...I'd rather earn it through the base business, through advertising innovation and making the products better.”
Deals may be a short-term balm, but it is loyalty, built over time, that encourages customers to stick with a brand, even when things are changing all around them. The brands that stand the test of time are engaged in that work all of the time, and are even investing to continue it now. Innovation is a long-term goal for many, just as it is an imperative in the present.
Price increases won’t last forever, but what brands do during this period can leave a lasting impression.
Dealboard has funding and M&A updates from ecommerce aggregators and forecasting software.
This week, the aggregator space is active with M&A, IKEA is ready to roll out newly-purchased warehouse management software and Authentic Brands Group acquired a boot icon. Plus, there’s new investment to report for YouTube influencer Emma Chamberlain’s coffee brand and retail forecasting.
Here’s a look at the latest deals:
Chamberlain Coffee, the consumer brand founded by YouTube influencer Emma Chamberlain, raised $7 million in new funding.
The financing included backing from existing investors including Blazar Capital, Chamberlain and United Talent Agency. New investors include Volition Capital, Electric Feel Ventures, L.A. Libations and Noah Bremen, founder of PLTFRM.
The new funding follows the launch of a Ready-to-Drink (RTD) product and coffee pods. Previously, the brand raised a Series A in August 2022.
"Creating a uniquely inviting coffee brand has been my dream for so long now, and having key investors back us allows us to build Chamberlain Coffee in ways that feel fresh and exciting,” said Chamberlain, in a statement. “There are so many products I am eager to develop and projects I'm excited to get working on. With such an incredible team and group of investors I am more excited than ever to see what the future holds for Chamberlain Coffee."
Impact Analytics, a software company for retail supply chain and merchandise planning, raised new funding from Vistara Growth.
The new investment, the amount of which was not disclosed, comes after Impact raised funding in February 2021 and October 2022 from Argentum.
The funding will help Impact Analytics further develop its Impact Analytics SmartSuite product portfolio, which is designed to help optimize forecasting, merchandising and end-to-end lifecycle pricing. Rather than the traditional forecasting approach of basing decisions on the preceding year, Impact Analytics applies a model that includes 150 variables from internal and external sources, while combining recency and history. Clients include BJ's Wholesale Club, Dick's Sporting Goods, Puma and Tapestry.
Selva Ventures, a venture capital firm focused on consumer brands that promote healthier living, closed its second fund at $34 million, TechCrunch reported.
With the new funding, Selva will invest in brands across categories including health, wellness, beauty and personal care. The fund expects to write checks of $1-2 million in seed and Series A startups, while assisting in areas like finance, operations and retail partnerships.
Backers of the second fund include Unilever Ventures, PagsGroup and Obelysk.
Nautica and Forever 21 owner Authentic Brands Group acquired the intellectual property of Hunter, a 160-year-old British outdoor lifestyle brand known for its Wellington boots.
With the deal, ABG appointed longtime partners Batra Group and Marc Fisher to execute retail and ecommerce operations, as well as continue to expand the brand in the UK and U.S., respectively.
“At the intersection of fashion and outdoor, Hunter introduces another elevated global brand to Authentic’s diverse Lifestyle portfolio,” said Authentic CEO Jamie Salter, in a statement.
Terms of the deal were not disclosed.
The investment arm of IKEA parent Ingka Group acquired the warehouse management software platform Made4Net.
As a result of the deal, Made4Net’s software will be deployed across IKEA’s 482 stores and fulfillment centers. Made4Net will continue to operate as an independent subsidiary of Ingka, with a headquarters in New Jersey. CEO Duff Davidson will remain at the helm of the company.
“Our business currently requires a better fulfillment operations system with more accurate data that better supports handling for our customers,” said Tolga Öncu, head of retail at Ingka Group, in a statement. “Our goal is to become leaders of life at home, serving more people in an omnichannel reality, whenever and however customers choose to meet us.”
European ecommerce aggregator SellerX acquired Elevate Brands, a U.S.-based aggregator.
The combined companies will be known as SellerX Group. It will comprise a portfolio that includes 80 Amazon-native private label consumer brands in categories including sports and outdoors, home, mobile accessories, pets and consumables. The portfolio will span over 40,000 products.
With the deal, SellerX Co-CEOs Philipp Triebel and Malte Horeyseck will lead SellerX Group, while Elevate Brands cofounders Ryan Gnesin, Jeremy Bell and Robert Bell will remain in key leadership positions.
“This acquisition combines our know-how and diversified portfolios of strong brands with a market-leading technology platform and strong operational infrastructure,” said Triebel, in a statement. “By leveraging our combined strengths, I am convinced we are well-positioned to drive further consolidation in the industry.”
Ecommerce aggregator Society Brands acquired Wolf Tactical, a tactical gear company.
Founded in 2017 by Tim Wu, Wolf Tactical makes products including DC belts, range belts to weighted vest and tactical backpacks.
"I started Wolf Tactical by myself as a side hustle with very limited knowledge of business and entrepreneurship. A combination of hard work and relentless learning allowed me to build it into a multi-million-dollar business," said Wu who will remain as brand president, in a statement. "With the help of Society Brands, I have access to untapped potential that I would not be able to achieve by myself.”