Economy
02 May 2022
As prices rise, shoppers keep spending
The latest consumer and company data shows that sales are growing, despite inflation.
Inflation isn't slowing spending. (Photo via Pixabay)
×
The Current, delivered daily.
Ecommerce news, right to your inbox.
Sign up for our email newsletter.
Subscribe.sticky-cta-wrapper {
width: 100%;
position: fixed;
bottom: 0;
left: 0;
background-color: var(--black);
}
Subscribe to The Current newsletter
Inflation is rising, yet consumer demand remains strong.
That was the early message delivered by retail sales data recapping March 2022.
With more data now available from additional metrics and earnings reports from public companies, that conclusion appears to be playing out around the economic landscape.
Here’s a look at the latest data:
The Fed's favorite inflation measure
The Personal Consumption Expenditure (PCE) rose 6.6% in March over the year period that ended in March, according to data released April 29 by the Bureau of Economic Analysis. This was the highest rate increase since the period ended January 1982, topping February’s uptick of 6.4%, CNN reported.
When removing food and energy costs, the increase for March 5.3%, which is down slightly from 5.2% in February.
The PCE, which is a measure of the value of goods and services purchased in the United States, is one of the tools used by the federal government to gauge inflation. It is watched closely by the Federal Reserve as it sets monetary policy.
This week, all economic eyes will be on the Fed as it decides whether to follow through on an expected interest rate hike of .5% at its meeting on Wednesday. (Economists think they will).
CPGs say Q1 demand is strong
With retail sales up 6.9% year-over-year in March, however, there were signs that price increases weren’t leading shoppers to immediately pull back. Recent earnings reports from some of the largest CPG companies confirmed this.
Procter & Gamble reported its highest sales growth in 15 years, per Reuters. Its fabric and home care unit was up 7%, while sales in its healthcare business grew 13%.
Unilever, which makes grocery and personal care items, reported that sales were up 7.3% in the first quarter. This came as it raised prices by over 8% as it offset supply chain and energy costs.
Nestlé, the food and beverage giant, reported a 5.4% increase in total sales. This came after it raised prices by 5%, and said more hikes were likely to come.
“We stepped up pricing in a responsible manner and saw sustained consumer demand,” CEO Mark Schneider said in a statement. “Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year.”
At confectionary maker Hershey, sales were up 16.1% in the first quarter, according to its earnings report. CEO Michele Buck said Easter season was especially strong for the company.
“Consumer demand for our products has remained resilient across categories and markets, despite rising inflation,” Buck told investors.
Even for Amazon, which reported its first quarterly loss since 2015 while detailing a number of cost challenges, there were no signs of consumer "softness," CFO Brian Olsavsky said on a conference call with analysts. He added that Amazon believes its selection and convenience stands out, and it will continue to work on shopper experience as it tracks how the inflationary environment influences available household income.
Consumer sentiment ticks up
In one sign of optimism for the near future, The University of Michigan Index of Consumer Sentiment recorded a month-over-month increase of 9.8% in April.
This was mainly the result of optimism for the near future. There was a 21.6% increase in a measure of the year-ahead outlook of the economy.
While there was an improvement over the last month, the University of Michigan points out that the sentiment over the last two months was still lower than any other month in the last decade.
Even with the sales growth in the first quarter, it remains a volatile economic environment. Longtime University of Michigan Surveys of Consumers Director Richard Curtin offered the following analysis:
“The downward slide in confidence represents the impact of uncertainty, which began with the pandemic and was reinforced by cross-currents, including the negative impact of inflation and higher interest rates, and the positive impact of a persistently strong labor market and rising wages. The global economy has added even more uncertainties about prospects for the U.S. economy, including the growing involvement in the military support for Ukraine, and renewed supply line disruptions from the covid crisis in China. Who would not be apprehensive about future conditions, even if on balance they anticipated a continued expansion?”
Whether that leads to what Curtin calls a “tipping point” for consumers, including a pullback in spending, remains to be seen. Leaders of consumer goods companies are watching closely.
Subscribe to The Current Newsletter
SubscribeTrending in Economy
Marketing
09 June 2023
'There's a lot of ways to frame value'
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
Photo by Kelly Common on Unsplash
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
Keep reading...Show less
Loading...
Subscribe to The Current Newsletter
SubscribeLatest from Economy
.sticky-cta-wrapper {
width: 100%;
position: fixed;
bottom: 0;
left: 0;
background-color: var(--black);
}
Subscribe to The Current newsletter