P&G keys on innovation, advertising efficiency as inflation drags on

In the push and pull between price increases from consumer goods companies and buying decisions from consumers, Procter & Gamble is finding that the balance is improving.

Volumes held up better than expected for the maker of Tide and Bounty in the quarter ended March 31, even as the company raised prices by 10%.

The company saw a 7% increase in organic sales from the same quarter of the prior year, while volumes fell 3%. It’s a sign that even as U.S. consumers buy fewer goods amid inflation, they aren’t completely changing habits, or turning away from name brands.

“The U.S. consumer, I think, is holding up well,” P&G CFO Andre Schulten told analysts Friday on the company’s earnings call.

With prices elevated due to inflation, consumers are using more items from their pantry before restocking and exercising more caution as they use replenishable staples like paper towels. But overall, “Any indication that we see on our business is that the consumer is still choosing P&G brands,” Schulten said.

The remarks will hold weight. P&G is a bellwether for the consumer economy, opening earnings season with the first look at the shopper mood from a major CPG for the quarter that started the year. While CEO Jon Moeller allowed that the economic picture could continue to be “a bit choppy,” the company is expressing a measure of optimism. It lifted its outlook to project organic sales growth of 6% for the year, as opposed to the previously-projected 4-5% increase.

To be sure, there are still challenges. As price increases continue with inflation still elevated, consumer goods executives are carefully monitoring whether consumers are opting for private label products over name brands. In the U.S., P&G executives said private label share is “stable,” with no movement in the past nine months.

However, that’s not the case in Europe, where P&G is observing more trading into private label, and posted wider volume declines of 7% in the recently-completed quarter.

Facing elevated costs, P&G is continuing to increase prices into the new quarter, having recently completed another round in the U.S. and Europe. As the company’s brands seek to continue to appeal to consumers who have the choice of a cheaper store brand, they are introducing new offerings in both products and packaging as they raise prices.

“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. “And that's what we're focused on. I don't think that trying to eliminate the price differential [with private label] is a meaningful and helpful strategy for us.”

The company is also putting extra energy into how it shows the value of its products.

“When we talk about Charmin Rollback because the product is more absorbent and has more strength, we explicitly talk about the ability for consumers to use less,” Schulten said of a recent toilet paper innovation.

With price increases continuing, consumers won’t return to their usual consumption habits right away. But executives are noting there’s room to continue to bounce back. Volumes have fallen at P&G for four straight quarters, but this quarter’s 3% decline was down from 6% in the December quarter. CEO Jon Moeller said to look for “volume to slowly improve over time, but it won't happen overnight.”