From soft drinks to soap, consumer giants like PepsiCo and Unilever continue to dramatically increase the price of their products, passing on the rising costs they face, and consumers continue to spend, having cut only their spending modestly in recent months.
Prices will continue to rise, or at least stay at high levels, executives say.
On Thursday, PepsiCo said it raised prices 16% in the fourth quarter from the same period a year earlier, while sales volumes, which measure the number of boxes of Mountain Dew and bags of Doritos sold, decreased by 2%.
Also on Thursday, Unilever said it raised prices for its products, which include Ben & Jerry’s ice cream and Dove soap, by more than 13% in the fourth quarter, the eighth consecutive price acceleration. The company also said its sales volumes have declined, but to a much lesser extent than the price increase. Revenue growth for both companies exceeded analysts’ expectations.
Unilever executives hinted they could have raised prices even more, but refrained.
We were very aware of the pressure on consumers and chose not to fully offset the extraordinary level of cost inflation through pricing.
Graeme Pitkethly, CFO of Unilever
The company will continue to raise prices in the first half of this year, he said, and expects volumes to continue to decline, with inflation remaining a “key theme” in 2023.
The pressure on profit margins, reflected in more modest earnings forecasts for many companies this year, suggests that consumers will continue to cut spending. Some companies are already being hit harder than others: Last month, Procter & Gamble reported its first drop in sales in years as price increases – the company raised prices by 10% in the fourth quarter – have offset by larger volume declines than its competitors.
Although inflation has subsided, it continues to be higher than Federal Reserve (Fed) officials want. The consumer price index rose at an annual rate of 6.5% in December, the weakest rate since the end of 2021. The Fed is expected to continue raising interest rates, squeezing consumers by stunting economic growth and making borrowing more expensive.
The labor market is strong
But the labor market remains surprisingly strong, supporting consumer spending and allowing buyers to absorb rising prices. Companies tend to be reluctant to reduce their prices once they have raised them.
Consumers are “holding up better than we probably would have expected — or maybe I would have expected — a year or six months ago,” McDonald’s CEO Chris Kempczinski told investors the last week. Despite rising prices, the fast food giant has recently generated higher profits and recorded more visits to its restaurants.
Chipotle Mexican Grill was also able to raise prices without significant resistance, reporting a big jump in fourth-quarter earnings on Tuesday. “We continue to see the high-income consumer, the individual earning more than US$100,000, come in more often,” Chipotle CEO Brian Niccol said on a conference call with investors.
This article was originally published in the New York Times.