By Uday Sampath Kumar
(Reuters) – U.S. consumer goods firms, including P&G and Coca -Cola, are preparing for an imminent slowdown in demand as runaway inflation fuels rising prices of everything from toothpaste to sodas and causing of the spending power of Americans.
Companies, including Gillette-maker P&G, PepsiCo and Hershey Co., saw rising sales during the pandemic even as they were forced to raise prices to combat rising costs of raw materials, labor and transportation.
However, top executives at some companies warned over the past week that their actions to pass costs on to consumers could come back to bite them and slow revenue growth.
“As we look at the rest of this year, we expect pricing power to remain strong, but (demand) elasticities return to historic levels,” Hershey CEO Michele Buck said Thursday.
Buck cited falling government benefits for the first time in two years and depletion of consumer savings due to inflation exceeding wage growth as reasons for resetting demand.
U.S. consumer confidence dropped in April as Americans became less positive about the economy, and analysts warned it could only get worse.
“At least in the last year or two, CPG companies have been able to raise prices without seeing any significant drop in demand. That was an unusual operating environment for them but that probably won’t last long,” the analyst said. of CFRA Research Arun Sundaram.
“At some point we will see a significant change in consumer behavior.”
To cope with the expected slowdown in consumer spending, companies are beginning to take a wide range of measures, including launching cheaper products or reducing packaging.
Earlier this week, P&G said it was moving away from discretionary categories and focusing more on daily use of recession-resistant cleaning and hygiene products, as Coca-Cola’s CEO said that James Quincey that the company is expanding the use of economical glass bottles.
Some companies see the writing on the wall.
PepsiCo said demand in some emerging markets is starting to slow in response to price increases, while McDonald’s said the effects of inflation have led low -income customers to start buying cheaper or fewer menu items in some areas.
“Lower -income consumers are likely to feel more pressure than the average consumer or more affluent consumer. We need to make sure we continue to have value as an integral part of our strategy,” said McDonald’s CEO Chris Kempczinski.
(Reporting by Uday Sampath in Bengaluru; Additional reporting by Medha Singh; Editing by Sweta Singh and Anil D’Silva)