cpg

Retailers Weigh Passing on CPG Price Hikes to Consumers

Procter & Gamble, Coca-Cola, Smucker's have said they plan on increasing prices on some products.
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Francis Scialabba

3 min read

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.

More than a year from the start of the pandemic, a new toilet paper crisis looms. In response to the rise in the price of commodities, major CPG companies are raising prices on staples like toilet paper, diapers, and soda.

Procter & Gamble, Coca-Cola, and J.M. Smucker are a few of those suppliers attempting to boost their profit margins after the pandemic increased demand, elevated freight costs, and made the supply chain more volatile, multiple analysts told Retail Brew. Specific price increases are TBD.

Pass or play? Retailers that sell their products now have two options: pass on those increases to consumers or eat the costs themselves, a calculation that varies between companies.

  • The price increases will disproportionately hurt retailers that rely more heavily on CPG commodities, like grocers and convenience stores, Holden Bale, group vice president and head of commerce at Huge, told Retail Brew.

Bale believes retailers should innovate in response, particularly with private label brands. Big box retailers like Walmart and Target, for example, will have to rationalize their merchandising or promotional strategy.

“You will always eat it on the products that drive foot traffic, that drive return engagement—the basic commodities that drive people in the stores. You may say, ‘I have a hundred items that are my halo items and I will try and price match Walmart on them,’” Bale said. But now, due to price hikes, “that list of a hundred might become a list of 50.”

20/20 vision

In hindsight, these price increases were somewhat predictable, given that scarcity and supply chain disruptions like we’ve observed over the last year often lead to price increases, Keith Anderson, SVP of strategy and insights at Profitero, told Retail Brew. While Anderson believes these increases are not permanent, if they balloon in size, retailers will face more trouble.

  • “Inflation of 3% to 4% can be passed on to the consumer, but if inflation goes higher, there will be difficult conversations throughout the supply chain,” Vivek Sankaran, CEO of grocery chain Albertsons, told IRI Strategic Analytics in a report shared with Retail Brew.

Looking ahead...Unfi, the organic wholesale distributor for Whole Foods, has started seeing increases in fresh departments like beef and chicken, and expects hikes for other categories like CPG.

“An inflationary environment generally benefits us because most of our pricing arrangements allow for a pass through of cost increases,” an Unfi company spokesperson told us. “A silver lining for consumers is that sustained price increases are often accompanied by more promotional offers, and we’re seeing and hearing of more promotional spend coming from our CPG partners.” — KM

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.