With inflation not coming down, shopkeepers cut back on staples

US consumers have begun to cut costs on everything from toothpaste to baby formula as inflation hit a state of the economy that had so far proved resistant to substantial price increases.

Procter & Gamble Co., The Clorox Company, The Kraft Heinz Company and other consumer-product giants have made a bet that consumers will pay for household products even if inflation takes hold. Over the past year, companies have seen an increase in profits and market share as they have raised prices of products ranging from detergents and diapers to snacks and sodas.

Analysts and retailers say consumers are now buoyed by rising costs of everything from gasoline to child care. Shoppers are buying staples in smaller quantities, switching to cheaper, store-name brands and hunting more vigorously for deals. They say the change is especially evident among low-income consumers, who splurge on household products amid the heights of the pandemic.

Private-label brands, after two years in which they lost market share to brand names, have begun to attract buyers. According to data from research firm IRI, in the three-week period ended March 20, food private-label brands increased the share marginally and non-food store brands held steady.

Crystal Phillips of Adams, Mass., said it has been feeling the pinch of higher prices for months, but has begun to cut costs more seriously in recent weeks after spending $92 to fill the gas tank on the family vehicle. done.

Ms. Phillips, with four children ages 6 to 18, replaced the ornamental plants in her backyard garden with vegetable seeds, started shopping at discount grocer Aldi, and last week opened her doors for a similar-sized bottle of PureX Shea. Skipped $7-a-bottle Tide detergent. Found one at Dollar General for $2.50.

About detergent, she said, “It doesn’t smell as good. But I’m more concerned with feeding my family.”

The most recently available data from the Bureau of Labor Statistics showed that annual inflation has risen to 7.9%, a four-decade high, with the disruption in the oil and commodity markets from the Ukraine crisis further costs. Hope to add pressure.

The consumer-stapling industry “has crossed a threshold,” said Krishnakumar Davy, president of strategic analysis for IRI. And they’re starting to drop some items from their basket because they can’t afford it.”

Grocery-industry executives say consumers are becoming more price sensitive. They are switching to store brands for some products and increasingly trading for cheaper items like ground beef instead of steak.

“I was hoping things would have eased a little bit by now, but it hasn’t slowed down,” said Steve Schwartz, who oversees buying and pricing at Morton Williams supermarkets. He said he was informed of a price hike from bread and beer companies and expects further increases in the coming months.

Part of that change is that private-label options are now more available than at the height of the pandemic, when high demand and supply-chain problems forced manufacturers to shift products away from store brands in favor of expensive name brands. Inspired to, said Mr Davy of IRI. But consumer demand for cheaper goods is also a factor, he and other analysts say.

Another sign: Sales volume has started to drop in several categories, which means people are buying mainstays in smaller quantities. Before and during the height of the pandemic, Staples’ sales volume increased despite price increases. On February 22, grain volume sales were down 7.2% on a two-year compounding basis; Cleaning product sales declined 5.1% over the same period, according to a Bernstein analysis of Nielsen data. Prices for those products rose 9.5% and 7.2%, respectively, for those categories.

RBC analyst Nick Modi said the cost cuts at Staples are most pronounced among low-income Americans. That’s because income groups that typically buy lower-priced household goods have turned to pricier brands amid the pandemic, as homebound consumers spent less on travel, eating out and other perks. Now budget conscious consumers are turning to discount brands, he added.

For example, P&G has reported gains in both pricing and volume sales since the beginning of 2019, meaning consumers purchased a higher volume of items at higher prices. The Cincinnati-based maker of Tide detergent and Pampers cut discounts and moved to higher-end products in an effort to increase revenue. Consumers were willing to pay more, a trend that intensified during the pandemic, when high demand led to shortages of staple products ranging from paper towels to soap.

P&G executives say they are prepared for a decline in consumer spending, but have told Wall Street they believe consumers will continue to covet items like Tide laundry-detergent pods, Gillette razors and Pampers diapers. , which are often the priciest options on store shelves.

“Consumers love the P&G brands and the superior performance they provide, even when inflation is impacting household budgets,” P&G finance chief Andre Schulten said in a January call with analysts. The company declined to comment on consumer spending.

Kraft, maker of Oscar Mayer meats and Jell-O desserts, is relying on price increases this year to help offset the effects of inflation, finance chief Paulo Basilio said in a February call with investors. For the full fiscal year, General Mills Inc. said it expects organic net sales to increase 5% due to higher pricing. The company had earlier said that it expects a 4% to 5% increase in sales.

The Clorox Company, which is battling falling demand for cleaning products and sanitizing wipes, has said it is calculating price hikes this year to help improve margins and profitability.

Jonathan Weiss, chief executive of Weiss Markets Inc., said shoppers are buying more items on sale in addition to buying fewer, as they see a 5% to 8% increase in overall food prices. He said that as energy prices rise and consumers pay more for commuting or heating their homes, people will leave their spending elsewhere.

“Groceries are one of the first places they think about,” Mr. Weiss said, adding that the company is trying to make up for this by offering more store brands.