The big brands that are doing well have executed strategies to maximize profits, rather than fight for market share."
IRVINE, California — While a rise in grocery prices hasn’t yet had a significant impact on demand or consumer behavior in most product categories, that will change as manufacturers take more price increases, retailers pass more of those increases on to shoppers and healthier in-stock levels offer shoppers more choice, according to two Advantage Solutions executives who participated in “Navigating an Inflationary Environment: Expert Perspective & Tactical Advice for Brands,” a panel discussion presented by Eversight, a leading price and promotion optimization platform.
“Response to price increases at the shelf has been relatively muted,” according to Dan Riff, chief investor relations and strategy officer for Advantage Solutions. “Shoppers are buying what they can find and are absorbing price hikes; consumption has largely been driven by the availability of products, rather than preference. With many of us still working remotely or in hybrid fashion, we’re still eating two or more meals at home.”
In one price increase last year, a large consumer goods company bumped prices by 35% and still saw their volume grow by 8% last year, noted David Moran, co-founder of Eversight, who moderated the panel.
As, inflation, supply disruption and employment challenges are creating new challenges and dampening innovation, breakneck growth in omnichannel sales is creating fast change around brands’ marketing mix — an opportunity as well as a challenge, Riff said.
“For the moment, big brands have a bit more strength than emerging brands, as they are trusted by consumers and have been better able to get products to the shelf,” he noted. “These manufacturers have learned a lot about selling online, which was the onramp for emerging bands in the past. The big brands that are doing well have executed strategies to maximize profits, rather than fight for market share, during this [pandemic] period.”
Consumer goods manufacturers, most of whom have taken one, two or more price increases in the past year, are planning to take price “more bravely and boldly” in the coming months, said Advantage Solutions’ Executive Vice President, Client Solutions Jill Blanchard, citing results of a survey of Advantage Sales clients and retail customers. (See full results and insights in the Advantage Sales “Outlook: March 2022” report.)
Eighty-eight percent of consumer packaged goods manufacturers say they will take a price increase this year, with 53% taking their first or second since the start of the pandemic and 35% taking their third or more price increase. The average price increase will be in the 6%-to-10% range, but more than one-fourth say they will be taking 11% or more, Blanchard said.
For the past year, retailers held off passing the entirety of price increases to their shoppers, she noted. “But they weren’t expecting a manufacturer to take two, three or four increases. Now, more than half of the retailers surveyed tell us they will be passing along more than 90% of price increases to the shelf this year.”
In terms of the supply chain, Blanchard said, manufacturers are more optimistic than they were last year, with eight in 10 predicting at least 80% fill rate. “If this happens, consumers will have more choice at the shelf and price will be a huge factor in what they buy,” she said.
After price increases, manufacturers say they’ll fight rising costs by increasing efficiencies in the supply chain, holding retailers to payment terms and, for nearly half of those surveyed, a reduction in trade spend, Blanchard noted.
While price sensitivity hasn’t played a big role in demand for groceries, promotional activity is having a huge impact on which products are purchased, Moran said. “Brands must rethink how they are investing in trade promotions, because going with [campaigns] that worked before the pandemic, but doing them less frequently in response to supply chain challenges, isn’t the answer.”
On the retail side of the equation, labor challenges and the frequency of price changes have made it difficult for operators to manage price increases, Moran noted. “There are cases when retailers must shift their labor to the highest priority areas and that can mean they physically cannot get the tags changed on the shelf when they need to.”