Procter & Gamble to raise prices, as companies struggle to catch up with consumer demand
S E E D E D C O N T E N T
The consumer giant joins a host of other companies, including Kimberly-Clark and Coca-Cola, that are raising prices to protect profit margins. The companies are betting consumers will be willing to pay more for the brand version instead of opting for a cheaper private label. However, that outcome depends on the economic recovery from the coronavirus pandemic and how many consumers will have the cash to spare.
P&G said its price increases will vary by brand but will be in the range of mid-to-high single digits.
The announcement comes as a new report from the Consumer Brands Association revealed that sales of consumer packaged goods climbed 9.4 percent to $1.53 trillion last year.
The boom in demand hasn't abated yet, the trade group said, noting that manufacturers are still struggling to catch up on inventory. To meet the challenge, companies are hiring more workers, adding new factory lines and boosting wages amid the protracted surge in demand.
"This was the greatest test that the system could have ever experienced," said Geoff Freeman, chief executive of Consumer Brands. "Our wildest imagination may not have been able to imagine the 12-month surge that we just went through."
Even as the pandemic subsides, Consumer Brands is forecasting that industry's 2021 sales will still be up 7.4 percent to 8.5 percent from 2019. January sales are up 16 percent from the same time a year ago, representing the highest year-over-year change since last March. February sales growth slowed slightly but was still in the double digits. Before the pandemic, strong growth for a CPG company meant an increase in the low single digits.
"This industry is still sprinting a marathon," said Katie Denis, Consumer Brands' vice president of research and industry narrative.
The last year's soaring demand means that manufacturers are still trying to catch up on supply, and every obstacle can mean millions of dollars in lost sales. Freeman cited a conversation with a chief executive who saw more than one-quarter of his manufacturing plants closed for a week in February due to the Texas winter storm. The Suez Canal blockage in March caused even more headaches.
General Mills and Clorox are among the companies that turned to third-party manufacturers for a temporary fix to skyrocketing demand. The situation has prompted some CPG companies to rethink inventory targets and how close products should be to retailers. Freeman said that some manufacturers won't be able to catch up on inventory until new capital expenditures come online.
The current stress on the supply chain means that some shortages, like the ongoing ketchup packet scarcity first reported by the Wall Street Journal, are harder to forecast.
"That's the kind of thing that we should see coming six to 12 months in advance," Freeman said.
The surge in demand has resulted in higher wages for CPG manufacturing workers. PepsiCo and Hormel were among those who gave out bonuses to their frontline employees last year. According to the Consumer Brands report, pay for food manufacturing workers climbed 3.4 percent in July through September compared with the same time a year ago. Nationwide non-farm wages fell 0.8 percent in the same period.
"I don't know if [wages] will climb higher than 2020, but there's no reason to believe that there will be a drop off, according to the companies that we surveyed with McKinsey," said Denis.
CPG companies also ramped up their hiring. After initial job losses hit the industry, particularly for food service suppliers, other food, beverage and household product manufacturers scrambled to scoop up more workers. Some companies hired 10 percent to 20 percent more workers than they actually needed to account for employees who were quarantining or caring for sick relatives, according to Freeman.
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So... They're struggling to keep up with demand? People are suddenly using more laundry soap and toothpaste?
Surprise! Corporations manage their operations to protect their profit model. Any additional cost is passed along to consumers. Doesn't matter if the additional cost is caused by rising prices of feedstock or by increased taxes; the increased cost is passed along to consumers.
Less corn and more water in the can is a price increase. The price of the can may not change very much but consumers are paying more for less product. That's why the basket of goods used to measure inflation doesn't always provide an accurate accounting of inflation.
Capitalism!!!
No, that's the way a market based economy works. The same thing can happen with market based socialism, too.
Exactly.
lol so true
That made me think of not long ago when I was putting a package of Ritz crackers in the cupboard and they fit in better. I checked yep they had reduced the weight a little but not the price.
I felt cheated.
I'm working on a plant project where from Monday to this morning, the price for Dryfall paint went up $43.47/gallon. Monday: $18.11/gallon. Wednesday $61.58/gallon
Makes me wonder if they know that people have a little extra cash right now.
Government money seems like free money and people give up free money easier than money they spent their time and effort getting.
Great time for a price hike. Especially on things people buy regardless.
I would make that 'some' people have a little extra cash right now, Steve. I know of a great many people of all walks of live that are just trying to keep a roof over their family's head and a modicum of food on the table, and only able to do that with the help of the stimulus checks. Medical insurance and health care are out of the picture altogether.
Some people are under the mistaken idea that the stimulus money provided to those who really need it allows them to live a more care-free life, but, in most cases, it merely allows them to be able to have a roof over their heads instead of living on the streets with their family.
That is very true Raven, The stimulus helped a great many who really needed it. But there are plenty who didn't really need it and still got it.
For some their income remained the same and for some it even increased, including everyone on Social Security as they all still got stimulus checks. So, some people did have more money than usual. Also including many drawing unemployment. I know people that never made as much as their unemployment checks were.
Many not needing the extra money felt it was a bonus. Bonuses are easy free money to most and are easier parted with.
IMO: Money not earned is never as important to the person as money they actually earned.
Anytime the government gives away money is a opportunity to charge more for what you have for sale. Without losing a substantial amount of sales. Therefor a good time for a company to raise prices especially if they can justify it someway or pretty much Anyway...
the stimulus did help many.
the problem that I see every day is not enough people wanting and willing to work.
Tons if jobs to fill are out there waiting when folks have blown their stimulus and tax refund/giveaway.
Tons if jobs to fill are out there waiting when folks have blown their stimulus and tax refund/giveaway.
Yes and yes.
I advised one of my nephews who was getting the extra 600 a week in unemployment to jump off that bandwagon as soon as he could to get a better job before that gravy train ends and the competition for employment increases.
He did and he's glad he did. It didn't take him long and he landed a better job replacing the job he had been laid off from during the initial crisis.
But yeah many will ride the gravy train as far as it goes. and not really benefit like they could have. Sadly, Too many people are just personally irresponsible.
I prefer the benefits of responsibility over the consequences of irresponsibility.
all too true, sadly.
Price of lumber is off the charts too. Two sheets of 4x8 1/2" CDX... $150.00. Two years ago, it was $35.00 a sheet.
Ouch !