Has the inflation pricing playbook changed?
Through a special arrangement, presented here for discussion is a summary of a current article from the bi-monthly e-zine, CPGmatters.
Consumer packaged goods (CPG) companies aren’t just raising prices defensively to provide an offset against higher ingredient, labor and shipping costs. Their strategies for dealing with this historic new era of inflation includes working with retailers on more deliberate and symbiotic plans for pricing and promotional practices.
“Our advice to clients is that this is an opportunity for them to reflect the real costs of doing business,” Ken Harris, managing director of Cadent Consultants, told CPGmatters. “And retailers — while not excited about price increases — need to and will allow them.”
“It’s a matter of being collaborative,” Theresa Motter, CEO of Van’s Kitchen, a Dallas-based supplier of egg rolls to supermarkets and convenience stores, told CPGmatters. “You must have those conversations with suppliers and customers whether [prices] are going up or down.”
Beyond any adjustments to trade spending, being careful about pricing differentiation is another tactic. Mr. Harris said, “There are price cliff sensitivities to commodities that can put manufacturers at a disadvantage if they take, say, a 10 percent increase across the board versus a 20 percent increase on high-value items and commodities at 2 percent. It has to be thoughtfully considered.”
On a longer-term basis, new analysis is being explored on how to modify products, packaging, consumer testing and marketing to help navigate the new pricing minefield.
Changing prices more frequently is another option. CPG brands traditionally changed prices every six months or year and created promotional calendars and spot pricing events where any movements were almost languid, easily accommodated by little increase in the food CPI from year to year. Yet many major retailers change prices daily.
So far, few signs of significant pushback by American consumers to higher food prices have appeared, although the higher prices may push more consumers into store brands that typically are less expensive.
With record earnings being reported by several CPG vendors, some question whether prices are being raised too aggressively despite price elasticity sitting at historic lows. Joel Warady, CEO of Catalina Crunch, the keto cereal and snack brand, said, “We have a responsibility as food companies to feed people with nutritious products as efficiently and economically as possible and still make a profit.”
DISCUSSION QUESTIONS: What traditional and newer pricing approaches and mitigation tactics should CPG brands be exploring to counter inflationary pressures? What unique challenges does the current inflationary period create versus past ones?