Will consumer anger drive down inflation?

Photo: RetailWire
Jan 25, 2023

Consumers are fed up with escalating inflation, prompting some companies to restrain their price hikes to offset cost pressures.

Conagra Brands saw volume decline 8.4 percent in its latest quarter ended Nov. 27 due to consumers’ resistance to higher prices. On Conagra’s analyst call last week, Dave Marberger, CFO, said previously communicated pricing actions will become effective in the current quarter but the “magnitude of these pricing actions will be smaller and more targeted than previous pricing actions.”

Constellation Brands, the parent of Corona and Modelo, similarly said its pricing actions will be “more muted” in its current fiscal year after recent hikes slowed demand. Constellation CEO Bill Newlands said on a quarterly call last week consumers are “overly sensitive to pricing actions” and that the company needs “to be careful in balancing our growth profile and our pricing profile.”

Reports began arriving last summer that stores were pushing back on supplier price increases as sales began slowing amid four decade-high inflation rates.

Pricing negotiations appear to have become combative. Tesco’s chairman John Allan told the BBC last week, “We have a team who can look at the composition of food, costs of commodities, and work out whether or not these cost increases are legitimate.”

Any hesitancy to raise prices comes as the inflation rate fell to 6.5 percent in December from a peak of 9.1 percent in June but remains well above the Fed’s two percent target rate. Fuel and many input costs have come down but remain above pre-pandemic levels.

A Wall Street Journal article last week, “Shopper Rebellion Against Higher Prices Helps Slow Inflation,” also noted that persistent wage growth and China’s reopening could threaten inflation’s descent.

Among the apparent holdouts is Procter & Gamble, which last week vowed to continue to raise prices to offset higher commodity and transportation cost inflation despite reporting its first quarterly sales decline since mid-2017 as lower volumes offset price hikes.

P&G’s CFO Andre Schulten told analysts that conversations with retailers have not changed. He said, “I think everybody understands that we are still recovering costs.”

DISCUSSION QUESTIONS: Will consumer resistance to higher prices likely be the primary factor driving down inflation? What advice would you have for retailers about pricing discussions with vendors and managing any consumer pushback over price hikes?

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22 Comments on "Will consumer anger drive down inflation?"

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Mark Ryski

Consumer resistance is a factor and it will contribute to driving down inflation — but not as a primary factor. As brands and retailers see their sales decline, they will simply lose market share. Ultimately consumers set the price if there are suitable substitute goods to buy. I would caution all retailers to be extremely mindful of consumer pushback to their pricing actions. Once a customer is lost it will be hard to win back their trust, especially if they feel like they were price gouged.

Jeff Sward

Lots of brands are about to find out just how much brand loyalty they actually have in the market. The dance between their own price increases, the increases their competition put forward, and the new choices that consumers make will create a wickedly complicated dance. Consumer anger + marketplace competition = retail evolution.

Neil Saunders

This isn’t shopper anger. It’s simply the law of supply and demand. Consumers have been battered by a whole raft of price increases and are taking action to rein in their costs. In a market where there is a lot of choice — of retailers, of different brands, of retailer own labels, etc. — then those that put prices up by too much will suffer as shoppers switch to alternatives or cut the amount they buy; market share loss will ensue. This won’t remove inflation, but it will help moderate it somewhat.

DeAnn Campbell

It won’t be consumer anger as much as it will be reduction of spending that will eventually force price reductions. Consumers are already rethinking purchases, buying less, switching to cheaper or store branded products. Protracted worries about inflation, recession and employment will only increase pressure on pricing as this year unfolds.

Shep Hyken

I’m not an economist, but there is a pattern that comes with economies that are strong and weak. The resistance to higher prices is a result of inflation, not the cause of inflation, just as freer spending is not the cause of deflation. Spending patterns may impact the Fed’s decision to raise and lower interest rates, but there is much more to consider in balancing out the economy.

Lee Peterson

Consumers are bifurcating, which is also a way of correcting prices: let the market take the reins. Take Bed Bath & Beyond; their customers are leaving them for either lower price options like Big Lots or Walmart or going the other way to Williams-Sonoma or Crate & Barrel. In other words, they don’t see the value of Bed Bath & Beyond taking their prices up. “Get out of the middle!” has been a battle cry for years, but seems especially apropos now.

Ken Morris

Suppliers are quick to raise prices but slow to drop them back as things settle down, like the price of fuel. As the major component of transportation costs you’d think it would have a ripple effect on consumer prices. Shoppers vote with their wallets, not their rage. But I think there’s already a term for an angry mob that refuses to pay full price. It’s called looting. In any case, brand loyalty is a powerful force. And that’s what’s keeping shoppers from switching to lower-priced options.

Brandon Rael

To say that the impacts of inflation and the overall cost of living have been relentless is an understatement. While supply and demand elements have driven prices up, the sustained inflation levels for essential groceries and other items have forced customers to seek more affordable alternatives.

Consumer sentiment and confidence levels have eroded, especially considering that shipping costs have dropped, supply chains are more on track, and cotton, beef, and other commodities have gotten relatively cheaper. Freight costs and container costs have eased, bringing down prices along the rest of the supply chain.

The brand loyalty dynamic will take a big hit as consumers shift their loyalties to private labels and other more affordable alternatives. It’s up to the brands and retailers to determine what their priorities are in this disrupted economy. Retailers, restaurants, airlines, and other companies must decide whether to pass on price cuts or focus on impressing investors with improved profit margins.

Cathy Hotka

Despite brands’ hand-wringing about inflation, consumers know that profits are at record highs and CEOs continue to get huge raises. Consumers will have limited patience for this.

David Spear

Who wouldn’t be angry with the prices at grocery stores, at gas stations, at DIY stores, at every store one visits? All goods and commodities have risen in price dramatically (depending on the item, between +11 percent and +37 percent). I was looking at my garbage bill last week and noticed a $10 fuel surcharge! So yes, the net effect of this anger is displayed in purchase choices made at the local stores, with more consumers trading down for cheaper goods (store brands, alternative products). But these reactions only moderately contribute to driving down inflation. What’s looming are the trillions in spending bills that haven’t even hit the market yet. Sadly, inflation is here to stay and will get worse in 2023.

Mark Self

Interesting question and article.

Consumers’ purchasing power has gone down and as a result they are buying less, or backing out of some categories altogether (discretionary spending is more at risk than, say, spending on cereal). On the retail and manufacturing side (depending of course on what you are selling) this puts pressure on margins. This will always be the case. Walmart’s decision to raise front-line workers wages is wonderful for those workers. Assuming (as always) those costs get built into the goods available at a Walmart it is bad for consumers ultimately.

Consumers cannot “tame” inflation, however they can shift (and are shifting) their spending. A Kroger shopper may suddenly find the joy of shopping at a Lidl or an Aldi. An individual settles for a used car instead of a new one. By definition this is not going to drive inflation down, but it will lower how much is spent and on what.

Gene Detroyer

The consumer doesn’t drive inflation and won’t control it. There are far too many factors that create inflation. At some point, inflation will level out as there is no more cost pressure to be measured against month-on-month or year-on-year pricing.

Despite what retailers say or even despite their threatening vendors, they are not unhappy when a price increase is less than a price point yet they raise the product a whole price point.

Richard J. George, Ph.D.

I prefer to call shoppers’ behavior “brand switching” versus “consumer anger.” Consumers are simply being rational in their product choices — buying less and/or switching to private label. Inflation has reminded branded products that value (benefits received divided by burdens endured) continues to be a top-of-mind consumer decision-making heuristic.

Al McClain

Consumer anger and lack of discretionary income are certainly factors, but in a lot of areas consumers don’t have much choice. They can shop around for gas, try private label, switch to a cheaper cut of meat, and so forth, but it’s tough all around. Then, there are markets like Florida (where I live) where the combination of weather, population influx, crazed drivers, insurance fraud, greed, and governmental inaction have combined to double homeowner’s insurance rates, and raise auto insurance rates by half, in about one year. So, shoppers down here have bigger items to worry about than the cost of shampoo or cereal.

Ananda Chakravarty

The Fed increasing rates is supposed to tamp down consumer spending and demand. With higher price points and the opportunity to save, consumers are supposed to reduce the inflationary pressure, slowing price hikes for less available supply. Consumer anger has limited influence, but their pocketbooks have plenty. So long as employment is high and wages continue to be raised, the consumer spending side of inflation won’t be more than negligibly affected. Choice for consumers continues to be high. Retailers need to take this into account as they raise prices, even at the risk of lowering profitability. Some suppliers have legitimately higher material, transportation, and wage pressure and are challenged to keeping prices constant. There’s no generalized directives here, but very specific ones based on retailer-supplier relations.

Patricia Vekich Waldron

Pricing (and profits) is always a flash point, especially during inflationary times. Consumers can understand (but dislike) price increases, and will buy less or trade down to compensate, but do not want to feel gouged by companies paying executives big bonuses.

Dr. Stephen Needel

No — consumer resistance is a small factor driving down inflation. But as others have said, it’s a big factor in brand switching and store switching and we’re going to keep seeing that until manufacturers and retailers drop their prices. Retailers have a simple answer for vendors who are taking their prices up just because they can — delist!

Mark Heckman

I am not sure that any consumer anger is directed at manufacturers or retailers, as this latest dance with inflation is so pervasive, affecting every aspect of life. However, anger aside, smart consumer choices such as trading down, spending less overall, and looking for private label alternatives, will likely slow consumer demand on some premium items — which will bring down prices and margins, unless other efficiencies can be achieved by CPGs and retailers.

Rich Kizer

If the item is a necessity and too high priced for the consumer taste, customers will likely think of shopping another store, which will press retailers to become more competitive, and it moves back on the vendor. Discussion with vendors on better pricing is always a tall and difficult order. They feel they are being crushed in selling their products to stores. Remember this, in the end, consumers will prevail; they have long memories and stores they found with competitive prices could be their new habits of turning to past competitors as their new favorites.

Craig Sundstrom

It’s a quaint idea – bringing back memories of the WIN buttons (remember those?) – but I would question Tom’s choice of words: yes, consumer resistance can set a limit on price increases, but I wouldn’t describe it as “anger”; that implies a certain conscious action that I don’t think really exists.

Retailers — and wholesalers and manufacturers and the little kid with a lemonade stand — will just have to see what the market will bear.

Oliver Guy

Competition kills margin – always.

What is interesting however is that some recent coverage of UK grocery prices has suggested discount retailers such as Aldi and Lidl have had the largest prices rises (as percentages). In the past perceptions have suggested that as others have raised prices the discounters have kept prices low – perception is everything!

Christina Cooley

Consumers are well aware of the inflation and its impact on them. Interestingly, they are continuing to make the purchases they want to make, including major purchases … but for how long will that continue? Leading up to the end of the year, according to a J.D. Power pulse study on purchase intentions, customers were planning to spend just as much, if not more, than they had in the prior year. However, there are definitely concerns, with the top 3 being:

Inflation raising cost of products/services

Inflation raising interest rates and making it more difficult to finance

Not being able to purchase the product or move forward on a project I want/need due to increase in costs

With these concerns, consumers are more likely to research even more so beforehand, shop around, and be selective with the purchases they make to stretch their dollar, not just in terms of quantity, but more so in terms of quality.

"Protracted worries about inflation, recession and employment will only increase pressure on pricing as this year unfolds."

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