Inflation has significantly impacted shopping habits, with consumers fighting back against prices that remain about 19% above pre-pandemic levels. This resistance is evident in grocery stores, where consumers are shifting away from name brands to store-brand items, using discount stores, and buying fewer items like snacks or gourmet foods. More shoppers are also buying used cars, forcing dealers to provide discounts on new cars. However, the growing consumer pushback to price-gouging has been most evident with food and consumer goods such as paper towels and napkins.

Large food companies have responded by slowing their price increases from the past three years. While some items, like eggs, apples, and milk, are below their peaks, milder increases in food prices should help further cool overall inflation.

Consumer pushback against high prices suggests that inflation should further ease, making this bout of inflation markedly different from the debilitating price spikes of the 1970s and early 1980s. When high inflation persists, consumers often develop an inflationary psychology, leading them to accelerate their purchases before costs rise further, a trend that can perpetuate inflation.

Instead, many consumers have reacted like Stuart Dryden, a commercial underwriter at a bank who points out big price disparities between Kraft Heinz-branded products and store-label competitors. This has led to a decrease in sales for many brand name products as more consumers switched to cheaper brands.

Investment strategist Samuel Rines at Corbu suggests that these companies exploited the rise in input costs from supply-chain disruptions and Russia’s invasion of Ukraine to dramatically raise their prices and increase profits in 2021 and 2022. However, many of these companies discovered that the strategy was no longer working, as most consumers have since spent the savings they built up during the pandemic. Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously, with overall sales during the holiday shopping season being up just 4%.

Unilever, which makes Hellman’s mayonnaise, Ben & Jerry’s ice cream, and Dove soaps, jacked up its prices 13.3% on average across its brands in 2022, leading to a 3.6% sales volume fall. In response, it raised prices just 2.8% last year, resulting in a 1.8% sales increase.

Companies are becoming more skeptical of their ability to have price be the driver of their revenues, as consumers are no longer willing to take higher pricing. Unilever recently attributed poor sales performance in Europe to “share losses to private labels.”

Other businesses have noticed this trend, with PepsiCo executives citing the impact of private labeling on sales and the need for companies to find efficiencies in their factories and other parts of their business to offset and mitigate further price increases.

Source: Globe and Mail