Shopping basket with foods on receipt. Grocery expenses budget, inflation and consumerism concept.
Photo: iStock | Bet_Noire

If consumer packaged goods companies raise prices because of higher costs, should they lower them as costs come down?

Hamdi Ulukaya, CEO of Chobani, in an interview with CNN earlier this week, said, “Of course, you have to pass on some increases in prices to customers, but those inputs are coming back down and that hasn’t been reflected in the price of goods: They’re still elevated. It is troubling. I think food makers have to be very conscious that people are having a hard time affording food.”

The notion that large corporations have been using inflation as an excuse to pad profits, aka greedflation, is neither new nor an anticapitalist fever dream. TS Lombard research, cited by the Financial Times, finds profits have shrunk and wages have risen in previous inflationary periods. Not so during the current round of inflation, where “wages have risen in nominal terms, but profits have risen even more amid falling real labor costs.”

The good news is that TS Lombard sees the profit padding coming to an end. “With inflation rolling over fast, companies will struggle to persuade their customers to pay more.”

A Washington Post article from February found retailers asking vendors for proof to support increases or risk products being delisted, receiving poor shelf placement and having promotions cut.

Walmart has warned its CPG vendors against further price hikes. Rod Little, CEO of Schick razor maker Edgewell Personal Care, told Reuters, “Because the consumer is now under more pressure, and Walmart is under pressure, that sets up a dynamic where there’s probably not a lot of pricing going forward.”

If retailers cannot convince CPGs to lower prices, consumer behavior may have more success. Several major brand manufacturers reporting increased profits have noted product volume declines. The decision to maintain and even take prices up further could reach a point of substantially diminishing returns if the labor market weakens or other factors, such as personal debt, begin to weigh on American households.

BrainTrust

“If and when consumers change their buying habits, and those changes start to have a real financial impact, then we’ll see prices come down.”

Gary Sankary

Retail Industry Strategy, Esri


“If the CPG companies were ethical in their price increases, then the prices they offer their distribution channel should still be fair.”

Chuck Ehredt

CEO, Currency Alliance


“The key here is that retailers have the power to drive change. Private label is a good way that retailers can push back and continue to nudge CPGs who won’t lower prices.”

Matthew Pavich

Sr. Director Retail Innovation at Revionics, an Aptos Company

Discussion Questions

DISCUSSION QUESTIONS: Do you agree with Chobani CEO Hamdi Ulukaya that lower input costs are not being passed on as reduced prices to retailers and consumers? Do you think they eventually will?

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Do you agree with Chobani CEO Hamdi Ulukaya that lower input costs should be passed on as reduced prices to retailers and consumers?

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40 responses to “Should CPGs Lower Prices as Inflation Comes Down?”

  1. Zel Bianco Avatar
    Zel Bianco

    Yes, It would go a long way in helping their consumers now and it would build back loyalty that may have eroded as prices have climbed significantly. Following Chobani’s lead would be a smart move.

  2. Cathy Hotka Avatar
    Cathy Hotka

    The Fed’s interest rate hikes aren’t having the desired effect because today’s inflation isn’t organic. Companies are enjoying record profits. The only solution is for consumers to take a pass on artificially-inflated prices.

  3. Chuck Ehredt Avatar
    Chuck Ehredt

    Just because inflation is coming down does not mean that prices are declining. If the CPG companies were ethical in their price increases, then the prices they offer their distribution channel should still be fair. I believe there is plenty of competition to keep prices in line and consumers are much more sensitive to the price they pay for products and services, so I think the capitalist system will keep things fair for consumers. Having said that, if a CPG brand has accumulated unexpected profits, I think now is the ideal time to demonstrate to customers that they are in the same camp — this could lead to special offers that help capture marketshare.

    1. Richard Hernandez Avatar
      Richard Hernandez

      Unfortunately this is true. I have seen cost increase after cost increase for many many months. While supply chain issues have gotten better and fuel charges have stabilized some, I don’t see companies presenting cost decreases to be more affordable to customers. This now becomes the new normal and I don’t know if the market can support it and customers’ baskets become smaller. I hope we begin to see a change for the better.

      1. Gene Detroyer Avatar
        Gene Detroyer

        Exactly. Every manufacturer and retailer will take the utmost advantage of it.

    2. David Naumann Avatar
      David Naumann

      Good point about slowing inflation does not mean costs and prices are not declining. It means the rate of increase is less. If we had deflation, that would mean costs and prices are declining. That said, some CPG companies may be capitalizing on lower costs on some products and they are probably hesitant to lower prices if consumers have become accustomed to paying the elevated prices.

      1. Gene Detroyer Avatar
        Gene Detroyer

        Good point. Deflation is BAD! It starts a chain reaction that ultimately destroys every aspect of the economy. The economy is built on a low rate of inflation, so I can pay off today’s debts (i.e., a mortgage) with tomorrow’s cheaper dollars.

  4. Gary Sankary Avatar
    Gary Sankary

    This is not just happening in CPG–look at the profits oil companies post. I agree with Mr. Ulukaya that we haven’t seen the price reductions we would expect as costs have come down. It feels like we’re in a game of chicken, no one wants to be the first to start dropping prices and reducing profits. The only thing I think that will drive price reductions is consumer behavior. If and when consumers change their buying habits, and those changes start to have a real financial impact, then we’ll see prices come down.

    1. Bob Amster Avatar
      Bob Amster

      Not sure about your assessment. Prices of gasoline at the pump this past winter went as low a $2.99/gal for regular gasoline at a brand establishment. The day after the Saudis announced a reduction in production the price at the pump started rising and is now stable, but at $3.49/gal at the same establishment. If the price got down to $2.99/gal then, it can do it again.

      1. Gene Detroyer Avatar
        Gene Detroyer

        On the day after the gasoline was costing the same as it did the day before, yet headlines gave the oil companies cover to raise prices. Prices get raised immediately, but when crude comes down, the companies say it takes months for the cheaper oil to work its way through the system.

  5. Jeff Sward Avatar
    Jeff Sward

    Of course CPGs should lower prices, but it won’t be out of good will. Every nickel of new found profit will be jealously guarded until some market dynamic forces the issue. Competition and the resulting consumer behavior are powerful factors in this environment. I love the idea of a retailer having their own private label in just about every category. Their own manufacturing data will give them the necessary visibility into what is going on at the raw material level. They can manage their prices and margins accordingly. So it’s not just CPG brand vs. CPG brand. It’s CPG brands vs. store-owned brands. This moment is a huge opportunity for retailer-owned brands.

    1. Gene Detroyer Avatar
      Gene Detroyer

      I would not bet on private-label prices being reduced. As long as they are X price points below the national brands, they will remain the same and cash in on the windfall of customers switching. Retailers love inflation.

      1. Jeff Sward Avatar
        Jeff Sward

        Agreed. Retailers won’t go any lower than they have to maintain or even grow share of market from CPG brands. That’s the beauty of the dance. Private labels are a win for the customer and the retailer. That’s the check and balance against the CPG brands. Raw material prices go up and down for everybody, but the retailer has a little more margin room to manage price points and can manage for either market share growth or margin. Maybe both.

  6. Gene Detroyer Avatar
    Gene Detroyer

    Commodities aside, when have manufacturers ever lowered prices?

    When inflation declines, it does not mean prices are going down. Until we actually see deflation, when inflation drops from 8 percent to 4 percent it doesn’t mean prices drop 4 percent. It means prices increase by 4 percent over the 8 percent they already increased.

    The Washington Post article finding retailers asking vendors for proof to support increases or risk of products being delisted, receiving poor shelf placement, and having promotions cut is laughable. Will they delist Tide?

    If manufacturers find a windfall of cash and a decline in volume, they will add to promotions but never take the old price list out of the archives.

    The bigger question is, will the retailer lower prices if the manufacturer does? — and that is another fantasy.

    1. George Anderson Avatar
      George Anderson

      A sales VP at a major CPG company once told me that “whatever goes up must never come down.” We’ll see if that rule is at work as prices continue to come down.

      1. Gene Detroyer Avatar
        Gene Detroyer

        …and other than commodities, they never have. Check out the history of the huge inflation of the late ’70s and early ’80s. When price increases subsided, we just made more money.

  7. Lisa Goller Avatar
    Lisa Goller

    Grocery prices remain exorbitant. More consumers will shift to brands with competitive pricing and private labels to make their weekly basket more affordable.

  8. Melissa Minkow Avatar
    Melissa Minkow

    This is another example where all parties (CPGs, retailers, consumers) should be on the same page. Ultimately, CPGs won’t benefit if they go against the wishes of retailers and consumers and maintain higher prices when inflation lowers.

  9. Carol Spieckerman Avatar
    Carol Spieckerman

    The answer seems to vary by category but should it? Margin structures for grocery vs. apparel, home, and other discretionary categories are understood to be different yet retailers and suppliers are expected to jump on price cuts in grocery as soon as it’s feasible. Consumers will be the ultimate deciders, of course, but is the grocery-as-loss-leader approach due for an update?

  10. David Spear Avatar
    David Spear

    Yes, CPGs ought to roll back prices, but don’t hold your breath waiting for this to happen. Consumers will and are trading down to private label and other new products that provide more value relief. Ultimately, competition will force traditional CPGs to change their current tactics. It always has, and those that keep prices high will see erosion in their volumes.

  11. Ken Morris Avatar
    Ken Morris

    It isn’t the supermarkets but the suppliers that are the disconnect. Just like the oil companies have recorded obscene profit margins, CPG companies want to join the gravy train. Consumers need to shop with their wallets and buy local. This might mean changing some buying habits.

    The good news is that CPG items are available through thousands of distribution points, aka competing retailers, big and small. So we should see free market forces taking over and retail prices coming back down. But this puts the burden on retailers to cut prices—and margins. That’s why I’d expect buyers to start putting more pressure on their CPG vendors to ease off the higher prices sooner than later.

  12. Dr. Stephen Needel Avatar
    Dr. Stephen Needel

    We saw manufacturers and retailers drop CPG prices once (although I may be hazy in my recollection). Manufacturer price rollbacks do not necessarily mean retailer rollbacks. The only manufacturers who are going to lower prices are the ones whose prices are already way too high. And Walmart is certainly not going to be the first to lower prices as long as they are the low-price leader.

    1. storewanderer Avatar
      storewanderer

      Actually about five weeks ago Walmart was the first one to drop milk and egg prices. Kroger quickly followed almost the next day. Some regional chains like Raley’s and Save Mart didn’t drop them until last week. Safeway has yet to drop any prices.

  13. Bob Amster Avatar
    Bob Amster

    Assume that the following is a fair comparison: When the price of crude oil in the world markets fluctuate, the price at the pump fluctuates in the same direction–therefore as inflation eases, the lower purchasing costs by the CPGs should be passed onto the consumers. Simple?

  14. Steve Montgomery Avatar
    Steve Montgomery

    This is a case in which the first mover may incur reduced profits but if that communicated to their customers properly they should enjoy increased sales and customer loyalty moving forward. This assumes the retailer selling their products reduces the retail price accordingly.

  15. Dick Seesel Avatar
    Dick Seesel

    CPG companies were already playing the “shrinkflation” game well before consumers were dealing with 8 percent inflation (or worse) last year. And the rate of inflation may have cooled to 5 percent but that’s still at a high level. So, I don’t expect much movement on CPG firms’ part to lower prices unless they are in a market segment dramatically impacted by the cost of goods (eggs, for example).

    Meanwhile, today’s jobs report includes more evidence — including higher labor costs — that the inflation bug is not yet tamed. Companies like P&G report surprisingly little resistance to price increases, so don’t look for rollbacks anytime soon.

  16. Richard J. George, Ph.D. Avatar
    Richard J. George, Ph.D.

    Price is the one marketing variable that is always on trial. Prices will come down at the manufacturer and retailer levels when competitive pressures cause such changes. Unfortunately, the ethical argument loses out to the competitive realities.

  17. Susan O'Neal Avatar
    Susan O’Neal

    Brands that lean in and help consumers expand their purchasing power via promotions end up coming out of the inflationary period with greater household penetration — a strategic advantage that lasts for years after economic recovery.

  18. Neil Saunders Avatar
    Neil Saunders

    Yes, if input costs come down, prices should. However whether they will or not remains to be seen. Hopefully more consumers voting with their wallets — which is already happening in some areas as P&G and other companies are experiencing strong volume declines — will help nudge companies in the right direction.

    1. Gene Detroyer Avatar
      Gene Detroyer

      Let me know when P&G issues a new price list with lower prices.

  19. Matthew Pavich Avatar
    Matthew Pavich

    It’s obviously not a one-size-fits-all type of problem. Some CPGs will be able to maintain profits based on consumer demand and retail negotiation power; others will probably need to evolve along with the market to remain a relevant option for retailers. The key here is that retailers have the power to drive change on this front. Private label is a good way that retailers can push back and continue to nudge CPGs who won’t lower costs. Promotional opportunities (or lack thereof) is another option. Finally, leveraging advanced analytics during cost negotiations can be a powerful tool to say “if you do x, this will happen vs. if you do y, this will happen” — supported by facts and evidence of real impacts to the CPG. The good news for consumers is that retailers are starting to fight back more successfully than a year ago.

  20. storewanderer Avatar
    storewanderer

    Prices are coming down a little and promotional prices are noticeably lower than earlier this year.

    I think between some commodity type items like milk and eggs decreasing the past few weeks, the cut of SNAP benefit amounts last month, and some CPGs losing major volume we will see more price cuts this time than we have seen in the past.

  21. Scott Norris Avatar
    Scott Norris

    I’m not in the food industry, but still a CPG manufacturer. Just from June ’22 through March ’23, the PPIs for these indices still tell me we aren’t anywhere near prices reversing:
    * Rigid paperboard boxes +15%
    * Folding paperboard boxes & packaging +11%
    * Corrugated shipping boxes -1%
    * Commercial job printing +8%
    * Digital printing +8%
    * Printing ink +4%
    * Coated & processed papers +9%
    * Label stock +4%

    Sure, overseas air freight has come down but I’ve always been Made in USA. And FedEx and UPS aren’t cutting their rates. Once again for the crowd, moderation does not equal decrease!

  22. Shep Hyken Avatar
    Shep Hyken

    Prices can fluctuate. Food is a commodity and sometimes economic or supply/demand issues impact pricing both directions. Gas prices go up and down. So, why not anything else in retail? Pricing is a strategy with many factors to consider.

  23. Craig Sundstrom Avatar
    Craig Sundstrom

    Once again we seem to be blurring the lines between lower prices and lower inflation – they’re not the same thing! – but in answer to the actual question: assuming other factors, like labor costs and demand, are static, yes we should expect lower input costs > lower prices…why on earth shouldn’t we expect that ? The catch, of course, is that labor costs are most certainly not static, and, depending on how you define “input costs” – does it include packaging? transportation? – you may be (over)simplifying things. The best thing of course is for consumers to empower themselves: there is no stronger argument for a company to lower its prices than its (former) customers abandoning it.

    1. Gene Detroyer Avatar
      Gene Detroyer

      Exactly, Craig. It is quite astounding that some think lower inflation=lower prices. Lower inflation still means higher prices. It is just the increases will be less.

  24. David Biernbaum Avatar
    David Biernbaum

    CPG cannot lower prices until their own cost of doing business declines, and even so, it’s unlikely because inventory already exist in their own warehouses, as well as in retailer DC’s, with product that was purchased, or made, at higher costs. So, promotions will be a better response than lowering prices.

  25. James Tenser Avatar
    James Tenser

    The playbook for CPG price increases was written during the 70’s era of “wage and price controls” instituted by the Nixon administration. While intended to curb inflation, the policy had the ironic side effect of incentivizing manufacturers to take the maximum allowable base price increases – whether their costs increased or not. They could always give the difference back to shoppers in the form of price promotions, or so the reasoning went.
    The lesson learned then was to never go back. (It also created a heyday for TPRs, FSIs and double-coupon policies.)
    Brands will always fiercely protect hard-won margin gains. They buffer some increases in ingredient, production and distribution costs, but eventually will always seek ways to pass these along too. Moderating inflation still gives them cover (and some reasons) to sustain recently elevated prices.
    Ulukaya is right of course that most brands retain the benefits from lower input costs. Only a few pure commodity items will fluctuate downward. Notice we’re not talking about egg prices so much lately.

  26. David Biernbaum Avatar
    David Biernbaum

    CPG’s cannot lower costs until they begin paying less for their own costs and expenses to operate, make products, and manage their existing inventories of finished goods that were already at higher cost when made. The better approach is promotion.

  27. Oliver Guy Avatar
    Oliver Guy

    ‘Sticky downwards’ pricing is common across so many areas of consumer spending. When the price of crude oil jumps, petrol/gasoline price does to – but when crude drops it takes much longer for the consumer to benefit.
    Some might argue that consumer goods are much more complex hence this becomes more difficult to understand. But there is a lot of talk about this phenomenon – and right now certain elements of the media in the UK are looking very carefully at supermarkets and potentially blaming them for ‘pricing issues’ – when their costs – labour, energy etc – have increased considerably so it is much more difficult to understand.
    For me the big surprise is that competition authorities have never (that I am aware of) comprehensively looked into the relationship between commodity price changes and consumer prices with a view to acting in relation to price stickiness – perhaps it is time they do.

40 Comments
oldest
newest
Zel Bianco
Zel Bianco
3 months ago

Yes, It would go a long way in helping their consumers now and it would build back loyalty that may have eroded as prices have climbed significantly. Following Chobani’s lead would be a smart move.

Cathy Hotka
Cathy Hotka
3 months ago

The Fed’s interest rate hikes aren’t having the desired effect because today’s inflation isn’t organic. Companies are enjoying record profits. The only solution is for consumers to take a pass on artificially-inflated prices.

Chuck Ehredt
Chuck Ehredt
3 months ago

Just because inflation is coming down does not mean that prices are declining. If the CPG companies were ethical in their price increases, then the prices they offer their distribution channel should still be fair. I believe there is plenty of competition to keep prices in line and consumers are much more sensitive to the price they pay for products and services, so I think the capitalist system will keep things fair for consumers. Having said that, if a CPG brand has accumulated unexpected profits, I think now is the ideal time to demonstrate to customers that they are in the same camp — this could lead to special offers that help capture marketshare.

Richard Hernandez
Richard Hernandez
  Chuck Ehredt
3 months ago

Unfortunately this is true. I have seen cost increase after cost increase for many many months. While supply chain issues have gotten better and fuel charges have stabilized some, I don’t see companies presenting cost decreases to be more affordable to customers. This now becomes the new normal and I don’t know if the market can support it and customers’ baskets become smaller. I hope we begin to see a change for the better.

Gene Detroyer
Gene Detroyer
  Richard Hernandez
3 months ago

Exactly. Every manufacturer and retailer will take the utmost advantage of it.

David Naumann
David Naumann
  Chuck Ehredt
3 months ago

Good point about slowing inflation does not mean costs and prices are not declining. It means the rate of increase is less. If we had deflation, that would mean costs and prices are declining. That said, some CPG companies may be capitalizing on lower costs on some products and they are probably hesitant to lower prices if consumers have become accustomed to paying the elevated prices.

Gene Detroyer
Gene Detroyer
  David Naumann
3 months ago

Good point. Deflation is BAD! It starts a chain reaction that ultimately destroys every aspect of the economy. The economy is built on a low rate of inflation, so I can pay off today’s debts (i.e., a mortgage) with tomorrow’s cheaper dollars.

Gary Sankary
Gary Sankary
3 months ago

This is not just happening in CPG–look at the profits oil companies post. I agree with Mr. Ulukaya that we haven’t seen the price reductions we would expect as costs have come down. It feels like we’re in a game of chicken, no one wants to be the first to start dropping prices and reducing profits. The only thing I think that will drive price reductions is consumer behavior. If and when consumers change their buying habits, and those changes start to have a real financial impact, then we’ll see prices come down.

Bob Amster
Bob Amster
  Gary Sankary
3 months ago

Not sure about your assessment. Prices of gasoline at the pump this past winter went as low a $2.99/gal for regular gasoline at a brand establishment. The day after the Saudis announced a reduction in production the price at the pump started rising and is now stable, but at $3.49/gal at the same establishment. If the price got down to $2.99/gal then, it can do it again.

Gene Detroyer
Gene Detroyer
  Bob Amster
3 months ago

On the day after the gasoline was costing the same as it did the day before, yet headlines gave the oil companies cover to raise prices. Prices get raised immediately, but when crude comes down, the companies say it takes months for the cheaper oil to work its way through the system.

Jeff Sward
Jeff Sward
3 months ago

Of course CPGs should lower prices, but it won’t be out of good will. Every nickel of new found profit will be jealously guarded until some market dynamic forces the issue. Competition and the resulting consumer behavior are powerful factors in this environment. I love the idea of a retailer having their own private label in just about every category. Their own manufacturing data will give them the necessary visibility into what is going on at the raw material level. They can manage their prices and margins accordingly. So it’s not just CPG brand vs. CPG brand. It’s CPG brands vs. store-owned brands. This moment is a huge opportunity for retailer-owned brands.

Gene Detroyer
Gene Detroyer
  Jeff Sward
3 months ago

I would not bet on private-label prices being reduced. As long as they are X price points below the national brands, they will remain the same and cash in on the windfall of customers switching. Retailers love inflation.

Jeff Sward
Jeff Sward
  Gene Detroyer
3 months ago

Agreed. Retailers won’t go any lower than they have to maintain or even grow share of market from CPG brands. That’s the beauty of the dance. Private labels are a win for the customer and the retailer. That’s the check and balance against the CPG brands. Raw material prices go up and down for everybody, but the retailer has a little more margin room to manage price points and can manage for either market share growth or margin. Maybe both.

Gene Detroyer
Gene Detroyer
3 months ago

Commodities aside, when have manufacturers ever lowered prices?

When inflation declines, it does not mean prices are going down. Until we actually see deflation, when inflation drops from 8 percent to 4 percent it doesn’t mean prices drop 4 percent. It means prices increase by 4 percent over the 8 percent they already increased.

The Washington Post article finding retailers asking vendors for proof to support increases or risk of products being delisted, receiving poor shelf placement, and having promotions cut is laughable. Will they delist Tide?

If manufacturers find a windfall of cash and a decline in volume, they will add to promotions but never take the old price list out of the archives.

The bigger question is, will the retailer lower prices if the manufacturer does? — and that is another fantasy.

George Anderson
George Anderson
  Gene Detroyer
3 months ago

A sales VP at a major CPG company once told me that “whatever goes up must never come down.” We’ll see if that rule is at work as prices continue to come down.

Gene Detroyer
Gene Detroyer
  George Anderson
3 months ago

…and other than commodities, they never have. Check out the history of the huge inflation of the late ’70s and early ’80s. When price increases subsided, we just made more money.

Lisa Goller
Lisa Goller
3 months ago

Grocery prices remain exorbitant. More consumers will shift to brands with competitive pricing and private labels to make their weekly basket more affordable.

Melissa Minkow
Melissa Minkow
3 months ago

This is another example where all parties (CPGs, retailers, consumers) should be on the same page. Ultimately, CPGs won’t benefit if they go against the wishes of retailers and consumers and maintain higher prices when inflation lowers.

Carol Spieckerman
Carol Spieckerman
3 months ago

The answer seems to vary by category but should it? Margin structures for grocery vs. apparel, home, and other discretionary categories are understood to be different yet retailers and suppliers are expected to jump on price cuts in grocery as soon as it’s feasible. Consumers will be the ultimate deciders, of course, but is the grocery-as-loss-leader approach due for an update?

David Spear
David Spear
3 months ago

Yes, CPGs ought to roll back prices, but don’t hold your breath waiting for this to happen. Consumers will and are trading down to private label and other new products that provide more value relief. Ultimately, competition will force traditional CPGs to change their current tactics. It always has, and those that keep prices high will see erosion in their volumes.

Ken Morris
Ken Morris
3 months ago

It isn’t the supermarkets but the suppliers that are the disconnect. Just like the oil companies have recorded obscene profit margins, CPG companies want to join the gravy train. Consumers need to shop with their wallets and buy local. This might mean changing some buying habits.

The good news is that CPG items are available through thousands of distribution points, aka competing retailers, big and small. So we should see free market forces taking over and retail prices coming back down. But this puts the burden on retailers to cut prices—and margins. That’s why I’d expect buyers to start putting more pressure on their CPG vendors to ease off the higher prices sooner than later.

Dr. Stephen Needel
Dr. Stephen Needel
3 months ago

We saw manufacturers and retailers drop CPG prices once (although I may be hazy in my recollection). Manufacturer price rollbacks do not necessarily mean retailer rollbacks. The only manufacturers who are going to lower prices are the ones whose prices are already way too high. And Walmart is certainly not going to be the first to lower prices as long as they are the low-price leader.

storewanderer
storewanderer
  Dr. Stephen Needel
3 months ago

Actually about five weeks ago Walmart was the first one to drop milk and egg prices. Kroger quickly followed almost the next day. Some regional chains like Raley’s and Save Mart didn’t drop them until last week. Safeway has yet to drop any prices.

Bob Amster
Bob Amster
3 months ago

Assume that the following is a fair comparison: When the price of crude oil in the world markets fluctuate, the price at the pump fluctuates in the same direction–therefore as inflation eases, the lower purchasing costs by the CPGs should be passed onto the consumers. Simple?

Steve Montgomery
Steve Montgomery
3 months ago

This is a case in which the first mover may incur reduced profits but if that communicated to their customers properly they should enjoy increased sales and customer loyalty moving forward. This assumes the retailer selling their products reduces the retail price accordingly.

Dick Seesel
Dick Seesel
3 months ago

CPG companies were already playing the “shrinkflation” game well before consumers were dealing with 8 percent inflation (or worse) last year. And the rate of inflation may have cooled to 5 percent but that’s still at a high level. So, I don’t expect much movement on CPG firms’ part to lower prices unless they are in a market segment dramatically impacted by the cost of goods (eggs, for example).

Meanwhile, today’s jobs report includes more evidence — including higher labor costs — that the inflation bug is not yet tamed. Companies like P&G report surprisingly little resistance to price increases, so don’t look for rollbacks anytime soon.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
3 months ago

Price is the one marketing variable that is always on trial. Prices will come down at the manufacturer and retailer levels when competitive pressures cause such changes. Unfortunately, the ethical argument loses out to the competitive realities.

Susan O'Neal
Susan O’Neal
3 months ago

Brands that lean in and help consumers expand their purchasing power via promotions end up coming out of the inflationary period with greater household penetration — a strategic advantage that lasts for years after economic recovery.

Neil Saunders
Neil Saunders
3 months ago

Yes, if input costs come down, prices should. However whether they will or not remains to be seen. Hopefully more consumers voting with their wallets — which is already happening in some areas as P&G and other companies are experiencing strong volume declines — will help nudge companies in the right direction.

Gene Detroyer
Gene Detroyer
  Neil Saunders
3 months ago

Let me know when P&G issues a new price list with lower prices.

Matthew Pavich
Matthew Pavich
3 months ago

It’s obviously not a one-size-fits-all type of problem. Some CPGs will be able to maintain profits based on consumer demand and retail negotiation power; others will probably need to evolve along with the market to remain a relevant option for retailers. The key here is that retailers have the power to drive change on this front. Private label is a good way that retailers can push back and continue to nudge CPGs who won’t lower costs. Promotional opportunities (or lack thereof) is another option. Finally, leveraging advanced analytics during cost negotiations can be a powerful tool to say “if you do x, this will happen vs. if you do y, this will happen” — supported by facts and evidence of real impacts to the CPG. The good news for consumers is that retailers are starting to fight back more successfully than a year ago.

storewanderer
storewanderer
3 months ago

Prices are coming down a little and promotional prices are noticeably lower than earlier this year.

I think between some commodity type items like milk and eggs decreasing the past few weeks, the cut of SNAP benefit amounts last month, and some CPGs losing major volume we will see more price cuts this time than we have seen in the past.

Scott Norris
Scott Norris
3 months ago

I’m not in the food industry, but still a CPG manufacturer. Just from June ’22 through March ’23, the PPIs for these indices still tell me we aren’t anywhere near prices reversing:
* Rigid paperboard boxes +15%
* Folding paperboard boxes & packaging +11%
* Corrugated shipping boxes -1%
* Commercial job printing +8%
* Digital printing +8%
* Printing ink +4%
* Coated & processed papers +9%
* Label stock +4%

Sure, overseas air freight has come down but I’ve always been Made in USA. And FedEx and UPS aren’t cutting their rates. Once again for the crowd, moderation does not equal decrease!

Shep Hyken
Shep Hyken
3 months ago

Prices can fluctuate. Food is a commodity and sometimes economic or supply/demand issues impact pricing both directions. Gas prices go up and down. So, why not anything else in retail? Pricing is a strategy with many factors to consider.

Craig Sundstrom
Craig Sundstrom
3 months ago

Once again we seem to be blurring the lines between lower prices and lower inflation – they’re not the same thing! – but in answer to the actual question: assuming other factors, like labor costs and demand, are static, yes we should expect lower input costs > lower prices…why on earth shouldn’t we expect that ? The catch, of course, is that labor costs are most certainly not static, and, depending on how you define “input costs” – does it include packaging? transportation? – you may be (over)simplifying things. The best thing of course is for consumers to empower themselves: there is no stronger argument for a company to lower its prices than its (former) customers abandoning it.

Gene Detroyer
Gene Detroyer
  Craig Sundstrom
3 months ago

Exactly, Craig. It is quite astounding that some think lower inflation=lower prices. Lower inflation still means higher prices. It is just the increases will be less.

David Biernbaum
David Biernbaum
3 months ago

CPG cannot lower prices until their own cost of doing business declines, and even so, it’s unlikely because inventory already exist in their own warehouses, as well as in retailer DC’s, with product that was purchased, or made, at higher costs. So, promotions will be a better response than lowering prices.

James Tenser
James Tenser
3 months ago

The playbook for CPG price increases was written during the 70’s era of “wage and price controls” instituted by the Nixon administration. While intended to curb inflation, the policy had the ironic side effect of incentivizing manufacturers to take the maximum allowable base price increases – whether their costs increased or not. They could always give the difference back to shoppers in the form of price promotions, or so the reasoning went.
The lesson learned then was to never go back. (It also created a heyday for TPRs, FSIs and double-coupon policies.)
Brands will always fiercely protect hard-won margin gains. They buffer some increases in ingredient, production and distribution costs, but eventually will always seek ways to pass these along too. Moderating inflation still gives them cover (and some reasons) to sustain recently elevated prices.
Ulukaya is right of course that most brands retain the benefits from lower input costs. Only a few pure commodity items will fluctuate downward. Notice we’re not talking about egg prices so much lately.

David Biernbaum
David Biernbaum
3 months ago

CPG’s cannot lower costs until they begin paying less for their own costs and expenses to operate, make products, and manage their existing inventories of finished goods that were already at higher cost when made. The better approach is promotion.

Oliver Guy
Oliver Guy
2 months ago

‘Sticky downwards’ pricing is common across so many areas of consumer spending. When the price of crude oil jumps, petrol/gasoline price does to – but when crude drops it takes much longer for the consumer to benefit.
Some might argue that consumer goods are much more complex hence this becomes more difficult to understand. But there is a lot of talk about this phenomenon – and right now certain elements of the media in the UK are looking very carefully at supermarkets and potentially blaming them for ‘pricing issues’ – when their costs – labour, energy etc – have increased considerably so it is much more difficult to understand.
For me the big surprise is that competition authorities have never (that I am aware of) comprehensively looked into the relationship between commodity price changes and consumer prices with a view to acting in relation to price stickiness – perhaps it is time they do.