After two years of significant price rises and few apologies, US consumers are starting to get their revenge on corporate America, even as price pressures ease.
This sentiment is also echoed by consumers and some analysts in Australia (where supermarkets are facing criticism, not the food companies) and in Europe for another quarter, as well as in the UK (despite easing retail price inflation in Britain).
Thursday saw three major American companies—Delta Airlines, PepsiCo, and Conagra (a large food group)—all half-complain that consumer resistance to higher prices is starting to hurt.
One economist pointed out, "Consumers are more sensitive to price increases after several years of high inflation."
This view from Comerica Bank chief economist Bill Adams is heard more often, and we are not even into the US second-quarter earnings season proper.
"That is making businesses more cautious about raising prices," and, in turn, is leading to "slowing inflation," Adams continued.
Perhaps that helps explain the dip in US consumer price inflation in June.
Month on month, the CPI eased 0.1%—which was a shock because few, if any, analysts had expected a fall.
That took the annual rate down to 3%, around the lowest annual rate in more than three years, while the core rate also improved—the rise of 0.1% was less than expected, and the 3.3% annual rate was also down a touch from the 3.4% forecast.
The CPI is now a third of what it was at its 9.1% peak in June 2022, in the immediate aftermath of the Russian invasion of Ukraine.
A constant bugbear a year or so ago—used car prices—continues to fall, down more than 10% in the past year.
Oddly (and these CEOs are odd), all three companies say they increased prices (again) in the three months to June—those increases came even after bad publicity about big price rises in the March quarter and much of 2023.
US investors showed selective hearing—Pepsi shares rose Thursday (the company boosted earnings 12% in the quarter despite a 1% rise in revenue as price rises helped offset big falls in volumes, especially in its core North American drinks market where volumes fell for another quarter).
The shares rose 0.22%, mainly because sales and volumes seem to be doing better in parts of Asia but not the US and Europe.
Still, PepsiCo CEO Ramon Laguarta has finally noticed the damage the unchecked price increases are having.
On Thursday, he signaled that the company's price increases might've gone too far, telling investors in a briefing that "some parts of the portfolio need value adjustments."
He pointedly told analysts, "For particular consumers, we need some new entry price points." (i.e., lower prices for Pepsi sodas, Frito-Lay chips, and other salted products—will the company continue to go down the smaller pack 'shrinkflation' route?)
At food maker Conagra Brands—whose products include Duncan Hines desserts, Hunt's ketchup, and Swiss Miss cocoa—consumers are still adjusting to what chief financial officer David Marberger called "significant" price increases over the last two to three years.
The company’s CEO, Sean Connolly, says shoppers of all income levels have been exhibiting "value-seeking behavior."
That’s an echo of similar remarks this year from senior executives at McDonald’s, Burger King (Restaurant Brands), Nestlé, Unilever, Starbucks, and more.
The most interesting remarks, though, came from a business generally not lumped in with fast-moving consumer and retail-skewing products—airlines.
At Delta Air Lines, while the airline has clearly benefited from a surge in travel over the last two and a bit years in the wake of the pandemic, travelers are now resisting higher prices.
In fact, airlines have been in a "race to the bottom on domestic ticket prices,” according to some media reports, as excess capacity (even with the Boeing plane crisis) is poised to trigger what Delta CEO Ed Bastian called "pretty significant corrective action.”
Delta says US airlines will start cutting back capacity at the end of the summer travel season to try and boost yields and earnings. But that will hit business travel more than the public.
Delta saw revenues from passengers in the front of the plane rise 10%, while revenues from those in the rest of the plane were soft.
The airline complained that the Paris Olympics will cost it around $100 million in lost revenues as people avoid the French capital this month and early August because of the games.
Pepsi’s experience was stark, and despite the rise in second-quarter earnings, the longer-term picture is one of approaching pain in its core markets, especially the US.
Globally, sales volumes fell 3% in the second quarter. It was the company's eighth straight quarter of falling sales volumes. PepsiCo has said some of that volume decline is strategic, since it has been shrinking package sizes (shrinkflation), which is generating consumer unease.
But it has also seen lower-income US customers buying fewer snacks or switching to store brands in the face of its continued price hikes.
Over the past two years, Pepsi has driven sales and earnings through price rises, not volumes, as its costs for ingredients and packaging rose. The fourth quarter of 2023 was the company’s eighth straight quarter of double-digit percentage price increases. Prices rose 5% in the first quarter and another 5% in the most recent three months to June.
PepsiCo's average prices jumped 5% for the quarter ended June 15, while organic volume slipped 3%.
One US media commentator wrote on Thursday, "Consumers who were helpless against price increases are regaining power."
