McDonalds, Coca Cola and Huggies among brands to warn of price hikes as US struggles with inflation
Enjoying a Big Mac and a glass of Coca-Cola will no longer be a cheap treat amid soaring inflation.
Major companies including McDonalds, Coca-Cola, Huggies maker Kimberly-Clark and even the humble bodega owners in New York City have been forced to make their products more expensive to cope with higher costs – adding more pressure on ordinary households.
The warnings about the impact of soaring inflation on the prices of basic goods comes after Walmart lowered its profit outlook for the year, saying rising prices on food and gas are forcing shoppers to cut back on discretionary items, particularly clothing, that carry higher profit margins.
Russia’s war in Ukraine has exacerbated rising prices for almost everything, from wheat and cooking oil, to natural gas and crude oil, making it more expensive to produce goods.
Those costs are being passed on to customers, either through reduced sizes or higher prices.
Unilever, the consumer goods giant that owns brands ranging from Ben & Jerry’s ice cream to Dove skin care, has raised prices by more than 11 percent between April and June in response to high inflation
Russia’s war in Ukraine has exacerbated rising prices for almost everything, from wheat and cooking oil, to natural gas and crude oil, making it more expensive to produce goods. Pictured: Graphic showing the rise in inflation
Huggies maker Kimberly-Clark have been forced to make their products more expensive to cope with higher costs
Unilever, the consumer goods giant that owns brands ranging from Ben & Jerry’s ice cream to Dove skin care, has raised prices by more than 11 percent between April and June in response to high inflation.
That shored up revenue in the first half of the year, with the London company on Tuesday reporting underlying sales growth of 8.1 percent, that is being driven by higher prices to offset the costs of making its products.
‘The challenges of inflation persist and the global macroeconomic outlook is uncertain, but we remain intensely focused on operational excellence and delivery in 2022 and beyond,’ Unilever’s CEO Alan Jope said.
Meanwhile, Amazon said on Tuesday it is raising its fees for Prime in Europe in an effort to bolster its profits amid a slowdown in demand and increasing inflation. In the UK, the fees will rise by 20 percent from £79 to £95.
Coca-Cola has also raised prices globally to compensate for higher ingredient and freight costs. Coke Chairman and CEO James Quincey said those higher prices aren’t yet impacting demand.
Meanwhile, Amazon said on Tuesday it is raising its fees for Prime in Europe in an effort to bolster its profits amid a slowdown in demand and increasing inflation. In the UK, the fees will rise by 20 percent from £79 to £95
But Quincey said it’s difficult to get a clear read on consumers right now. There are early signs that lower-income buyers are trading down to cheaper food brands in groceries and convenience stores, for example, but travel and leisure demand – at baseball stadiums and theme parks, for example – is extremely strong.
‘This post-COVID re-prioritization of spend by consumers is layered over what feels like a squeeze on purchasing power,’ Quincey said Tuesday on a conference call with investors.
‘How that’s all going to net out in the second half and going into next year, there are a lot of opinions, and I don’t think anyone’s going to know until we actually get there.’
Coca-Cola’s price increases and rising demand has meant that the company posted strong sales in the second quarter.
The company also raised its revenue expectations Tuesday, saying that it now expects organic revenue growth of between 12% and 13% for the full year. That’s up from earlier projections of a 7% to 8% increase.
Revenue grew 12% in the April-June period to $11.3 billion, the Atlanta company said. That was well ahead of the $10.56 billion Wall Street forecast, according to analysts polled by FactSet.
Coca-Cola’s price increases and rising demand has meant that the company posted strong sales in the second quarter
But for McDonald’s, raising prices has taken a toll on US demand. It has meant the company’s revenue fell short of expectations in the second quarter.
The Chicago burger giant said its revenue fell 3% to $5.72 billion in the April-June period. That was short of Wall Street’s forecast of $5.8 billion, according to analysts polled by FactSet.
Same-store sales, or sales at stores open at least a year, were up nearly 10% worldwide. That was higher than the 6.8% that analysts had expected.
But there were double-digit declines for comparable stores in China, where restaurants were closed temporarily throughout the country for most of the quarter.
U.S. same-store sales rose 3.7%. McDonald’s said most of that increase was due to higher prices, with store traffic remaining flat.
Chief Financial Officer Kevin Ozan said McDonald’s is seeing some trade-down to cheaper items and lower sales of combo meals in the U.S., particularly among lower-income consumers.
But for McDonald’s, raising prices has taken a toll on US demand. It has meant the company’s revenue fell short of expectations in the second quarter
The number of customers per sale has also declined from the height of the pandemic, when locked-down families would often pick up large orders at the drive-thru.
Ozan said year-over-year U.S. price increases in the 8% to 9% range will likely continue through the remainder of the year as McDonald’s compensates for its higher costs. McDonald’s expects food and paper costs to be up 12% to 14% for the full year, while its labor costs are up 10%.
CEO Chris Kempczinski said McDonald’s has benefited from another form of trading down, with higher-income Americans choosing on some days to hit a McDonald’s rather than more expensive sit-down restaurants.
‘Even though we’re pushing through pricing, the consumer is tolerating it well,’ Kempczinski said.
Meanwhile, in New York, the classic bodega breakfast sandwich – with bacon and egg and cheese – has also been affected.
To keep up with today’s levels of inflation due to the pandemic and Russia’s war with Ukraine, bodega owners are faced with no choice but to raise the prices of their famously low-priced breakfast sandwiches.
‘Bacon, egg and cheese – you can’t take that sandwich away,’ said Francisco Marte, who owns a bodega in the Bronx. ‘That’s the favorite sandwich of New Yorkers.’
Marte has had to increase prices on everything from sugar to potato chips – and the cost of his bacon, egg and cheese sandwich is up from $2.50 to $4.50.
At the wholesale level, inflation climbed 11.3% in June compared with a year earlier, the U.S. Department of Labor reported. Producer prices have surged nearly 18% for goods and nearly 8% for services compared with June 2021.
‘These things happen. And normally, in normal times, the supply chain is able to absorb some of that shock,’ said Katie Denis, a spokesperson with the Consumer Brands Association, a trade group representing food, personal care and cleaning companies. ‘Right now, there’s just no slack.’
Frances Rice, who stopped by Marte’s bodega for a bacon, egg and cheese, says she’s trying to work out how to cope with less slack in her budget as prices rise. She says there’s always a silver lining.
‘It means that I buy a good breakfast and stretch it to lunch and don’t eat again until I get home, which means I lose weight,’ she said. ‘Got to look at the brighter side of things, because you know what? Either way, if you got to move, you’ve got to pay. If you’re hungry, you have to eat.’