Shoppers should get ready to pay more at register
Thursday, April 28, 2011
CINCINNATI (AP) — Households reeling from gasoline near $4 also face bigger bills for everything from changing their babies’ diapers to wiping their noses to treating themselves to ice cream.
Major makers of everyday consumer products and groceries say they have to raise prices to offset soaring costs for their fuel and the materials and ingredients that go into their products.
Retailers are trying to pass that along at the cash register, adding pressure on a sluggish U.S. economic recovery.
The list of companies saying this week that they are raising prices is long: Kimberly-Clark Corp. (Huggies diapers, Kleenex facial tissue); Procter & Gamble Co. (Pampers diapers, Gillette shavers); Unilever PLC (Dove soap, Ben & Jerry’s ice cream); Colgate-Palmolive (toothpaste, soap); and PepsiCo Inc. (soft drinks, Frito-Lay snacks).
Even as corporate results were being analyzed on Wall Street, the news about Main Street wasn’t encouraging. The U.S. Commerce Department reported that economic growth slowed in the first three months of the year, while unemployment benefit requests climbed again last week.
So while companies have seen better results in the past year after battling for frugal shoppers with price cuts and discounts during the recession, it might be tough to find much slack in many homes’ budgets.
“There’s a fine line that these companies are going to have to work around,” said Jack Russo, an Edward Jones analyst. “You’ve got to be real sensitive to consumers and their ability to afford higher-priced products.”
Kim Smith, a mother of two in Cincinnati, said she can’t, and doubts that the many people already hurt by rising gas prices can, either.
“That’s going to affect a lot of people,” said the restaurant worker. “Stuff is getting too high; if it gets higher, you won’t be able to buy it.”
PepsiCo is seeing higher costs for corn, wheat and oil and said it will cut its own cost while raising prices, while treading cautiously around household budgets.
“Obviously, in the environment we’re in right now, we have to look at these things very carefully,” said Hugh Johnston, PepsiCo’s chief financial officer.
P&G sees nearly flat growth in U.S. and other developed markets. However, it earlier raised Gillette blades and razors and Duracell batteries, recently announced hikes for Pampers, Bounty paper towels and Charmin toilet paper, and Thursday said the summer will bring higher prices for more products including Iams pet food and Head & Shoulders shampoo. P&G said it is also dialing up productivity to save money.
Bob McDonald, chairman and CEO, expressed confidence that new versions of products such as Tide laundry detergent, which will roll out highly concentrated “Pods” this summer, will keep shoppers buying big brands.
“The best response to slow growth is innovation,” McDonald said.
Grocer Kroger Co., told analysts earlier in the week that it saw 2 percent grocery inflation in recent months and plans to keep passing through higher prices from national suppliers to its shoppers. Safeway Inc. said Thursday that it is “successfully” passing along higher prices.
David Dillon, Kroger’s chairman and CEO, explained that the nation’s largest grocer thinks high gas prices could have more people taking advantage of its fuel discounts for regular shoppers. And Kroger is fine with people trading down to its store brands.
P&G’s chief financial officer, Jon Moeller, detailed why the world’s largest consumer products company is raising some prices after it reported third-quarter results slightly below analysts’ expectations and lowered its projected earnings range for the year.
He said P&G’s increased commodity costs are $1.8 billion Çö swollen from the $1 billion projected just two months ago Çö with diesel fuel up 25 percent, wood pulp up 10 percent and resin used in packaging up 15 percent.
Without such costs, Moeller told analysts Thursday, “We would have a fantastic bottom line.”
“The commodity pressures have been well ahead of what these companies expected,” said Russo, who covers P&G, Colgate-Palmolive and PepsiCo. He noted that their profits are buffered by continued strong growth in emerging markets such as China, India and Brazil and also from their ranges of products.
“They feel the pain from some of these issues, but the beauty of all these companies is their diversity,” he said.
Smith, the mother in Cincinnati, is feeling the pain, too.
“I’m going to have to cut back,” she said, “or get a second job.”