Procter & Gamble, which spends $US11.5 billion on marketing each year, is preparing for consumers to rein in household budgets as inflation takes off.
The multinational consumer goods group reported a 7% rise to $19.4 billion in net sales for the March quarter.
In a briefing of market analysts, the company outlined increased costs to its business
“We’ve seen continued cost increases in nearly every type of material we use and in diesel and in natural gas,” says CFO Andre Schulten. “Freight costs have continued to increase.”
Any price rises would be by category and not across the board.
Schulten: “We are very well aware that consumers might end up looking at budget constraints.”
However, the company still expects organic sales growth in the range of 6% to 7% for the full year, a two-point increase versus previous guidance of 4% to 5%.
Consumers are under increasing pressure with the US annual inflation rate hitting 7.9% in February, a 40 year high.
In Australia, the latest consumer price index to be released next week is expected to show core inflation up again by around one percentage p[oint. The annual rate is running at 3.5%, the highest since 2010 and well ahead of Reserve Bank targets. Interest rate hikes ahead will lift local inflation further.
The March federal budget called out a number of pressures on the Australian economy, including the pandemic, the Russian invasion of Ukraine, strained supply chains and rising inflationary pressures.
Woolworths, in its last trading update, noted shelf prices up 2% to 3% in 2022, with Inflation expected to continue to trend upwards.
P & G’s Schulten: “We have intentionally built price levels in every brand and across brands to ensure that we have offerings for consumers.
“If they feel they are budget constrained, they can trade within the P&G brand offerings. So on diapers, we have multiple offerings, starting with the Pampers Pure at about $0.40 a diaper, Swaddlers at $0.35 a diaper, Baby Dry at $0.30 and Luvs at $0.20.
“These price levels exist in all categories and offer the consumer a choice within the P&G portfolio.
“We are also, which is part of our pricing execution, protecting key price points, key value price points for each offering. So consumers can choose different cash outlays as they shop based on their available cash at the moment of shopping.
“The last element, we intentionally built distribution across all channels and invested in all channels. And that includes channels that consumers that are more budget constrained would migrate to like hard discounters in Europe, like the dollar channel in the US
“All of those leave us in a better position than we’ve ever been to deal with the potential consumer that is more budget constrained. To-date, we’re not seeing that come through.”