As the retail sector transitions from the summer highs of Labor Day into the bustling final months of 2024, consumer packaged goods (CPG) companies and retailers will be focused on optimizing strategies to meet year-end goals. The countdown to December 31 presents opportunities to refine marketing tactics, enhance consumer engagement, and overcome emerging challenges most of which have put retail grocery prices in the consumer’s bullseye, from Vice-President Kamala Harris to local customers.
Retailers have to balance cost management with competitive pricing strategies to attract and retain customers. The reality is that this holiday season retailers will still be grappling with labor shortages and increased labor costs. It is time to revisit pricing models, enhance cost efficiencies, and focus on value-driven marketing before the FTC comes knocking on the door.
Transcending Politics
Food prices are center stage. Vice-President Kamala Harris, the Democratic presidential nominee, has proposed a grocery price-gouging ban; the Federal Trade Commission (FTC) and Department of Justice (DOJ) are conducting an inquiry into grocery prices, and U.S. Senators Warren and Casey’s letter to Kroger CEO Rodney McMullen regarding the use of Electronic Shelf Labels and surge pricing all put retail prices in the crosshairs. The Consumer Price Index released on August 21 showed that food at home is up 26.9 percent since 2019.
While many believe that the impact of the presidential and other elections historically influences consumer confidence and spending habits, it’s factually not true. Although election results and the months leading up may affect consumer sentiment, that doesn’t necessarily affect consumer activity according to the study Partisan Bias, Economic Expectations and Household Spending published in The Review of Economics and Statistics. However, elections can result in shifts in policy and regulatory environments that affect the retail and CPG industries.
On the Descent
Some retailers are actually lowering prices including groceries: Walmart 7,200, Target 5,000 and ALDI 250 items, to list just a few banners that hope to lure shoppers in advance of the Halloween, Thanksgiving, Christmas, Chanukah and Kwanzaa food-centric shopping season. Walmart raised its full-year forecast on August 21 and said the big reason for its recent success is that wealthier households are shopping there delivering market share gains. Both Target and Walmart have significantly increased their assortment and quality of private brands through the Good & Gather and bettergoods adding yet additional challenges for CPG brands. John Rainey, Walmart’s CFO said that the retailer is “seeing private brand penetration continue to increase.” According to Jeffries’ August 21 U.S. Food Private Label Tracker, private label brands continued their growth with 56 percent of the 75 food categories that they track gaining share. Target’s CEO Brian Cornell is hitting back. On August 21 he appeared on CNBC’s “Squawk Box” to argue that there is no room for price gouging in a sector as competitive as retail where margins are razor thin.
Taking the lead from Carrefour’s CEO Alexandre Bompard’s 2023 effort to pressure CPG companies to negotiate better pricing in France, during Walmart’s August 15, 2024 second quarter earnings investor call, CEO Doug McMillon said that the retailer is aggressively fighting back price increases from brand suppliers “because we think prices need to come down.” This is a major CPG challenge that brand and category managers must prepare for. Purdue University’s latest Consumer Foods Insights Report shows that food inflation remains stable at 2.2 percent for the fifth month in a row and that consumer food inflation estimates and expectations continue to drop and are at the lowest level since the survey began in January 2022.
Possible Pandemic
Another food price factor to watch this fall is the potential impact on food prices as the bird flu outbreak surges across the U.S. which has already infected over 18 million chickens, turkeys, and wild birds; tens of thousands of cows; and over a dozen humans so far (the World Health Organization has called the risk of the virus spreading to humans “an enormous concern”). According to the CPI July report eggs have already increased in price by 19.1 percent from a year ago while the price of uncooked poultry including turkey (great news for the upcoming Thanksgiving holiday) has actually declined 2.3 percent.
Balancing Act
Retailers have to balance cost management with competitive pricing strategies to attract and retain customers. The reality is that this holiday season retailers will still be grappling with labor shortages and increased labor costs. It is time to revisit pricing models, enhance cost efficiencies, and focus on value-driven marketing before the FTC comes knocking on the door.
