“Most Americans know too much junk food is unhealthy, but 90% consume more than they really should. Why? Aggressive marketing”— Paul Ebeling
There is anxiety in the air, anxiety about inflation is running high. Now as demand roars back, the world’s biggest manufacturers, from The Procter & Gamble Co. to Nestle SA, are seeing the cost of raw materials soar.
Unilever Plc warned of commodity and shipping costs increasing the most in a decade. Crude Oil and plastics are a headache for Nurofen-maker Reckitt Benckiser Group Plc, while pricier aluminum threatens the world’s biggest brewer Anheuser-Busch InBev NV.
And, Walmart Inc. and Target Corp. may highlight the price demands of their big suppliers when they update on trading in a few wks’ time.
Although input costs might be hurting profit margins right now, inflation is not all bad for consumer groups and food retailers over the long run since the majority of consumers will pay for them.
“Consistent, modest inflation gets shoppers used to price rises, which is good for manufacturers’ margins“, says LTN economist Bruce WD Barren.
For grocers, when food prices are accelerating, they have to sell fewer cans of beans or loaves of bread to reach the same value of sales. So long as they keep volumes stable, sales automatically rise.
Kroger Co’s CEO told investors last month that “a little bit of inflation” is always good for the US supermarket.
The problem is, the cost increases, not to mention rising labor expenses amid worker shortages on both sides of the Atlantic, are neither gradual nor consistent right now.
In the US and EU there will be a lag before manufacturers pass them onto retailers, as Unilever noted.
Supermarkets are keen for consumer goods groups to bear more of the pain. The big manufacturers’ margins are still fatter than the grocers.
Nestle, Thursday said it is managing to put through price increases, and they may step up by about 2% in 2-H of this year. There still could be more leeway as Kroger said customers do not balk at inflation of 3-4%.
It is when prices spike higher that manufacturers and retailers have to worry. Not all consumers are flush with cash. Trading down is the big danger: Those under pressure may switch out of brands, such as Kellogg’s cornflakes and Pampers diapers, into cheaper own-label options.
Potato chips, ice cream, candy bars, and cookies; Americans love their junk food. According to DoSomething.Org, Americans eat 31% more prepackaged food than fresh.
That is a lot of Oreos, crunchy Doritos, and crispy pretzels! Perhaps this is a good time to eliminate junk snack from your diet.
Have a happy healthy weekend, Keep the Faith!