The Wall Street Journal reports this morning that "companies continue to jack up prices on a range of goods from diapers to handbags—and some are even bragging about it to investors as a sign of brand strength. In some cases, the increases more than cover the hit from higher raw material, labor and other costs, fattening profit margins.
"The price increases come as inflation is moderating and a weakening economy foreshadows a potential pullback in consumer spending. U.S. household spending rose in March from the prior month, but growth is tapering, suggesting that the pain of higher prices is starting to take a toll."
In fact, the Journal writes, "Consumer confidence tumbled 9% in May from April amid renewed concerns about the state of the economy."
The Journal notes that "Kroger CEO Rodney McMullen said in an interview last week that he was surprised by how openly some company executives have been discussing price increases on conference calls. In the past, 'they would not be as aggressive in talking about it publicly,' he said. 'They are being much more transparent than what I have historically seen'."
- KC's View:
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Interesting that the Journal would specifically cite handbags and diapers - because these two categories represent very different ends of the spectrum.
Handbags are one thing. Companies like Coach or Kate Spade or Chanel can raise their prices because only a certain strata of the population is interested in or has the resources necessary to buy such products. The companies are less interested in market share, I would guess, than profit, because they're focuses on a fairly small segment of the overall marketplace.
Diapers are something else. People with babies buy a lot of them, and every price increase hurts. If you have a kid, a price increase for diapers is as bad as a price increase for gasoline - you feel it.
Even gas prices are moderating, by the way. Axios reports this morning that "it was nigh on one year ago when gasoline crossed a threshold American drivers had never seen before — $5 a gallon. Now, we're back to around $3.50."
The fact is that " prices are down by about 30% since last June — a move that would typically be expected to improve the mood of American consumers." However, consumer sentiment is not what it used to be - which may have something to do with the cost of diapers and other consumables.
I think that companies like Kroger have to be concerned about CPG manufacturers that blithely raise prices, because it puts them at risk from competitors such as Ali, Lidl or Dollar General. And if these CPG companies think that market share can be sacrificed in favor of profit, they may be playing a dangerous long-term game.
It is the old Jurassic Park lesson - just because you can do something doesn't mean you should do something.
