Can businesses still get away with raising prices?
On the one hand, inflation has been hovering near 3% for seven months. On the other: You wouldn’t know it from asking consumers in the US how they feel about prices. The seven in 10 consumers sweating price hikes today isn’t much lower than the 83% who were when inflation hit 9.1% in June 2022, according to Deloitte surveys.
To see how different companies have handled this balancing act, we took a little tour through some recent earnings. Here’s what their executives had to say.
McDonald’s. The chain, which said it had “mid to high single-digit price increases last year,” according to CEO Chris Kempczinski, lost lower-income customers in the fourth quarter. “[P]articularly among the low-income consumer, there’s some transaction size reduction that we’re seeing,” he said. He added that heading into 2024, there will probably be more attention to what he “would describe as affordability” over value deals. CFO Ian Borden said overall prices are “coming down in line with inflation getting back to what I’ll call more normal levels.”
Chipotle. Raising prices last year didn’t hurt the burrito-and-bowl barons: Sales were up for all three income brackets, even those making below $40,000, CEO Brian Niccol said in an earnings call. Chipotle also plans to change prices to offset the cost of California’s new $20 minimum wage for fast-food workers, which takes effect in April. “We know we have to take something as a significant increase when you talk about a 20%-ish increase in wages,” CFO Jack Hartung said. “We’ll wait and see just what the landscape looks like, what the consumer sentiment is, what other companies are going to do.”
PepsiCo. Sales fell in the last quarter of 2023. “Part of that is slowdown due to [higher] pricing and [less] disposable income,” CEO Ramon Laguarta said, adding that “part of that is also pivoting between in-home consumption and away-from-home consumption [...] and as consumers pivot away-from-home, we’ll try to be there for them” while still “lowering [sales] guidance.” The CEO is optimistic that rate cuts from the Fed in the coming months will get consumers in good enough shape to buy more soda and chips in 2025.
Coca-Cola. Coca-Cola plans to keep raising prices, and seems confident that the company won’t be hurt by the move. “We’ll earn our right to take an appropriate level of pricing,” CEO James Quincey said. In nearly all countries it sells in, the company’s price growth has fallen to “normalized levels,” he said. He expects more growth from prices than volume in the US and thinks that the US consumer is strong overall.
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J.M. Smucker. The maker of eponymous jams, Jif peanut butter, and Meow Mix enjoyed a small increase in net sales while raising prices. But in an earnings call, CEO Mark Smucker said he wants to make sure that customers aren’t spread too thin. “We want to make sure that we are being thoughtful and prudent about pricing and that we are recovering our costs and generally speaking, not over-recovering,” he said (no relation—just kidding, definitely a relation).
MTY Food Group. The owner of Wetzel’s Pretzels, Cold Stone Creamery, and other suburban staples said the company can afford only to make “very minimal price increases” after 18 months of hikes hurt sales. “We need to make sure we don’t push the customers away,” CEO Eric Lefebvre said in an earnings call.“Traffic really is keeping at a good level. So traffic is not the problem, but what we’re seeing is the average spend tends to go down a little bit for most of our brands. So we have a smaller basket size for any given customer that we have.”
Unilever. The maker of Axe, Vaseline, TRESemmé, and Ben & Jerry’s highlighted “more balance between volume and price” in its annual report, something CFO Fernando Fernandez aims to continue. “Going forward, we will be laser-focused on driving volume growth and mix as price growth returns to more normalized levels,” he said in an earnings call. CEO Hein Schumacher told analysts that as inflation slows, Unilever and other consumer companies will probably run more promotions, “which will have a bit of pressure on our…growth from pricing.” That said, “I don’t think at this point that I want to signal a real reduction,” he said. “If you look overall for 2024, [we] still expect some level of inflation.”
Warner Bros. Discovery. Price hikes on streaming services Max (formerly HBO Max) and Discovery+ helped bring in more money from subscribers, CFO Gunnar Wiedenfels said in an earnings call. “We’ve begun to see an inflection in subscriber-related revenues, both distribution and advertising, which accelerated to over 6% during the second half of the year, helped by price increases, growth in the ultimate tier, and scaling of the ad-lite subscriber base.”