CPG price hikes may slow down at the start of next year

Price increases at the shelf may slow down next year as a majority of consumer packaged goods manufacturers and retailers believe price points are “more important” in today’s marketplace, according to a report released Tuesday by Advantage Sales, a division of sales-and-marketing consultancy Advantage Solutions.

Fewer than 40% of product makers plan to increase list prices in the first half of 2023, and one-fourth of manufacturers plan no price increases, The Advantage Sales Outlook—October 2022 report said. 

Inflation has had an impact on the cost of doing business and consumers’ shopping behavior, the report noted, and manufacturers and retailers are taking actions to retain loyal customers, as well as attract new customers, while reducing costs and protecting their margin. Some of the strategies noted in the report that manufacturers are planning to use include: 85% will invest in supply-chain efficiencies; 85% will enforce existing payment terms; 79% will reduce trade marketing funds; and 73% will reduce other marketing spending. The strategies will address cost increases and profit decreases in the next six months, the report said.

However, if list price increases continue, more than six in 10 retailers (62%) said they will pass most of the manufacturers’ price increases on to the shoppers while compressing their margins. Some inflation strategies that retailers plan to use if costs continue to rise over the next six months include: 70% said they will increase private-brand availability; 57% will increase everyday prices; and 48% will require higher margins on promotions. Additionally, four in 10 retailers said they plan to increase the retail price difference between branded products and their lower-priced store brands.

“We’re seeing manufacturers and retailers considering and implementing new tactics to combat the effects of inflation on their costs and on shoppers’ price sensitivity and the negative impact of continued supply chain challenges,” said Jill Blanchard, president of client solutions for Advantage Solutions, in a statement. “In some areas, they’re on the same page and working together for mutual benefit. But there are areas where their individual goals may be at odds with those of their business partners.”

Grocery retailers are looking to increase their private-brand SKUs to improve their margins and lower shelf prices, with nearly nine in 10 saying their assortments will include more store brands in the next 12 months, the report noted. Only one-fourth of manufacturers who produce store brands said they will be increasing production.

Consumer packaged goods manufacturers also expressed supply-chain concerns, saying they expect their businesses to be affected “to a great extent” by difficulties around raw material sourcing (57% of manufacturers), labor (48%) and transportation (39%). Retailers’ primary distribution center-to-store challenges include: product shortages, noted by 87% of respondents; 62% noted late trucks from manufacturers; 28% said warehouse labor; and 15% indicated trucker/driver availability.

The Advantage Sales Outlook—October 2022 report is based on more than 100 responses to a survey of selected Advantage Sales clients and customers.

Advantage Solutions is headquartered in Irvine, California, and is a provider of outsourced sales and marketing solutions to consumer goods companies and retailers. The company has offices throughout North America. A division of Advantage Solutions, Advantage Sales offers services such as headquarter sales services; digital shelf management; analytics, insights and intelligence; retail services; and business process outsourcing.