Food giants were finally starting to cut prices — then the war began

{"text":[[{"start":12.38,"text":"Producers of everything from toothpaste to baked beans and ice cream are bracing themselves for a second inflationary surge in less than five years. But foisting price rises on consumers to offset the pressure will not be so easy this time around."}],[{"start":30.009999999999998,"text":"Iran’s control of the Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas is shipped, has resulted in sharp rises in the cost of energy and plastics used in packaging. "}],[{"start":44.04,"text":"Restricting passage through the waterway, a central part of Iran’s retaliation against the US and Israel’s month-long bombardment, has also driven up the price of fertiliser by more than 40 per cent."}],[{"start":56.97,"text":"In the weeks leading up to the war consumer goods groups including PepsiCo and Kraft Heinz had announced plans to cut prices to revive stagnant or declining sales volumes, as consumers cut spending."}],[{"start":72.15,"text":"But the situation now has echoes of 2022, when the aftermath of the pandemic and Russia’s invasion of Ukraine sparked inflation in energy and commodities that led consumer goods groups and retailers to aggressively raise prices. "}],[{"start":89.13000000000001,"text":"While analysts say it is too soon to tell whether fresh inflationary pressures will spiral to the extent they did a few years ago, they agree that western consumers will be less willing to swallow higher grocery bills."}],[{"start":null,"text":"

"}],[{"start":103.16000000000001,"text":"Last month Doritos maker PepsiCo said it would reduce prices by up to 15 per cent on certain snacks, with chief executive Ramon Laguarta citing the “stretched” budgets of low- and middle-income consumers. "}],[{"start":119.54,"text":"At Kraft Heinz, where sales volumes have declined for five consecutive years, chief Steve Cahillane also outlined plans to lower prices, acknowledging they had become “unfriendly” to consumers."}],[{"start":133.12,"text":"Nik Modi, an analyst at RBC Capital Markets, said consumer goods companies would find it “much harder” to push through price increases in 2026 after raising them aggressively in the previous inflationary cycle."}],[{"start":149.21,"text":"“A lot of the companies are realising they maybe went a little too far [on price rises],” he said. US consumer staples stocks have declined by more than the blue-chip S&P 500 index since the US and Israel launched their offensive."}],[{"start":166.24,"text":"Analysts at TD Cowen downgraded earnings forecasts for a range of food companies last week, warning that higher input costs and weak pricing power put their dividends at risk."}],[{"start":179.33,"text":"Since the start of the conflict oil prices have jumped from $72 per barrel to $115. The rise is driving up the cost of transport, production and packaging while also eroding consumers’ disposable incomes. "}],[{"start":196.52,"text":"Barclays analyst Warren Ackerman said “energy‑led inflation shocks are particularly corrosive” for consumer confidence, which has sunk on both sides of the Atlantic since the onset of the war."}],[{"start":210.47,"text":"Freight typically makes up 7-8 per cent of food companies’ input costs, according to TD Cowen. In the US diesel prices have surged above $5 a gallon, up more than 40 per cent since late February, and US trucking lines have increased fuel surcharges at a similar rate, according to freight marketplace DAT. "}],[{"start":232.65,"text":"The spot price for polyethylene, a plastic resin used in bags and bottles, has increased by more than 50 per cent since the end of February as the conflict restricts the supply of chemicals, according to commodity data provider ICIS. "}],[{"start":249.29000000000002,"text":"Colgate-Palmolive, maker of toothpaste and shampoo, said it was considering raising prices or cutting costs to offset the increase. Bleach producer Clorox said “sustained increases” in energy costs would “likely have an impact on our P&L over time” and that it was prepared to cut costs, as well as adjust prices and packaging sizes."}],[{"start":275.13,"text":"Andy Searle, consumer lead at consultancy AlixPartners, said rising costs were a “big challenge” for consumer goods companies, many of which have been trying to revive sales volumes through promotions. "}],[{"start":290.12,"text":"“Obviously that equation has been disrupted by the current situation,” he added. “If they do move on price . . . it’s going to be a challenge to get back into volume growth at least this year and potentially next year.”"}],[{"start":null,"text":""}],[{"start":304.25,"text":"Matt Suggett, a partner in the consumer practice at consultancy Simon-Kucher, said that because most retailers required at least a 90-day lag before suppliers could request a price rise, any “second-order effects [will] materialise over a matter of months to years”."}],[{"start":322.85,"text":"Prices of perishable groceries might be first to rise, followed by beverages, which are relatively expensive to transport, and energy-intensive chilled foods, Suggett said."}],[{"start":335.68,"text":"More heavily indebted food producers will be forced to raise prices at the earliest opportunity, according to Barclays analyst Andrew Lazar."}],[{"start":345.66,"text":"“Management teams may conclude that it’s better to ‘fight to live another day’ by preserving margins now,” he wrote. “Even if it further delays the volume recovery.”"}],[{"start":364.62000000000006,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1774855733_3205.mp3"}