Raging Inflation: How to Manage Price Increases
If your house is on fire, dumping raw jet fuel onto the flames isn’t a good way to put it out. But that is more or less what is happening with the U.S. economy right now. Consumer prices have been increasing at the fastest rate in 30 years, and congress is currently in the process of passing some of the most extensive spending bills ever conceived.
As we mentioned in our inflation update from earlier this summer, Fed officials keep saying the inflation is transitory, but their voices are seriously beginning to waver. With consumer prices jumping over 6% in October from a year ago, there are credible sources on both sides of the aisle who are sounding the alarm.
Consumers are flush with cash, housing prices are on a rocket ship to mars, supply chains are still completely out of whack, and container ships are playing Tetris to unload their goods at ports that look like a freeway on Friday afternoon. Politicians can talk about “taxing the rich” all they like, but inflation isn’t going away any time soon, and it is a tax on the poor and vulnerable more than anyone.
How Inflation Is Impacting the CPG / Retail Industry
At this point, inflation isn’t just limited to rental cars and airline tickets. Supply chain challenges have driven energy prices up over 40% in the last year, which is, in turn, driving up the cost of pretty much everything. Food prices increased 1.2% in September alone, which is 15% on an annualized rate. This stings because food accounts for over a tenth of average family spending.
Facing ballooning costs, many leading CPG companies are being forced to raise prices or plan to do so soon. US Foods reported an 11.5% increase in prices for Q3 of this year, and Mondelez announced they expect to raise prices by 7% in 2022. If nothing else, it’s an excellent time to stock up on Oreos and Ritz crackers.
Over the coming months, we predict an ongoing tug-of-war between CPG organizations that need to raise prices to reflect increasing costs and retailers struggling to maintain an advantage by not outpricing their competition. Eventually, the Fed will have to tighten monetary policy, and if they wait too long, a recession is likely.
RW3 can Help Manage Strategic Price Increases
Smaller CPG organizations deal with the same fundamental economic factors as Mondelez, but it can be more challenging to convince retailers to accept price increases because they have less leverage. At the same time, retailers have to be careful to avoid outpricing competition. The answer to both of these challenges is competitive pricing data.
For example, if you are a CPG brand facing the need to push out multiple price increases over the coming months, you will likely experience pushback from retailers who are carefully watching competitors. Being armed with real-time pricing information for those other stores can help you succeed in negotiations. At the same time, seeing that prices are going up everywhere will help ease retailer fears about making adjustments.
Whether you are a CPG or retail organization, RW3 has the people, processes, and technology to help you with competitive price data collection and strategy. Our Price Check Services can extract and deliver accurate pricing information for many stores in the same market. Get up-to-date information on the current and historical prices of brands and SKUs within 7 to 10 days of your request so you can make informed decisions.
The next few years will likely be economically tumultuous at best. Having pricing data will help you know how to respond to retailers and competitors. If you need help collecting that data, we’d love to have a conversation.
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