When brands raise the prices that they charge retailers, stores have little choice but to pass those higher costs onto us, their customers.
But not anymore, if some retailers have their way.
Several brands have said rising costs, fears of tariffs and trade uncertainty are forcing them to raise their prices. But several retailers say the manufacturers need to suffer the pain so shoppers don’t have to.
Over the past week, major manufacturers like Unilever and Nestle have said they’ve had to raise prices to help cover their own rising costs. “We have seen unprecedented cost inflation in coffee and cocoa,” Nestle CEO Laurent Freixe told investors. “We now need to see the impact of price increases on consumer demand,” Chief Financial Officer Anna Manz added.
Other manufacturers, like Procter & Gamble, say they’ve tried to hold the line, but price hikes are likely on the way.
We’ve been through this before, and retailers know when shoppers see higher prices at the shelf, the retailers themselves often get the blame. So some of them aren’t having it this time.
“We are committed to maintaining the value proposition our customers expect,” Albertsons executive Omer Gajial reportedly wrote in a letter to suppliers, as uncovered by The American Prospect. “Therefore, with few exceptions, we are not accepting cost increases due to tariffs.” Those “few exceptions” would be handled on a case by case basis, only if suppliers first send a formal request with detailed information about why price increases were necessary. “Approval is not guaranteed,” the letter warned.
Other retailers similarly have been pressuring their suppliers to absorb any additional tariff-related costs. Walmart is said to be pushing its Chinese suppliers to cut their prices to offset the additional tariffs on their products, according to Bloomberg. Other large retailers like Target and Costco are reportedly doing the same.
That’s good news for shoppers, in theory, if retailers succeed in getting suppliers to hold their prices down instead of passing them on to consumers. But it’s the big retailers that have the muscle and market share to be able to make those demands. Your neighborhood grocer might not. And that could give the big retailers even more muscle and market share, at the expense of their smaller competitors, who may be forced to raise prices while the Walmarts and Albertsons of the world manage to keep their prices low.
Some manufacturers are trying to come up with workarounds to raising prices. PepsiCo is resisting higher prices in favor of smaller package sizes. “We’re putting more emphasis on those entry price points and making sure that we’re not asking for a large amount of money for participating in our brands,” PepsiCo CEO Ramon Laguarta told investors last week. “Smaller, single-serve, smaller multipacks, those are all tools for us to keep the consumers in the brand.”
Whatever their strategy, many manufacturers are worried. “We probably aren’t feeling as good about the consumer now as we were few months ago,” PepsiCo Chief Financial Officer Jamie Caulfield said. “Consumers are still brushing their teeth, taking showers, cleaning their floors and feeding their pets,” Colgate-Palmolive CEO Noel Wallace told investors. But concerned shoppers may be more likely to “destock their pantries and not necessarily buy that extra tube or that extra body wash.”
So if there’s any good news in all of this, it may be that the shoppers who buy things at full price may end up paying more, while shoppers who look for deals may come out ahead. Colgate, for one, says promotions may be worth it to keep loyal customers from straying. “We are fine-tuning our promotional strategy so that consumers can still choose the right Colgate-Palmolive product even if they feel less certain about their own financial well-being,” Wallace said.
So let the retailers and manufacturers battle to determine who will pay the extra tariff- and inflation-related costs. For the savvy shopper, it may not matter who pays for it – just as long as it’s not you.
Image source: Albertsons
