Big Brands Keep Raising Prices To Beat Inflation — but Consumers Are Still Buying

Featured Image

A report by First Insight in partnership with WWD, a property of Fairchild Fashion Media, gauges consumer confidence. Sixty-two percent of consumers surveyed believe the U.S. is currently in a recession, according to the report. Consumers named grocery prices, gasoline prices, and the high cost of dining out as their top three inflation pain points. The consumer study is based on a survey of more than 1,000 respondents in September 2022. 

“Consumers are willing to pay up for brands and trademarks that carry strong equity,” Gerald Pascarelli, an SVP of equity research at the investment firm Wedbush Securities Inc., told me.

I asked Pascarelli about the current purchase patterns of consumers indicated in third-quarter earnings reports of major brands like Coca-Cola. And Nick Setyan, managing director at Wedbush covering the restaurant sector, shared some insight on Chipotle. Despite historic inflation, many are willing to absorb price hikes for a Coke and a burrito bowl. 

“The non-alcoholic beverage companies will continue to take pricing as long as there is not a material impact to demand elasticity,” Pascarelli says. For all soda companies, rate increases are currently a component of the strong price mix, he says. The other component is price pack architecture. “Offering smaller pack sizes protects the consumer in terms of absolute out of pocket costs, but it also drives a positive mix shift for the manufacturers which is another component of pricing,” he says.

In the third quarter, The Coca-Cola Company’s (NYSE: KO) price mix was up 12% vs. the same period last year, Pascarelli says. The beverage giant reported on Tuesday that net revenues grew 10% to $11.1 billion in the quarter. It topped expectations of $10.52 billion. The volume of products also rose 4%. KO is also introducing packages at lower price points.

“All companies are dealing with ongoing high levels of commodity cost inflation,” Pascarelli explains. “And while they are always looking to drive efficiencies and streamline their cost structure, taking outsized pricing has been the best offset.” This has resulted in “above algorithm revenue growth which is helping to protect profitability,” he says. 

READ THE FULL ARTICLEat Fortune.

consumer study  consumer spending  consumer research  inflation