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Shopper Rebellion Against Higher Prices Helps Slow Inflation

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After pushing prices to new heights last year, some companies are starting to pull back. It could be another sign that inflation is starting to turn a corner.

Conagra Brands Inc.,

which makes Hunt’s ketchup and Slim Jim meat sticks, raised prices 17% in its latest quarter, on top of two previous quarters, when it increased prices more than 10%.

The company said it is done boosting prices for now. Conagra’s sales volumes fell 8.4% for the quarter ended Nov. 27, which the company attributed in part to shoppers recoiling from the price increases.

Restaurant chain Hurricane Grill & Wings is trying a different means to the same end. Rather than lower prices to bump sales, it now sells a bucket-and-a-half of chicken wings for the same price as a bucket. The bonanza reflects the falling price of chicken wings, which surged last year, said

Andy Wiederhorn,

chief executive of franchising company Fat Brands Inc. Hurricane Grill & Wings is among its brands.

Executives at

Constellation Brands Inc.,

which sells Corona beer, say they plan smaller price increases after higher-than-usual increases in October slowed sales growth.

Many companies raised their prices substantially last year to offset higher fuel costs and higher prices for ingredients, parts and labor. As fuel prices have dropped and pandemic supply-chain snarls have eased, some of those costs have come down.

That is a good sign for the economy. It suggests that some inflation in the past year resulted from extreme supply-demand imbalances brought on by the pandemic and the war in Ukraine and which are now fading.

Some companies raised prices not only because their costs were higher, but because they anticipated rising costs, according to a recent study. Those price increases, in turn, drove inflation higher.

The study, by economists at the Federal Reserve Bank of Kansas City, found that higher markups—the gap between what a firm charges and what it costs to produce an item—were a major driver of inflation in 2021.

They concluded that companies in some cases were raising prices in 2021 in anticipation of future cost pressures, rather than because of market power or outsize demand. Andrew Glover, a senior economist at the Federal Reserve Bank of Kansas City who was involved in the study, doesn’t expect prices to fall this year, he said, but he anticipates that the pace of increase will continue to slow.

Employees and shoppers at the Kroger grocery store in Newport, Ky., on Jan. 11.



Photo:

Asa Featherstone, IV for the Wall Street Journal

Even if waning cost pressures give companies less reason to raise prices, that doesn’t spell an end to the inflation problem.

Fed officials worry that a host of other factors could sustain upward pressure on inflation. China’s reopening could boost global demand for commodities and energy, sending prices up. Unemployment, at 3.5%, is at a 53-year low. Fed officials fear tight labor markets could sustain higher wage growth, particularly for labor-intensive services.

Inflation, which fell from 9.1% in June to 6.5% in December as measured by the consumer-price index, is still far above the 2% range, which is the Fed’s target and around the level that prevailed before the pandemic. Price gauges that seek to filter out volatile prices showed inflation ran at between 4.5% and 7% in the past 12 months.

“We welcome these better inflation reports,” Fed Chairman

Jerome Powell

said last month. “But I think we’re realistic about the broader project.”

The Fed worries consumers will expect inflation to stay high and build it into their behavior. Such inflationary psychology can be self-fulfilling: If consumers believe high prices will persist, they could seek bigger raises, and businesses, seeing higher labor costs, could continue raising prices.

Consumers last year cut back on purchases, suggesting that they were hitting a ceiling on prices they were willing to pay.

Unit sales of general merchandise, a category that includes home décor and small appliances, fell 7% in 2022 compared with 2021, according to data from IRI and NPD, which track store and online purchases. Dollar sales of those items fell 2%, reflecting higher prices.

Unit sales of food and beverages fell 3% last year, but on a dollar basis they rose 10%. That showed consumers were willing to pay higher prices for groceries but bought fewer items.

Cold beer at Washtenaw Liquor in Ypsilanti, Mich.



Photo:

Nick Hagen for The Wall Street Journal

“People need to eat,” said Krishnakumar Davey, a president at IRI. Shoppers are nonetheless buying less when possible and, in many cases, buying less expensive versions of necessities such as toilet paper and laundry detergent.

Sticker shock

2023 is the year of cost cutting for product manufacturers, said Mark Malo, founder of Next Gear Consulting, a consumer-goods advisory and former executive at

Clorox Co.

On average, expenses should be flat as shipping rates fall, he said, but labor and other costs remain high for some products.

Chummy Tees founder Josh Neuman raised prices on his T-shirts by about $4 in 2020. He has since lowered them to prepandemic levels after sales, which surged during the peak of the Covid-19 pandemic, fell to 2019 levels.

“The consumer’s mind-set has changed,” Mr. Neuman said. “They want to save money and raising prices is not an option for me in 2023, even though many of my costs are still elevated.”

Oransi LLC, a maker of air purifiers, cut prices on its bestselling model in November by 20%, said Chief Executive Peter Mann. The model had sold for $599 since its September 2020 launch. It is now $399.

Mr. Mann said he decided to cut the price to offset waning consumer demand and heightened competition. Interest in air purifiers soared during the pandemic.

While some component costs such as chips are still higher than they were before the pandemic, others, including shipping rates have fallen, making it easier to lower prices without taking too big a hit to profits, Mr. Mann said.

Heather Caye Brown raised prices at her active and swimwear brand Night Dive by 15% last year. She doesn’t think she can raise prices again.

“People are tightening their purse strings,” Ms. Caye Brown said. “I feel like I’m on a tightrope and trying to balance being able to be profitable enough to keep the business going, but also not wanting to deter customers.”

Black Friday shoppers at a Walmart store in Dunwoody, Ga., on Nov. 25.



Photo:

Jessica McGowan/Getty Images

This past holiday shopping season, marked by a return of heavy discounting, was weaker than what some companies had expected.

Lululemon Athletica Inc.

said that although sales rose strongly, its profit margins were squeezed as shoppers bought more items on sale.

Walmart Inc.,

Target Corp.

, and other large retailers that sell a wider variety of goods such as food, clothes and décor, report quarterly earnings next month, which will include their holiday sales.

Large retailers late last year started resisting their suppliers’ price increase requests, aiming to boost profits and attract more cash-strapped shoppers by keeping a lid on price increases, according to executives.

Premium products

Some companies introducing new products are mindful of price-sensitive shoppers and retailers. Executives behind Beautiful, a new brand of small kitchen appliances and cookware co-owned by actor Drew Barrymore, kept prices low for its introduction to Walmart in 2021.

Data from Walmart and other sources indicated that consumer spending was cooling for some categories, said

Shae Hong,

chief executive of Made by Gather, the kitchenware company behind Beautiful. The company worked with manufacturers to lower production costs, he said, which kept prices low and helped gain valuable shelf space near the front of Walmart stores.

“It just made sense for us to invest in price to drive more demand in a tough environment,” Mr. Hong said.

The meat section of the Kroger grocery store in Anderson Township, Ohio.



Photo:

Asa Featherstone, IV for the Wall Street Journal

Shoppers’ resistance to higher prices vary by product. Sales are rising faster for premium versions of butter, such as Kerrygold Irish butter, despite higher prices slowing shoppers’ appetite for less fancy butter.

U.S. dollar sales of Kerrygold butter rose 28% in 2022 compared with 2021, said a spokeswoman for Ornua, the Irish dairy cooperative that owns Kerrygold. Volume sales of Kerrygold rose 17% while overall butter volume sales dropped 2.8% during the same period, she said.

The brand’s “premium positioning and grass-fed credentials helps to attract a different shopper,” compared with mainstream and store brands, she said. Two sticks of Kerrygold butter cost around $4.18 at Walmart; the store-brand butter costs $4.48 for four sticks.

The biggest deodorant makers increased prices last year without denting sales. Deodorant sales by dollar rose 22.2% during the last four weeks of the year and 6.1% by units, according to a Jefferies analysis of NielsenIQ data.

Procter & Gamble Co.

and

Unilever

PLC, which together account for 80% of U.S. deodorant sales—including such brands as Secret, Old Spice and Suave—each imposed double-digit price increases in the quarter. P&G said this fall that a new aluminum-free offering helped boost sales. It reports quarterly results on Thursday.

Jillian Amodio, a 32-year-old mother of two in Annapolis, Md., said inflation has changed her shopping habits. She has started buying more food in bulk at Sam’s Club and more clothes from Walmart and

Amazon.com Inc.,

all because of better prices.

“Anytime I’m at the grocery store, my kids say, ‘Can I get this?’ ” Ms. Amodio said. “I used to be more lax, but now I’m saying no to the extra chips or the toy.”

Write to Sarah Nassauer at [email protected], Suzanne Kapner at [email protected] and Nick Timiraos at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


After pushing prices to new heights last year, some companies are starting to pull back. It could be another sign that inflation is starting to turn a corner.

Conagra Brands Inc.,

which makes Hunt’s ketchup and Slim Jim meat sticks, raised prices 17% in its latest quarter, on top of two previous quarters, when it increased prices more than 10%.

The company said it is done boosting prices for now. Conagra’s sales volumes fell 8.4% for the quarter ended Nov. 27, which the company attributed in part to shoppers recoiling from the price increases.

Restaurant chain Hurricane Grill & Wings is trying a different means to the same end. Rather than lower prices to bump sales, it now sells a bucket-and-a-half of chicken wings for the same price as a bucket. The bonanza reflects the falling price of chicken wings, which surged last year, said

Andy Wiederhorn,

chief executive of franchising company Fat Brands Inc. Hurricane Grill & Wings is among its brands.

Executives at

Constellation Brands Inc.,

which sells Corona beer, say they plan smaller price increases after higher-than-usual increases in October slowed sales growth.

Many companies raised their prices substantially last year to offset higher fuel costs and higher prices for ingredients, parts and labor. As fuel prices have dropped and pandemic supply-chain snarls have eased, some of those costs have come down.

That is a good sign for the economy. It suggests that some inflation in the past year resulted from extreme supply-demand imbalances brought on by the pandemic and the war in Ukraine and which are now fading.

Some companies raised prices not only because their costs were higher, but because they anticipated rising costs, according to a recent study. Those price increases, in turn, drove inflation higher.

The study, by economists at the Federal Reserve Bank of Kansas City, found that higher markups—the gap between what a firm charges and what it costs to produce an item—were a major driver of inflation in 2021.

They concluded that companies in some cases were raising prices in 2021 in anticipation of future cost pressures, rather than because of market power or outsize demand. Andrew Glover, a senior economist at the Federal Reserve Bank of Kansas City who was involved in the study, doesn’t expect prices to fall this year, he said, but he anticipates that the pace of increase will continue to slow.

Employees and shoppers at the Kroger grocery store in Newport, Ky., on Jan. 11.



Photo:

Asa Featherstone, IV for the Wall Street Journal

Even if waning cost pressures give companies less reason to raise prices, that doesn’t spell an end to the inflation problem.

Fed officials worry that a host of other factors could sustain upward pressure on inflation. China’s reopening could boost global demand for commodities and energy, sending prices up. Unemployment, at 3.5%, is at a 53-year low. Fed officials fear tight labor markets could sustain higher wage growth, particularly for labor-intensive services.

Inflation, which fell from 9.1% in June to 6.5% in December as measured by the consumer-price index, is still far above the 2% range, which is the Fed’s target and around the level that prevailed before the pandemic. Price gauges that seek to filter out volatile prices showed inflation ran at between 4.5% and 7% in the past 12 months.

“We welcome these better inflation reports,” Fed Chairman

Jerome Powell

said last month. “But I think we’re realistic about the broader project.”

The Fed worries consumers will expect inflation to stay high and build it into their behavior. Such inflationary psychology can be self-fulfilling: If consumers believe high prices will persist, they could seek bigger raises, and businesses, seeing higher labor costs, could continue raising prices.

Consumers last year cut back on purchases, suggesting that they were hitting a ceiling on prices they were willing to pay.

Unit sales of general merchandise, a category that includes home décor and small appliances, fell 7% in 2022 compared with 2021, according to data from IRI and NPD, which track store and online purchases. Dollar sales of those items fell 2%, reflecting higher prices.

Unit sales of food and beverages fell 3% last year, but on a dollar basis they rose 10%. That showed consumers were willing to pay higher prices for groceries but bought fewer items.

Cold beer at Washtenaw Liquor in Ypsilanti, Mich.



Photo:

Nick Hagen for The Wall Street Journal

“People need to eat,” said Krishnakumar Davey, a president at IRI. Shoppers are nonetheless buying less when possible and, in many cases, buying less expensive versions of necessities such as toilet paper and laundry detergent.

Sticker shock

2023 is the year of cost cutting for product manufacturers, said Mark Malo, founder of Next Gear Consulting, a consumer-goods advisory and former executive at

Clorox Co.

On average, expenses should be flat as shipping rates fall, he said, but labor and other costs remain high for some products.

Chummy Tees founder Josh Neuman raised prices on his T-shirts by about $4 in 2020. He has since lowered them to prepandemic levels after sales, which surged during the peak of the Covid-19 pandemic, fell to 2019 levels.

“The consumer’s mind-set has changed,” Mr. Neuman said. “They want to save money and raising prices is not an option for me in 2023, even though many of my costs are still elevated.”

Oransi LLC, a maker of air purifiers, cut prices on its bestselling model in November by 20%, said Chief Executive Peter Mann. The model had sold for $599 since its September 2020 launch. It is now $399.

Mr. Mann said he decided to cut the price to offset waning consumer demand and heightened competition. Interest in air purifiers soared during the pandemic.

While some component costs such as chips are still higher than they were before the pandemic, others, including shipping rates have fallen, making it easier to lower prices without taking too big a hit to profits, Mr. Mann said.

Heather Caye Brown raised prices at her active and swimwear brand Night Dive by 15% last year. She doesn’t think she can raise prices again.

“People are tightening their purse strings,” Ms. Caye Brown said. “I feel like I’m on a tightrope and trying to balance being able to be profitable enough to keep the business going, but also not wanting to deter customers.”

Black Friday shoppers at a Walmart store in Dunwoody, Ga., on Nov. 25.



Photo:

Jessica McGowan/Getty Images

This past holiday shopping season, marked by a return of heavy discounting, was weaker than what some companies had expected.

Lululemon Athletica Inc.

said that although sales rose strongly, its profit margins were squeezed as shoppers bought more items on sale.

Walmart Inc.,

Target Corp.

, and other large retailers that sell a wider variety of goods such as food, clothes and décor, report quarterly earnings next month, which will include their holiday sales.

Large retailers late last year started resisting their suppliers’ price increase requests, aiming to boost profits and attract more cash-strapped shoppers by keeping a lid on price increases, according to executives.

Premium products

Some companies introducing new products are mindful of price-sensitive shoppers and retailers. Executives behind Beautiful, a new brand of small kitchen appliances and cookware co-owned by actor Drew Barrymore, kept prices low for its introduction to Walmart in 2021.

Data from Walmart and other sources indicated that consumer spending was cooling for some categories, said

Shae Hong,

chief executive of Made by Gather, the kitchenware company behind Beautiful. The company worked with manufacturers to lower production costs, he said, which kept prices low and helped gain valuable shelf space near the front of Walmart stores.

“It just made sense for us to invest in price to drive more demand in a tough environment,” Mr. Hong said.

The meat section of the Kroger grocery store in Anderson Township, Ohio.



Photo:

Asa Featherstone, IV for the Wall Street Journal

Shoppers’ resistance to higher prices vary by product. Sales are rising faster for premium versions of butter, such as Kerrygold Irish butter, despite higher prices slowing shoppers’ appetite for less fancy butter.

U.S. dollar sales of Kerrygold butter rose 28% in 2022 compared with 2021, said a spokeswoman for Ornua, the Irish dairy cooperative that owns Kerrygold. Volume sales of Kerrygold rose 17% while overall butter volume sales dropped 2.8% during the same period, she said.

The brand’s “premium positioning and grass-fed credentials helps to attract a different shopper,” compared with mainstream and store brands, she said. Two sticks of Kerrygold butter cost around $4.18 at Walmart; the store-brand butter costs $4.48 for four sticks.

The biggest deodorant makers increased prices last year without denting sales. Deodorant sales by dollar rose 22.2% during the last four weeks of the year and 6.1% by units, according to a Jefferies analysis of NielsenIQ data.

Procter & Gamble Co.

and

Unilever

PLC, which together account for 80% of U.S. deodorant sales—including such brands as Secret, Old Spice and Suave—each imposed double-digit price increases in the quarter. P&G said this fall that a new aluminum-free offering helped boost sales. It reports quarterly results on Thursday.

Jillian Amodio, a 32-year-old mother of two in Annapolis, Md., said inflation has changed her shopping habits. She has started buying more food in bulk at Sam’s Club and more clothes from Walmart and

Amazon.com Inc.,

all because of better prices.

“Anytime I’m at the grocery store, my kids say, ‘Can I get this?’ ” Ms. Amodio said. “I used to be more lax, but now I’m saying no to the extra chips or the toy.”

Write to Sarah Nassauer at [email protected], Suzanne Kapner at [email protected] and Nick Timiraos at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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