Grocery prices keep rising but CEOs say shoppers are still buying

Food and drink prices are rising, but CEOs from PepsiCo’s Ramon Laguarta to Tyson Foods’ Donnie King say that consumers aren’t balking yet at paying more for their Lay’s chips and chicken nuggets.

Inflation has led many food and beverage companies to raise prices by shrinking package sizes, cutting promotions or outright price increases at the grocery store. But companies have to strike a delicate balance, raising prices enough to offset higher costs without making products too expensive for consumers, who could always trade down to cheaper alternatives like private-label brands.

“We’re feeling good about how our consumers are staying loyal to our brands in spite of some of our pricing decisions,” Laguarta said on Pepsi’s earnings call in early February.

In January, the producer price index for final demand rose 1%, according to the Bureau of Labor Statistics. The metric tracks rising costs paid by domestic producers for commodities. For food, prices ticked up 1.6% compared with December and 12.3% compared with 12 months ago.

Consumers, on the other hand, saw food prices tick up 0.9% in January compared with a month earlier and 7% compared with the year-ago period, according to the BLS’s consumer price index. Many shoppers have had more cash to spend at the grocery store after receiving government stimulus checks during the pandemic and changing other behaviors, like traveling and eating out less.

These inflation measurements came before the Russian invasion of Ukraine, which has already led to surging prices for oil and gas, metals and grains — all key exports of Russia. Aluminum prices hit a record high of $3,450 per ton on the London Metal Exchange. Still, most companies hedge to protect themselves from short-term spikes in commodity prices, although at this point it’s unclear how long the crisis will persist and when shoppers will start feeling the pinch.

On Thursday, Procter & Gamble, which manufactures consumer staples like Tide detergent and Pampers diapers, expressed caution when talking about its ability to deal with rising inflation.

“While it’s too soon to declare success, given the strength of our portfolio, broad-based share gains and early in-market results, we feel relatively well positioned about our position to execute pricing,” CFO Andre Schulten said in the company’s virtual CAGNY presentation.

P&G has raised prices across all 10 of its U.S. categories, affecting about 80% of sales in its home market. The consumer giant might have the right approach, warning investors that there may be bumps in the road ahead.

“The cash pile that most consumers are sitting on is dwindling fast, and we are seeing elasticity start to get back to normal…