Rising prices at the shelf may slow in the coming year because a majority of consumer packaged goods manufacturers and retailers believe that price points are “more important” in today’s marketplace, and fewer than 40% of product makers plan to increase their list price in the first half of 2023, according to a report by Advantage Sales, a division of Advantage Solutions.
Based on more than 100 responses to a survey of selected Advantage Sales clients and customers, “Advantage Sales Outlook | October 2022” found that one-fourth of manufacturers plan no price increases, and 37% are unsure whether they’ll raise prices in the first half of the year.
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When list price hikes happen, a majority of retailers (62%) said that they pass most of the increase to the shelf while still compressing their margins. Just 5% said that they’re raising retail prices higher than the actual increase to boost their margins.
“We’re seeing manufacturers and retailers considering and implementing new tactics to combat the effects of inflation on their costs and on shoppers’ price sensitivity and the negative impact of continued supply chain challenges,” said Jill Blanchard, president, client solutions for Irvine, Calif.-based Advantage Solutions. “In some areas, they’re on the same page and working together for mutual benefit. But there are areas where their individual goals may be at odds with those of their business partners.”
Blanchard cited other key findings in the report, including:
- Manufacturers’ most popular strategies for dealing with inflationary costs in the first half of 2023 were investing in supply-chain efficiencies and enforcing existing payment terms.
- Over the past six months, six in 10 surveyed manufacturers have lowered their trade spending. Eight in 10 are planning to reduce trade marketing funds to some degree in the first half of 2023, and seven in 10 intend to cut other marketing spending.
- To meet the needs of price-conscious consumers, retailers are focusing mainly on price points; they spoke of planning to grow private-brand assortments, increase promotional offerings and consider longer-term price reductions. Manufacturers’ top strategy is marketing their products as trusted, high-quality brands.
- Nearly nine in 10 retailers said that their assortments will feature more private brands over the next 12 months. To compete, manufacturers plan to double down on product innovation, marketing and new packaging.
- If deflation happens, most manufacturers intend to invest in their brands through marketing; half expect to drop savings to the bottom line to improve their P&Ls. Most retailers, however, said that they would consider lowering their everyday prices and ramping up promotions.
- Despite ongoing investments and e-commerce opportunities, manufacturers and retailers both expect most of their growth to come from brick-and-mortar sales.