Price increases at the shelf may slow next year as a majority of consumer packaged goods manufacturers and retailers believe price points are “more important” in today’s marketplace and fewer than 40% of product makers say they plan to increase their list price in the first half of 2023, according to a report by Advantage Sales, a division of Advantage Solutions.
“Advantage Sales Outlook | October 2022,” based on more than 100 responses to a survey of selected Advantage Sales clients and customers, found one-fourth of manufacturers plan no price increases and 37% are unsure if they’ll take a first-half price hike.
When list price bump-ups occur, a majority of retailers (62%) say they are passing most of the increase to the shelf, but still compressing their margins. Very few (5%) say they’re raising retails higher than the increase to enhance 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 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 pointed to other key findings in the report, among them:
- Manufacturers’ most-cited strategies for navigating inflationary costs in the first half of 2023 are investing in supply-chain efficiencies and enforcing existing payment terms.
- During the past six months, six in 10 surveyed manufacturers have decreased 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 will cut other marketing spending.
- To meet the needs of price-conscious consumers, retailers are focusing primarily on price points; they report planning to expand 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 say their assortments will include more private brands over the next 12 months. To compete, manufacturers say they’ll lean into product innovation, marketing and new packaging architecture.
- If deflation occurs, most manufacturers will invest in their brands through marketing; half expect to drop savings to the bottom line to improve their P&Ls. Most retailers, though, would consider lowering their everyday price and increasing promotions.
- Despite continued investments and opportunities in digital commerce, manufacturers and retailers expect most of their growth to come from brick-and-mortar sales.
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