Analysis: Companies urge consumers to pay more for better products in times of high inflation

0

The IRI defines “mainstream” products as branded products that are priced no more than 25% above or below the category average. Anything more expensive is considered “premium”. High-end items accounted for 35.6% of non-food consumer packaged goods dollar sales in the first quarter, compared to 33.8% for consumer products. Private labels are tracked separately.

In the first three months of the year, shoppers spent more money on high-end dishwashing detergent, sleeping pills and paper towels compared to a year earlier, according to IRI. At the same time, they’ve shifted to cheaper brands for things like pet treats, trash bags and skin care. The data provider says customers are opting for more sophisticated products in categories where they perceive they actually get a tangible benefit for the higher price.

For example, P&G claims that its Tide Cold Wash laundry detergent uses half the energy of using hot water. At Walmart.com, the cold water detergent is about 10% more expensive per load than the original version.

“We communicate to the consumer, ‘if you switch from hot to cold water, the energy savings effectively offset the cost of detergent,'” P&G Chief Financial Officer Andre Schulten said last month.

Of course, not all buyers can afford to pay more. The Federal Reserve said on June 1 that more than half of metro areas are seeing a return to higher prices, such as smaller purchases or a shift to cheaper brands.

IRI expects spending to diverge more, with some consumers demanding premium products while others seek value. The companies were quick to brag on recent earnings calls that they offer a wide range of product tiers and price points. P&G, for example, says it has boosted its presence at US dollar stores to connect with budget-conscious shoppers.

Still, manufacturers have been pushing premium products more recently, in part because they need to show their products are worth it as they raise prices, said Lauren Lieberman, goods analyst at consumption at Barclays Plc.

U.S. shoppers paid 8.3% more for home cleaning supplies in April from a year earlier, the biggest increase since October 1981, according to the Bureau of Labor Statistics. Personal care products cost 2.1% more, the largest annual increase in nearly 10 years.

At Kimberly-Clark Corp., CEO Michael Hsu says he wants to “elevate” the company’s products, which include Kleenex facial tissue, Huggies diapers and Cottonelle toilet paper. Premiumization is driving growth, he said.

Share.

Comments are closed.