Kellogg, Coca-Cola Say Consumers May Start Rejecting Price Hikes
Kellogg, Coca-Cola Say Consumers May Start Rejecting Price Hikes
(Bloomberg) -- Companies’ ability to keep raising prices could be coming to an end, Kellogg Co. and Coca-Cola Co. warned on Thursday.
Both companies, like many peers, have started charging more to cope with supply-chain snarls, a labor shortage and higher commodity costs. While consumers haven’t balked at the hikes as sharply as in the past, Kellogg Chief Executive Officer Steven Cahillane said the benign reaction won’t last.
“We don’t forecast for that to continue,” Cahillane said Thursday in an earnings call. “Obviously inflation continues to rage on.” In an interview, he added that it’s hard to predict a tipping point, but “consumers don’t like higher prices. We know that.”
Coca-Cola is also on the lookout. “It’s easy to respond to inflation by putting up the prices,” CEO James Quincey said in an earnings call. But there will “be a squeeze on real incomes in a number of countries.”
A stubborn bout of inflation has emerged as a major concern across the corporate landscape. U.S. consumer prices reached yet another four-decade high in January as items such as food climbed, according to Labor Department data released Thursday. Companies across industries are charging more in order to preserve their profitability.
In response to an erosion of purchasing power, Coca-Cola is counting on higher sales at on-premise venues such as restaurants to boost volume. It also sees its selection of products at different price levels helping to maintain revenue.
PepsiCo Outlook
PepsiCo Inc., meanwhile, said consumer reactions to higher prices have been in line with expectations. CEO Ramon Laguarta said in a call with analysts that he was cautious on how higher prices will play out in emerging markets.
All three companies reported quarterly earnings on Thursday morning.
Cahillane said Kellogg’s products should also be protected by the fact that consumers tend to cut back on eating out before their at-home purchases during inflationary periods. “Brands like ours and categories like ours are far more discretionary and are far more affordable,” he said.
Still, there’s a limit, and Kellogg is waiting for it. “We’re watching that on a daily basis, there’s no question, front and center,” Cahillane said.
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