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Anxiety about inflation is high. Even as demand roars back, the world’s biggest manufacturers, from Procter & Gamble to Nestle, are seeing the cost of raw materials, whether chemicals or coffee, soar.
Unilever warned of commodity and shipping costs increasing the most in a decade. Oil and plastics are a headache for Nurofen-maker Reckitt Benckiser, while pricier aluminum threatens a nasty hangover at the world’s biggest brewer Anheuser-Busch InBev NV. Walmart and Target Corp may highlight the price demands of their big suppliers when they update on trading in a few weeks’ time.
Coffee drinkers face paying higher prices for their favourite brew. Credit:Edwina Pickles
But although input costs might be hurting profit margins right now, inflation isn’t all bad for consumer groups and food retailers over the long run - especially since there is a good chance that shoppers will pay for them.
Consistent but modest inflation gets shoppers used to price rises, which is good for manufacturers’ margins, says Bloomberg Intelligence analyst Duncan Fox. For grocers, when food prices are accelerating, they have to sell fewer cans of beans or loaves of bread to reach the same value of sales. So long as they keep volumes stable, sales automatically rise. Kroger Co chief executive Rodney McMullen even told investors last month that “a little bit of inflation” is always good for the US supermarket.
The problem is, the cost increases, not to mention rising labour expenses amid worker shortages on both sides of the Atlantic, are neither gradual nor consistent right now.
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In the US and Europe there will be a lag before manufacturers pass them onto retailers, as Unilever noted. The maker of Dove moisturiser and Magnum ice cream knows that it can suffer when the two sides don’t see eye to eye. A price spat with Tesco in 2016 saw jars of Marmite removed from shelves.
Supermarkets are no doubt keen for consumer goods groups to bear more of the pain. The big manufacturers’ margins - even with the pressure from more expensive commodities and freight - are still much fatter than the grocers’.
But makers of the most popular brands have a good chance of getting supermarkets to pick up the tab on higher costs. Ultimately, those stores will simply raise the prices on the shelves, so it’ll be shoppers who pay the final bill.