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Procter & Gamble Co. said it was raising prices for some of its biggest brands, a strategy shift after the consumer products giant announced another dull revenue growth quarter.
After more than a year The leaders said on Tuesday that the company was changing course and that it would seek to drive up price increases on Pampers diapers and Bounty paper napkins.
P & G is the latest major US business awards in the midst of a strong US economy and healthy consumer spending. But unlike some manufacturers or food brands such as Coca-Cola Co., P & G has not highlighted any tariffs or commercial disruptions for its change. On the contrary, the leaders emphasized the dynamics of the market.
U.S. Household incomes and spending both rose at a healthy pace in June, the Commerce Department reported Tuesday, indicating that consumers have the capacity to generate economic output gains. The low unemployment rate, the increase in wages and consumer spending in the spring contributed to boosting overall economic output by 4.1% in the second quarter.
This gives P & G and some of its rivals the opportunity to raise their discount prices to boost demand when their premium strategy has sagged during the 2008 recession. P & G and rivals lowered prices as consumers were less likely to pay a premium for branded household items and established brands faced competition from cheap start-ups online
. price increases will "restore the structural economy" and could impact the industry as competitors respond. He said that other products beyond these names could see increases.
"Pricing introduces uncertainty and will impact demand and volume," he said during a conference call Tuesday morning. "We will follow closely and adjust on a dynamic basis."
P & G announced a 4% average price increase for its Pampers brand in North America and a 5% increase in its Bounty, Charmin and Puffs brands. The increases will come into effect later this year or early in 2019. As the main player, P & G tends to generate price increases across the industry
Despite larger increases as usual, P & G still expects modest revenue growth. 1st of July. P & G announces organic sales growth of 2% to 3% over the year, compared to 1% last year. Sales of organic products do not take into account factors such as acquisitions, divestitures and currency fluctuations.
P & G has informed retailers of these increases affecting products whose production costs are higher, said a spokesman for P & G. The company may raise prices on a retail store. other products and reduce others. Luvs layers, for example, will be cheaper.
The executives of his rival Colgate-Palmolive Co. also promised higher prices. On Friday, Colgate executives announced that they were raising prices in emerging and developed markets in the second half due to rising raw material costs. "Given the current promotional activity, we may not see the competitors immediately and we intend to remain rational, but we also understand the need to protect our market share," he said. Ian Cook, Colgate Director. says on the call.
Household items seem to be slightly more expensive. According to Nielsen data provided by Wells Fargo, prices for the top 50 US household and personal care products rose 2.2% over the four-week period ending July 14th.
Inflation is gradually on the rise. The Commerce Department said on Tuesday that the price index for personal consumer spending, the Federal Reserve's preferred inflation measure, was up 2.2% in June compared to the year before. 39, previous year and 0.1% compared to May. This marks the fourth consecutive month that the tonnage has met or exceeded the Fed's 2% target from one year to the next.
Separately, the Labor Department reported the cost of employment index, a measure of wages and benefits for civilian workers. The historically low unemployment rate puts upward pressure on companies' labor costs.
P & G, who added activist investor Nelson Peltz to his board of directors earlier this year, after a disputed proxy vote, has been under pressure to show that he can win back buyers who have turned to low-cost, up-and-coming brands, or reduce purchases altogether.
The company is likely to succeed in driving up prices, but the lump could be short-lived, said SunTrust analyst William Chappell. If others do not follow, or if buyers reduce purchases, P & G will likely have to rely on promotions to recover sales. "I think most investors are waiting for this to happen, but it is too early to say."
In the fourth quarter ended June 30, P & G's profit fell 15 $ 1.89 billion, or 72 cents per share. The total business figure increased 3% to $ 16.5 billion, boosted by currency fluctuations.
The company announced organic growth of 1%, lowering prices in four of its five major product segments offsetting volume gains. P & G said prices fell overall by 2% during the quarter. In its tissue and home care business and its grooming division, price declines were a little more brutal, dropping 3%.
In the grooming segment of the business – including Gillette razors – organic sales fell by 3%. Sales of organic products rose 7% in the beauty division, which includes hair products, and 2% in tissue and home care.
P & G General Manager David Taylor says sales are still too low. "I am confident that the interventions work," he said at a call to analysts
The company's shares, down 13% since the beginning of the year, have risen from 0.5% Tuesday morning.
Write to Sharon Terlep at sharon .terlep @ wsj.com
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