When companies raise prices, they make assumptions about the strength of their brands and how inflation affects their typical customers — earnings at the mass-market retailer Target have plunged because its shoppers have been buying less clothing and electronics, while the luxury house Hermès, maker of the pricey Birkin bag, recently reported its biggest profit margin ever.
Fittingly, the number of mentions of elasticity on the earnings calls mimics the inflation rate: bumping along at a relatively low level of about 2 percent for years before soaring to new heights in recent months, above 9 percent in June.
Several companies say they have already noticed higher prices hurting demand, at least for some of their products. That has been true for Kellogg, which saw cereal sales in Europe slow; Tyson Foods, the largest U.S. meat processor by sales, which said customers were shifting away from more expensive chicken and meat offerings in favor of cheaper cuts; and Ralph Lauren, which said it had seen some of its “value-oriented” customers pulling back.
“The rising cost for essential items and customers’ reprioritization of spending led to significant mix shifts in our business.”
— John David Rainey, chief financial officer
“Leisure travelers have a price elasticity effect where you can’t go much higher.”
— Andrew M. Watterson, chief commercial officer
Procter & Gamble
“As they are more exposed to inflation broadly in the marketplace, with the highest inflation in 40 years, it’d be naïve to assume the consumer is not looking at their cash outlay and their spending even in our categories.”
— Andre Schulten, chief financial officer
And a few companies have raised alarms about inflation already leading to broad-based weakness in demand.
“I think you’re seeing a macro environment change in the second quarter, and particularly towards the middle to end of the quarter, with the inflation really hitting the consumer, and you saw an inflection point in the consumer behavior.”
— Stephen B. Bratspies, chief executive
“We anticipate, as the drag of high interest rates, high inflation and uncertainty continues to impact the consumer, that they will soften as the year goes on.”
— Andrew Rees, chief executive
“In Sweetgreen’s 15-year history of sales patterns, we’ve never seen this before. Our historical seasonality always showed growth during this period.”
— Mitch Reback, chief financial officer
The growing chatter about elasticity suggests that the point at which higher prices could force broader consumer cutbacks is approaching.
“In the first half of the year, we saw minimal price elasticity across our portfolio,” Michele Buck, the chief executive of Hershey, told investors. “We continue to expect more elasticity in the second half of the year than what we have experienced year to date.”