By Aisha Al-Muslim
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 11, 2019).
Makers of household staples from diapers to toilet paper are set
to raise prices again this year after already hiking prices in
2018, hoping to offset higher commodity costs and boost
profits.
Church & Dwight Co. recently increased prices for about
one-third of its products, including Arm & Hammer cat litter
and baking soda, and some OxiClean cleaning products.
"The good news is that competitors are raising [prices] in those
categories as we speak," Church & Dwight Chief Executive
Matthew Farrell said on a conference call last week when the
company reported higher quarterly sales and lower profits.
The company is now discussing more price increases with
retailers, including for personal-care products, Mr. Farrell told
analysts Tuesday.
Church & Dwight is one of several consumer-goods companies,
including Procter & Gamble Co., Colgate-Palmolive Co. and
Clorox Co., that have raised prices -- or pledged to do so -- in
response to higher costs of raw materials and transportation, as
well as unfavorable foreign-currency swings.
As a result, consumers are being asked to pay more for Pampers
and Huggies diapers, Bounty and Viva paper towels, Charmin and
Scott toilet papers and Arm & Hammer baking soda, among other
products.
For much of the past decade, price cuts have been far more
common than price increases as U.S. companies were mostly reluctant
to test consumers' spending power and brand loyalty in a fragile
economic recovery.
When companies tried to raise prices, "they better have had a
uniquely strong innovation or be willing to lose market share to
competitors," said Sanford C. Bernstein analyst Ali Dibadj.
Adding to the challenge of raising prices is that more shoppers
have been switching to store-branded paper towels and discount
detergents, or opting for online upstarts such as Dollar Shave
Club. Traditional brands have also been under pressure from
retailers like Walmart Inc. and Amazon.com Inc. to keep prices low,
pushing the manufacturers to focus on lowering costs in their
supply chains or paring back advertising.
After trying to combat weak demand by lowering prices, the
industry's biggest player, P&G, shifted its course last summer,
announcing it would charge more for several of its brands, and
several rivals followed suit.
The recent price increases are largely playing out in the
companies' favor, Wells Fargo Securities analyst Bonnie Herzog
said.
Sales volumes of household and personal products in the U.S.
declined 1.4% in January, according to Bernstein's analysis of data
from Nielsen. Dollar sales of those products rose 0.7% in the
period, Bernstein said, indicating that the price increases, on
balance, are padding the bottom lines at consumer-goods
companies.
American workers are beginning to enjoy pay raises, with the
tight labor market recently delivering the biggest annual wage
increases since the recession ended. Average hourly earnings for
private-sector workers rose 2.9% in January from a year earlier --
the largest such jump since June 2009. The U.S. also has continued
to add jobs as a multiyear economic expansion continues.
But even in a strong U.S. economy, there are limits to how much
brands can charge without losing some customers.
Tyler Aftab, a 35-year-old teacher in Green Brook, N.J., said he
noticed at his local Costco last week that Charmin and Bounty,
which were normally under $18 last year, were both being sold for
about $23. Glad trash bags, normally under $15, were listed at
about $19.
Mr. Aftab bought the Glad kitchen bags discounted for under $16.
He opted to buy Costco's Kirkland Signature brand of paper towels
instead of Bounty. He decided to not buy any toilet paper.
"I am a fairly loyal consumer of Charmin, but I will not pay $23
for the pack," Mr. Aftab said. "I will wait until those prices come
down."
Clorox last year raised prices on about half of its portfolio,
including its Glad trash bags and plastic wraps, which the company
said helped it boost profit margins in the latest quarter. Yet
Glad's competitors didn't follow with their own price increases as
executives had expected, contributing to a sales decline in the
period. To defend the brand's market share, the company would boost
spending on promotions in the near term, executives said last
week.
Clorox said sales rose in other categories like cat litter and
its namesake bleach, where it also raised prices recently.
CEO Benno Dorer last week voiced confidence in Clorox's pricing
strategy over the long term, and the company expects to invest in
new products. Higher prices for Kingsford charcoal and Burt's Bees
products went into effect in December and February,
respectively.
Starting in September, P&G began increasing prices on a
rolling basis from around 4% to as much as 10% on various products,
such as Pampers, Bounty, Charmin and Puffs brands. The increases
will be mostly in place this month.
The company in January reported that the higher prices led to an
increase in organic sales, a closely watched metric that strips out
currency moves, acquisitions and divestitures. The company raised
its organic sales target for the year, while P&G's finance
chief, Jon Moeller, told analysts that higher pricing may affect
sales volume.
Kimberly-Clark Corp. executives said last month that they expect
volumes to suffer, particularly with tissue products, after the
company implemented price increases averaging in the mid-to-high
single digits on a percentage basis. Still, the company, which
makes Cottonelle and Scott bathroom tissue and Kleenex facial
tissues, predicted organic sales should increase 2% for 2019.
It used to be easier for these companies to raise prices, Mr.
Dibadj said. "In fact, 60% to 70% of commodity price increases were
pushed through to the customer. Now, it's less, given retailers
have increased power and consumers have figured out the art of
trading-down."
Companies that don't have a mix of high- and low-price products
find it harder to pull off price increases, said Mr. Dibadj,
because they risk losing price-sensitive customers for good. "The
big fear is your pricing is too high and that consumers are just
not going to come back to your brand," he said.
Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
February 11, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Kimberly Clark (NYSE:KMB)
Historical Stock Chart
From Aug 2024 to Sep 2024
Kimberly Clark (NYSE:KMB)
Historical Stock Chart
From Sep 2023 to Sep 2024