Brenetta Smith used to buy name brand products like Oreos and Doritos without thinking twice. But when she noticed food prices at her local supermarket, Aldi, going up, she realized she had to do something different: “I need to change the way I shop,” she said.
So Ms. Smith, 40, a stay-at-home parent in Memphis, started stocking up on dry goods like rice and flour, freezing meat she bought on sale, and avoiding packaged foods, which meant no more Oreos and Doritos. “We took out all the snacks,” she said.
Having developed new habits and discovering that her approach is driving up her husband’s salary as a cable engineer, she has no intention of going back to her old habits.
“Even when the world returns to normal, you can still maximize your salary and your income,” Ms Smith said. She started posting budget tips on TikTok in December and she quickly gained a following.
Americans have faced significant inflation in grocery stores and restaurants. Over the past year, overall food prices rose 8.5 percent as consumers paid more for staples such as eggs, fruit and meat.
And companies that have regained their pricing power during the pandemic may be reluctant to give it up. In earnings reports last week, some of the largest packaged food companies said they raised prices last quarter and saw their profits soar.
But there are signs that consumers are beginning to resist price increases by cutting back or trading in for cheaper options. Some of the same multinationals that raised food prices said the volume they sold fell.
Brands risk alienating consumers with these high prices, said Sucharita Kodali, a retail analyst at Forrester. “Clients may or may not come back,” she said. “At some point they will say enough is enough.”
At the moment, many large companies raise prices in such a way that profits compensate for the decrease in sales volume. PepsiCo, which makes products like Quaker Oats and Cheetos, said Tuesday it raised prices by 16 percent in the last quarter, boosting profits by 18 percent (excluding the sale of a juice company last year), even as volume decreased by 2 percent.
Nestlé, whose portfolio includes Hot Pockets and Perrier water, said Tuesday it had increased its prices by 9.8 percent in the past quarter, but volume was down half a percent — an improvement on the previous quarter, when it volume fell by 2.6 percent.
And on Thursday, Unilever, the consumer goods giant that derives about a third of its sales from food brands, announced it had raised prices for items like Hellmann’s mayonnaise by 13.4 percent, and that volume fell by 1.3 percent.
So far, “what we’re seeing is a willingness to pay for things you need,” says Simeon Siegel, a retail analyst at BMO Capital Markets, adding that items like milk and perishable groceries often need to be replenished.
But consumers can begin to redistribute their spending. “Companies that can sustain price increases will see their profits rise,” he added.
For example, Coca-Cola raised prices last quarter and profit increased by 12 percent to $ 3.1 billion.
In general, consumers continue to spend money. The U.S. economy grew at an annualized rate of 1.1 percent in the first quarter, the Commerce Department reported on Thursday, marking its third straight quarter of growth after output fell in the first half of last year.
And food inflation is declining. According to the Consumer Price Index, food prices in March were equal to the previous month and prices for food at home fell by 0.3 percent. But prices in restaurants continued to rise, rising 0.6 percent from February.
Nevertheless, some customers are changing their purchasing behaviour. Kylie Park, 31, used to buy three or four boxes of Pop-Tarts Bites for her son on trips to her local Safeway in Oahu, Hawaii. But the treats have become more expensive, so she often only buys one package at a time. She also stopped buying so much juice, she said, and is skipping her trips to Costco for bulk supplies.
“I used to buy too much; I realized I don’t need any of that,” says Ms. Park, who works as a part-time esthetician and content creator. “I don’t think I would go back.”
She added that she had mostly just paid for the higher prices for staples, which meant she spent more of her budget on groceries. “Everything I buy is normally everything we eat,” she said.
Other consumers choose to buy cheaper generic products. When companies raise prices too much, consumers look for alternatives, Ms. Kodali said. “You basically introduced some people who were your audience to your competitors,” she said. “What you end up seeing is a trade-off.”
Dianna Anderson’s attitude to cereal brands used to be, “If I can’t get the name brand, I won’t get it.” But as inflation began to erode their breakfast budgets, Mx. Anderson, 37, who uses the pronouns she/she, started buying generic breakfast cereals at Target.
“I would probably stick with the Target brand,” Mx said. Anderson, a writer who works at a nonprofit organization in Minneapolis. “It’s a decent product and it’s cheaper.”
Fast food restaurants have also seen profits increase as they raise prices.
McDonald’s announced this week that it had “strategic menu price increases” in the past quarter. Same-store sales were up 12.6 percent and profits were up 63 percent from a year earlier, to $1.8 billion. But the company acknowledged that some customers were cutting back.
“I’m really proud of the way our system has performed pricing in light of the double-digit inflation we’ve been experiencing,” McDonald’s CEO Christopher J. Kempczinski said during a call with analysts.
He added that the number of items per order decreased slightly – some customers opted not to add fries. “We are seeing price resistance in some places, more resistance than we saw in the beginning,” he said.
Mrs. Park is one of those who resist. She used to go to McDonald’s, her favorite fast food restaurant, on her lunch break every week, she said. But last summer when she noticed that prices were rising and portions seemed small, she went back to once a month.
“Filet-O-Fish is my favorite ever,” Ms. Park said. “It feels like we’re losing.”
At Chipotle, which has been raising prices for more than a year, average menu prices last quarter were 10 percent higher than last year and earnings were 84 percent higher. The company also expanded its profit margin and increased sales.
“I think we’ve now demonstrated that we have pricing power,” Brian Niccol, Chipotle’s CEO, said during a call with analysts this week. “We have a very strong brand and we don’t want to be ahead of the inflation environment, but we don’t want to fall behind either.”
Not everyone is happy with the higher costs at Chipotle.
Amy Scalf, 37, was shocked to discover her burrito bowl of guacamole cost more than $11 at a Chipotle near her home in Lexington, Ky. Ms. Scalf, who offers savings tips on social media, said she might go to Taco Bell instead.
“It’s definitely a deterrent,” she said of the higher prices. “It’s an incentive to take an option that’s cheaper.”
