Inflation for Nonalcoholic Beverages Hits +8.0%.
‘Signs of Strain” on C-Store Consumer Spending, Analyst Finds.
Plus: Easter Holiday Supermarket Pricing Survey.

As BD reported last month, Wall Street analysts are asking tough questions about how long unprecedented favorable price elasticities will hold for consumer packaged
goods companies. While the consensus is that carbonated soft drinks are less at risk of
a consumer backlash than food, the soda category would not be immune to what Credit Suisse Beverage Analyst Kaumil Gajrawala said this week could be a sudden impact on volume should consumers pull back. “Our contacts had a consistent opinion: elasticity arrives instantaneously, not progressively,” he wrote in an April 12 research report. “We think current and future price increases will negatively impact volumes to ahead of where the street has modeled.” He then added a warning: “This will initiate a sequence of concerning events as promotional activity increases but raw material inputs remain elevated. Margins are at risk.” The title of the report proclaimed, “The Elephant is in The Room.”

INFLATION. In March, inflation hit a 41-year high of +8.5%, according to the US Labor Department’s monthly report on the Consumer Price Index. Nonalcoholic beverages
rose +8.0% as manufacturer’s raised pricing to offset higher costs for everything from transportation to materials. The higher costs are likely to spur further pricing actions. If so, how will volume sales fare and what is the breaking point? If consumers begin to pull back, will manufacturers and retailers be forced to ramp up promotional activity again? In Nielsen data reported by Goldman Sachs for the period ending March 26, the carbonated soft drink category showed signs of volume erosion, moving from a -1.5% decline for the 12-week period to -1.8% and then -2.6% for the four-week and two-week periods respectively. Pricing growth for those three periods hovered around +13%.

EASTER GROCERY PRICING. BD informally reviewed supermarket weekly discount ads at select stores scattered around the country to identify promotional pricing for carbonated soft drinks and other beverages during the upcoming Easter holiday weekend, April 15-18. The promotional activity detailed in the Green Sheet does not indicate any significant return to the pre-pandemic promotional environment.

FUEL PRICE PRESSURE. In an April 13 research report, Goldman Sachs Beverage Analyst Bonnie Herzog raised concern that high gas prices are curbing travel and, therefore, convenience store purchases by consumers. “While we have yet to see any meaningful sign of demand destruction across our coverage, the dip in recent miles driven data is notable,” she said. “Our c-store retailer contacts have recently highlighted some signs of strain on consumer spending as gas prices remain stubbornly high, with one retailer noting a slowdown in March in-store purchases across categories.”