Kraft Heinz has reported lower-than-expected sales for its last quarter, as consumers were put off by the higher prices of its packaged meals and condiments.
Like other FMCG firms, the US food giant has been raising prices for two years to protect margins from the surge in labour, raw material, and transportation costs. However, consumers are becoming increasingly price-conscious, which is starting to affect the benefits of the strategy.
In the second quarter, Kraft Heinz saw its organic net sales increase by 4.0%. However, this was driven by an 11% increase in prices that resulted in a 7% decline in volumes. The company noted that it also faced stronger competition from promotions and cheaper alternatives for its ready-to-eat meals and snacks, sauces, and cooking essentials.
“In the US, price gaps have expanded relative to both private label and branded competition. We have seen branded competition increase their levels of promotion, while we have remained more disciplined,” Kraft said.
Last week, Unilever raised its forecast for revenue growth for the year to over 5% after its results were boosted by higher prices. However, its CFO noted that inflation had now peaked, with the business shifting its focus towards volume growth amid concerns that the hefty increases in selling prices over the past two years are alienating some consumers and pushing them towards cheaper own-label products.
Despite missing sales estimates, Kraft Heinz maintained its annual sales and profit forecasts. Its 2023 target for organic sales growth is 4% to 6%, with adjusted profit of between $2.83 and $2.91 per share.
Kraft Heinz CEO and Chair of the Board, Miguel Patricio, said: “While we did face headwinds in the second quarter, particularly within US market share performance, the action plans we laid out in the first quarter resulted in share trend improvement each month. We expect these action plans, along with continued strong execution from our teams, to drive momentum through the second half of the year.
“Overall, our results give me confidence in the direction we are headed. As a result, we are reiterating our full-year outlook.”
NAM Implications:
- So, there are limits to consumer tolerance of price rises.
- Limits determined by a combination of willingness vs ability to buy, and consumer appetite for what represents value-for-money..
- …with Kraft Heinz simply being the latest example.
- All resulting in opportunities for less expensive branded rivals and own label.
- All part of the New Norm environment…
