Procter & Gamble plans further price hikes for Tide and other products

Procter and Gamble Co. Pampers brand baby diapers are laid out for a photo taken in Hastings on Hudson, New York, U.S., Saturday, October 17, 2020.

Tiffany Hagler Gear | Bloomberg | Getty Images

Procter & Gamble is raising prices on more of its portfolio to protect its profit margins as raw material and freight costs rise.

The consumer giant said on its earnings call on Wednesday that it has already notified retailers of price increases for fabric care products, such as Tide detergent and Downy dryer sheets, which are set to take effect. February 28. On Tuesday, the company told retailers that some personal health care products will see higher prices in mid-April.

P&G has already raised prices for 10 product categories in its portfolio: baby care, feminine care, adult incontinence, family care, home care, hair care, grooming, oral care and skin care. And it’s not just American consumers who are paying more. The company is also raising prices in some of its international markets.

“The degree and timing of these movements is very specific to category, brand and sometimes product form within a brand. It’s not a one-size-fits-all approach,” the director said. financier Andre Schulten during the earnings call.

The owner of Tide isn’t the only company facing rising costs as inflation accelerates at a record pace. The producer price index rose 9.7% year over year to the end of 2021, the largest single calendar year increase on record in data dating back to 2010, and the price index consumption increased by 7% over the same period, the highest level since 1982. .

For the second consecutive quarter, P&G raised its inflation forecast. The company expects to pay $2.3 billion after-tax in freight costs and $300 million after-tax in higher transportation costs, up from last quarter’s forecast of $2.1 billion for goods and $200 million for freight.

About half of the company’s 6% organic sales growth in its fiscal second quarter came from price increases. Executives pointed out that the majority of the price changes announced by the company have not even taken effect yet.

Higher prices can sometimes push consumers to opt for cheaper alternatives offered by competitors or house brands. But P&G seems confident in its pricing strategy. Executives told analysts on the conference call that rivals face the same pressure on commodity costs, unlike foreign currency headwinds that are hitting P&G harder due to its larger global presence.

“Pricing has been a positive contributor to our revenue for 17 of the last 18 years, 42 of the last 45 quarters. When you have an innovation-driven business model that delivers higher levels of enjoyment, solves problems better on the consumers, you can charge a little more,” CEO Jon Moeller said on CNBC’s “Squawk Box” on Wednesday.

And while P&G is still waiting for most of its announced price increases to happen, those that have already taken effect have not hurt business or dented market share.

“Although it is very early for these commodity-based price increases, as of today we are seeing positive signs,” Moeller said on “Squawk Box.” “Probably 20-30% less price elasticity than we expected, and if you look at, for example, private label market shares – private label being the lowest price offered in the market – they are down.”

In other words, consumers are willing to pay more for brands they know instead of just choosing the cheapest option for toilet paper or laundry detergent.

However, Moeller also warned analysts that there would be potential setbacks related to pricing.

“There will be bumps in the road,” he said. “There will be instances where we will take the prices, and we will encounter either the consumer reaction that some of you are rightly looking for, or a competitive reaction.”

P&G shares rose 3.8% in morning trade after the company released its fiscal second quarter results. Its quarterly profit and revenue beat Wall Street estimates, and the company raised its sales outlook for fiscal 2022.

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