Consumers are switching to cheaper brands and store brands. Businesses are trying to produce more from the expensive inputs they have to buy.
The first article is Cheaper Beer, Cigarettes Gain Favor as Inflation Pinches Shoppers: Retail stores are reporting stronger sales of beers like Busch Light and Icehouse, while Marlboro is losing ground to Montego and Maverick by Jennifer Maloney and Alex Harring of The WSJ. Excerpts:
"Shoppers are trading down to cheap beer brands and discount cigarettes as they feel more pressure on their pocketbooks.
Consumer prices in the U.S. rose at a 9.1% annual rate in June,
the fastest pace in nearly 41 years, as strong consumer demand has
collided with persistent supply shortages. In a survey released this
month by the National Retail Federation, nearly half of consumers said
that because of rising prices on everyday necessities, they were switching to cheaper alternatives."
"In the four weeks ended July 2, retail-store sales of economy beer increased by 5.4% from the same period last year"
"Not all beer drinkers are trading down. Sales of imported and
superpremium beers like Modelo Especial and Michelob Ultra also are
growing, underscoring the impact that inflation is having on
lower-income consumers while more affluent people continue to spend more
freely."
This link has something else interesting about beer & inflation. It is from The Essential Milton Friedman. Excerpt:
"At higher rates of inflation, people hold so little money that
their lives are substantially disrupted. The economist John Maynard Keynes
was in Germany during the inflation of the 1920s, when prices were rising so
rapidly that a beer purchased at midnight was substantially more expensive
than a beer purchased at 9 p.m. When he thought he would want three beers
over the course of the evening, he bought them all as early as possible and
drank them slowly (note that Keynes, like Alice, was trying to get rid of money
by buying things). All his life, Keynes remembered Germany as a place where
he’d drunk a lot of warm beer."
The next article is More Shoppers Buy Store Brands, Eating Into Big Food Companies’ Sales: Tightening consumer budgets amid rapid inflation intensify competition in grocery aisles; ‘pennies add up’ by Annie Gasparro of The WSJ. Excerpts:
"Cost-conscious
consumers are buying more store brands at the supermarket, raising
pressure on big food companies that are dealing with their own rising
costs.
Lower-cost oatmeal, pickles, granola bars and coffee, made by companies such as TreeHouse Foods Inc. THS -1.70%▼ and sold by retailers like Walmart Inc. WMT 1.77%▲ and Kroger Co., KR 0.87%▲ are gaining traction with consumers for the first time since the pandemic began, according to market-research firm IRI."
"Store-branded food and beverages gained 1 percentage point of market
share in terms of sales dollars over the four weeks that ended July 10"
"Store brands’ share of such spending is now 21.6%, surpassing 2019 levels, after losing ground to brand-name products throughout the pandemic."
"In recent weeks, store brands have gained sales by offering bigger discounts than name brands"
"Store brands typically cost less because the retailers and manufacturers
don’t have added marketing costs, or name brands’ breadth of sizes and
flavors."
"About 70% of consumers say store brands factor into where they shop for
groceries, said Aimee Becker, executive vice president of global brand
solutions for private-label consulting company Daymon. Historically,
once people switch from national brands to store brands, they tend not
to go back"
"For decades, private-label grocery products such as Kroger’s Simple Truth, Whole Foods Market’s 365 or Costco Wholesale
Corp.’s Kirkland have chipped away at sales of big brands. In the years
leading up the Covid-19 pandemic, sales of store-branded products grew
at twice the rate of name-brand products."
"Southeastern Grocers Inc., which runs Winn-Dixie and other regional
supermarket chains, said that shoppers are now choosing its line of
products over name brands for cheese, eggs, salty snacks, coffee and
more. The store-branded products on average are 20% less expensive than
name brands, said Dewayne Rabon, Southeastern Grocers’ chief merchandising officer."
"The price gap between store brands and national brands has recently widened for the first time since the start of the pandemic"
"private-label products are 30% cheaper on average"
What about businesses? See See Inflation’s Funky Byproducts: Bacon Soap or Dairy Vodka, Anyone? by Harriet Torry of The WSJ. Excerpts:
"Kristie Williams
sells Bumble Soap at her health-food store in this beach town. Its
unusual main ingredient, she said, is hard to detect—unless you’re a
dog.
“I can’t smell the bacon in the soap,” she said. “My dogs can. Whenever I bring one home, they go crazy.”
The yucky-sounding soap bars are being cooked up less than 4 miles away
from Ocean City Organics at Sunrise Diner, which also serves bacon the
more traditional way, with eggs and coffee. Owner Sam Delauter said he branched into soap making when the price of a case of bacon jumped to $90, from $45 last year.
Thinking he could squeeze a few dollars out of his bacon grease in a time of high inflation, he dusted off his great-grandmother’s soap recipe from the Great Depression. He sells the bars for $5.99.
“Every
17 bars of soap, I get a free case of bacon,” he said, once other costs
are taken into account. “That’s how I calculate it in my mind.”
Searching
for new sources of revenue and greener ways to deal with waste,
business owners have started coming up with some funky new products.
Vodka distilled from dairy-making waste. Compost made from crabs."
On the new government bill that raises taxes and fight carbon admissions see Manchin-Schumer Deal Would Have Moderate Inflation-Fighting Effect, Economists Say by David Harrison of The WSJ. Excerpts:
"Senate Democrats’ tax and spending proposal would likely help cool inflation slightly but most of the effects won’t be felt until later this decade, economists said."
"The deal announced Wednesday raises some taxes and limits prescription drug price increases,
both of which would help slow inflation, economists said. But it also
raises government spending on climate and healthcare programs, which
could add more upward pressure on prices. Overall, the agreement reduces
the federal deficit by about $300 billion over a decade, according to
Senate Democrats.
The net effect, economists said, would likely restrain price
increases. But that effect will be relatively small and won’t show up
for several years.
“You add it all up, it will lean against inflation,” said
Mark Zandi,
chief economist at Moody’s Analytics. “This is by no means a
game-changing piece of legislation. It’s relatively small in the grand
scheme of things.”
Economists at Goldman Sachs estimate the proposal’s overall spending and
revenue effects would represent less than 0.1% of the U.S. economy in
the first part of the decade and about 0.2% after 2028.
An economic model run by the University of Pennsylvania estimated the
framework would shave about 0.25 percentage point from inflation
annually by the late 2020s, according to Kent Smetters, who directs the
model. The model looks at the Personal Consumption Expenditures price
index, the inflation gauge favored by the Federal Reserve.
The proposal will likely not offer much short-term help to the Fed in its effort to cool inflation this year."
Related posts:
How Does The Fed Prefer To Measure Inflation (how the Fed uses the personal consumption expenditures price index [PCE])
When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) (due to hyper inflation)
