By Alexander Marrow and Anuja Bharat Mistry
LONDON, Oct 27 (Reuters) - The world's top consumer goods and food companies, from Coca-Cola and Procter & Gamble to Nestle and Reckitt, have warned of further price hikes next year to cover rising costs even as shoppers remain reluctant to splurge on groceries.
Higher energy, raw material and freight costs as a result of the US war on Iran mean that the companies making everything from laundry detergent to soda and snacks face a balancing act to protect
profit margins.
Even higher prices on everyday items will fuel concerns that inflation will persist into next year. High gas and grocery bills are a big factor in next week's US midterm elections.
Soaring costs related to the war are the latest headache for consumer goods, food and drink companies, which have struggled with lacklustre sales since the pandemic, as shoppers have baulked at increasingly expensive name-brand packaged food.
Last year, they had to contend with tariffs on imported goods imposed by US President Donald Trump.
"Pricing is the last lever these companies have left, and they’re pulling it into a consumer who’s already tapped out on paying more," said David Wagner, head of equity and portfolio manager at PepsiCo investor Aptus Capital Advisors.
On Tuesday, Coca-Cola CEO Henrique Braun said pressure on consumers could extend into 2027.
"We are seeing elevated cost pressures ... driven by increased logistics and transportation costs," he said as the company raised its annual profit forecast.
HOW HIGH CAN PRICES GO?
The challenge is working out how high prices can rise before shoppers walk away. The chair of Lindt & Sprüngli said the Swiss chocolate maker is struggling because it misjudged how consumers would respond to price increases. He spoke days after the company ousted its CEO over concerns about its performance.
Companies are running out of ways to absorb costs.
Consumers in Europe and North America are particularly squeezed, said Reckitt CEO Kris Licht.
He said companies must decide how much of the cost increase to pass on through pricing and how much to offset with more promotional spending.
"We will probably have to price more at this level of commodity costs and input costs," Licht said after the Durex maker trimmed its annual revenue forecast, sending its shares down around 5% on Tuesday.
Procter & Gamble CFO Andre Schulten expressed a similar view after the Tide detergent maker last week hiked its expected hit to profit from rising raw material, energy and freight costs to $1.4 billion from $1 billion.
"At this level of commodity pressure ... the industry generally is pricing up because there is no way to recover this level of commodity pressure without pricing," Schulten said.
Procter & Gamble's pricing and sales held steady in the last quarter, but higher costs really hurt margins, said Brian Mulberry, chief market strategist at Zacks Investment Management.
"Consumers are still spending if they see the value ... but we likely are near the upper limit of what consumers are willing to pay for snacks," Mulberry said.
PepsiCo has swung between price rises and cuts this year in an effort to boost sluggish sales and it suffered a margin hit last quarter.
Raising prices risks losing customers. Nestle CFO Anna Manz said last week that volumes can dip in the short term when the company raises prices, as consumers adjust.
"Looking forward, there's now again some upward pressure on input costs," Manz said as Nestle posted faster quarterly volume growth than pricing growth for the first time since 2024.
"We'll take pricing to the extent we can without damaging medium-term consumer penetration," she said.
(Reporting by Alexander Marrow in London and Anuja Bharat Mistry and Juveria Tabassum in Bangalore; Editing by Josephine Mason and Daniel Wallis)
