Companies Take Different Strategies to Navigate High Inflation
P&G is ramping up advertising for premium brands; Verizon is raising prices for wireless services
Procter & Gamble Co. is ramping up advertising on premium brands. Verizon Communications Inc. is raising prices on wireless plans, while Whirlpool Corp. has slashed production of appliances.
3 min
High levels of inflation in the U.S. and shifts in underlying demand are putting the spotlight on the strategies executives are taking to navigate a global economy where costs are rising and consumer appetite for some products has waned.
The first batch of earnings reports from companies for the September quarter show that corporate profit margins are feeling the squeeze of the macroeconomic trends. With a fifth of the S&P 500 index already reporting, data-provider Refinitiv projects quarterly earnings will decline 3.5% from a year ago, excluding the energy sector. Companies are taking different tacks to manage the pressures on their businesses.
“The average consumer [has] become increasingly price-sensitive as the year has progressed,” Hasbro Inc. Chief Executive Chris Cocks said during an earnings call Tuesday. The maker of Nerf and other toys reported third-quarter sales fell 15% because of the timing of product releases and that profits were pinched because it had to increase promotional activity amid a buildup in inventory before the holidays.
P&G, which sells household staples such as Pampers and Tide, is spending on high-profile advertising campaigns and new product features to keep cash-crunched consumers from switching to cheaper brands. In its most recent quarter, higher commodity, materials and freight costs reduced its gross profit margin by 5.5 percentage points, which was fully offset by cost cuts and price increases.
Chief Financial Officer Andre Schulten said the company has enough brands and price levels to give consumers options within its own portfolio. There was growth in mid tier brands during the quarter but also customers spending more on large-size packages to lower the per-use price.
“The strategy to provide pack sizes that stretch from below $10 for some channels and consumers to above $30 or $40 for others seems to be meeting consumers’ needs,” Mr. Schulten said.
Verizon and AT&T Inc. both raised prices on some of their cellphone plans over the summer, a strategy that yielded widely different outcomes. AT&T reported a third-quarter net gain of 708,000 postpaid phone connections—its most valuable customer category—a sign that few of the subscribers affected balked at higher monthly bills.
Verizon’s more widespread rate and fee increases drove down the same types of phone connections in its consumer segment. New business lines barely offset that decline, and the telecom company ended the September quarter with a relatively weak 8,000-phone gain.
Executives at both companies said the higher rates helped boost profits. Matt Ellis, chief financial officer at Verizon, said overall wireless-service revenue grew despite the customer defections, partly because many of its remaining customers chose to upgrade their wireless plans to more expensive packages with perks such as Disney+.
Telecom companies have also said that they benefit from providing an essential service to customers who are mostly able to keep paying, despite signs of trouble in the broader economy. Mr. Ellis said the company “won’t be shy” about raising prices for certain services if it makes sense over the coming months.
“I look at my payment data, and the payment patterns are better than they were pre-Covid,” Mr. Ellis said. “Our base has never looked as strong from a credit standpoint.”
The top U.S. cellphone carriers have avoided raising the price of their most expensive plans, which can cost as much as $90 a line, choosing to target older plans. And many consumers agree to enrol in premium monthly plans in exchange for valuable discounts on new smartphones.
AT&T has sought to regain market share over the past two years by giving new and existing customers deep equipment discounts contingent on customers sticking with the service for two or three years. The company has said its strategy is working but is still less extreme than some of its rivals’ current offers.
Others, such as Whirlpool, are feeling whiplash from a sudden drop in demand for their products at the same time they are confronting high costs for materials, energy and other expenses.
“Demand is down, and cost is up,” Whirlpool CEO Marc Bitzer said during a conference call. “You would expect costs to come down in a recessionary environment. We’re operating in unprecedented times.”
Whirlpool isn’t turning to discounting to move unsold fridges and dishwashers. Instead it slashed production by 35% to shrink inventories. The company cut its profit forecast for 2022 by about half, warning that high costs were likely to persist into next year as appliance demand remains muted.
Fastenal Co., a major distributor of industrial supplies such as nuts and bolts, has been raising prices to offset rapidly rising costs, but the recent quarter showed signs of stability in costs along with some resistance from customers.
“At this stage of the cycle, the marketplace is less receptive to further price increases,” said Fastenal finance chief Holden Lewis on an Oct. 13 conference call. “Product pricing in the marketplace is stable, and there are tenuous signs of product inflation easing.”
—Bob Tita contributed to this article.
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4 min
As Paris makes its final preparations for the Olympic games, its residents are busy with their own—packing their suitcases, confirming their reservations, and getting out of town.
Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country. Hotels and holiday rentals in some of France’s most popular vacation destinations—from the French Riviera in the south to the beaches of Normandy in the north—say they are expecting massive crowds this year in advance of the Olympics. The games will run from July 26-Aug. 1.
“It’s already a major holiday season for us, and beyond that, we have the Olympics,” says Stéphane Personeni, general manager of the Lily of the Valley hotel in Saint Tropez. “People began booking early this year.”
Personeni’s hotel typically has no issues filling its rooms each summer—by May of each year, the luxury hotel typically finds itself completely booked out for the months of July and August. But this year, the 53-room hotel began filling up for summer reservations in February.
“We told our regular guests that everything—hotels, apartments, villas—are going to be hard to find this summer,” Personeni says. His neighbours around Saint Tropez say they’re similarly booked up.
As of March, the online marketplace Gens de Confiance (“Trusted People”), saw a 50% increase in reservations from Parisians seeking vacation rentals outside the capital during the Olympics.
Already, August is a popular vacation time for the French. With a minimum of five weeks of vacation mandated by law, many decide to take the entire month off, renting out villas in beachside destinations for longer periods.
But beyond the typical August travel, the Olympics are having a real impact, says Bertille Marchal, a spokesperson for Gens de Confiance.
“We’ve seen nearly three times more reservations for the dates of the Olympics than the following two weeks,” Marchal says. “The increase is definitely linked to the Olympic Games.”
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According to the site, the most sought-out vacation destinations are Morbihan and Loire-Atlantique, a seaside region in the northwest; le Var, a coastal area within the southeast of France along the Côte d’Azur; and the island of Corsica in the Mediterranean.
Meanwhile, the Olympics haven’t necessarily been a boon to foreign tourism in the country. Many tourists who might have otherwise come to France are avoiding it this year in favour of other European capitals. In Paris, demand for stays at high-end hotels has collapsed, with bookings down 50% in July compared to last year, according to UMIH Prestige, which represents hotels charging at least €800 ($865) a night for rooms.
Earlier this year, high-end restaurants and concierges said the Olympics might even be an opportunity to score a hard-get-seat at the city’s fine dining.
In the Occitanie region in southwest France, the overall number of reservations this summer hasn’t changed much from last year, says Vincent Gare, president of the regional tourism committee there.
“But looking further at the numbers, we do see an increase in the clientele coming from the Paris region,” Gare told Le Figaro, noting that the increase in reservations has fallen directly on the dates of the Olympic games.
Michel Barré, a retiree living in Paris’s Le Marais neighbourhood, is one of those opting for the beach rather than the opening ceremony. In January, he booked a stay in Normandy for two weeks.
“Even though it’s a major European capital, Paris is still a small city—it’s a massive effort to host all of these events,” Barré says. “The Olympics are going to be a mess.”
More than anything, he just wants some calm after an event-filled summer in Paris, which just before the Olympics experienced the drama of a snap election called by Macron.
“It’s been a hectic summer here,” he says.
AFP via Getty Images
Parisians—Barré included—feel that the city, by over-catering to its tourists, is driving out many residents.
Parts of the Seine—usually one of the most popular summertime hangout spots —have been closed off for weeks as the city installs bleachers and Olympics signage. In certain neighbourhoods, residents will need to scan a QR code with police to access their own apartments. And from the Olympics to Sept. 8, Paris is nearly doubling the price of transit tickets from €2.15 to €4 per ride.
The city’s clear willingness to capitalise on its tourists has motivated some residents to do the same. In March, the number of active Airbnb listings in Paris reached an all-time high as hosts rushed to list their apartments. Listings grew 40% from the same time last year, according to the company.
With their regular clients taking off, Parisian restaurants and merchants are complaining that business is down.
“Are there any Parisians left in Paris?” Alaine Fontaine, president of the restaurant industry association, told the radio station Franceinfo on Sunday. “For the last three weeks, there haven’t been any here.”
Still, for all the talk of those leaving, there are plenty who have decided to stick around.
Jay Swanson, an American expat and YouTuber, can’t imagine leaving during the Olympics—he secured his tickets to see ping pong and volleyball last year. He’s also less concerned about the crowds and road closures than others, having just put together a series of videos explaining how to navigate Paris during the games.
“It’s been 100 years since the Games came to Paris; when else will we get a chance to host the world like this?” Swanson says. “So many Parisians are leaving and tourism is down, so not only will it be quiet but the only people left will be here for a party.”
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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
