NEW YORK — Both shoppers and manufacturers of consumer packaged goods are bearing a heavy cost burden since the post-pandemic inflation surge, new research shows.
US households last year saw a bigger portion of their paychecks go toward groceries as the monthly food shopping bill increased, according to a report from ConsumerAffairs, a Tulsa, Okla.-based consumer news and advocacy organization. Meanwhile, CPG manufacturers are feeling the squeeze in trying to balance inflationary cost pressures and consumer price sensitivity, an analysis by global business consultancy PwC reveals.
In 2023, US households on average spent 13% of their monthly income (in terms of wages) on groceries, up from 12% in the inflation-peak year of 2022, ConsumerAffairs said, citing US Census Bureau Household Pulse Survey data. Share of household income for groceries rose 1% or less in almost all states between 2022 and 2023, though 29 states saw the share of household income spent on groceries last year top the national average.
On the supplier side, CPG companies since 2020 have grown revenue amid a 30% escalation in US shelf prices, yet their costs also have climbed by approximately 25%, according to PwC. The cost surge – coming amid a volume decline – stemmed mainly from peak inflation levels in mid-2022 and was fueled by hikes in ingredient, packaging, energy and labor costs, with wages up around 30% in the CPG sector since 2019, PwC noted.
Groceries consume bigger chunk of shopper income
Among states, Mississippi at 20% had the highest average share of monthly household income going toward groceries in 2023, double the 10% portion for New Hampshire, which had the lowest share, ConsumerAffairs reported.
Other states with high shares of monthly household income spent on groceries included Louisiana at 18%; Alabama, Arkansas, Oklahoma and New Mexico at 17%; Kentucky and West Virginia at 16%; and Nevada and Alaska at 15%. At the low end of the scale were Massachusetts at 10%; Connecticut, Maryland, Virginia and New York at 11%; and Minnesota, Colorado, California, Washington, Wisconsin, Nebraska, Utah, Oregon, Delaware and Vermont at 12%.
The paycheck share taken by food shopping stems in part from a higher dollar ring for grocery purchases. Based on Census Bureau data, US households on average shelled out $1,174 on groceries in October 2023, up almost 6% from $1,108 in November 2022 – though grocery outlays climbed faster than that in 24 states, according to ConsumerAffairs.
Hawaii had the highest average monthly household grocery bill at $1,451, followed by Alaska ($1,428), California ($1,294), Nevada ($1,281) and Mississippi ($1,263). States with the lowest grocery bill were Wisconsin ($962), Iowa ($988), Nebraska ($1,022), Michigan ($1,027), Indiana ($1,039) and West Virginia ($1,039).
In terms of rising costs, New Mexico households saw the largest jump in average monthly grocery expenditures, which climbed 20% to $1,244 in 2023 from $1,034 in 2022, ConsumerAffairs said. North Dakota (16%), Colorado (16%) and Oklahoma (15%) had the next-highest increases.
Conversely West Virginia households posted the biggest decrease in average monthly grocery bills, down roughly 8% to $1,040 in 2023 from $1,129 in 2022. Overall, monthly household grocery outlays declined in seven states over that time frame, also including New Jersey (down 4%), Hawaii (down 2%), Alabama (down 1%), Delaware (down 1%), Missouri (down 0.4%) and Virginia (down 0.2%).
Manufacturers’ tricky balancing act
PwC’s research shows that indices for CPG manufacturer costs, national brand prices and private label prices rose roughly in parallel from January 2020 to July 2021. Then the CPG cost index exploded, rising much faster than national and private brand pricing through July 2022 before falling below price growth for both brand categories in January 2023. CPG cost growth then generally leveled off and stayed below both national and private brand pricing indices through July 2024.
“Since 2020, CPGs have driven impressive growth, partially through well-managed pricing strategies to respond to massive inflation in materials and increased labor costs,” K.B. Clausen, operations transformation principal for PwC US, said in the report. “By 2023, the landscape shifted. Consumers became more price-sensitive, deteriorating brand loyalty and allowing private labels to regain market share. This year, brands face a tougher pricing environment, with many holding prices steady or experimenting with reductions as total CPG costs stabilize at roughly 20% above pre-pandemic levels.”
Of the eight CPG categories examined by PwC, six saw their Consumer Price Index rise higher than their modeled manufacturer cost growth between January 2020 and June 2024. Prices jumped 31% each for bakery and beverages over that time span versus respective cost growth of 28% and 26%. Similarly, prices escalated 26% apiece for general food and frozen food compared with 25% cost increases for each category. Paper products had the largest growth differential, as pricing surged 31% versus a 20% rise in manufacturer costs.
Just two categories had manufacturer costs rise more than consumer pricing: meat (28% growth in CPG costs versus a 26% rise in pricing) and personal care (28% growth in CPG costs versus a 12% rise in pricing). In home care, growth in manufacturer costs and category pricing was approximately even at 23%.
“Heightened price sensitivity has made it harder for many brands to justify further pricing actions,” Clausen explained. “Currently, consumer shelf-price increases are slightly higher than the increase in modeled costs. Private labels, after adjusting prices in 2022 and early 2023, have stabilized and gained market share as consumers increasingly turn to lower-cost alternatives. Categories such as general food, frozen food and paper products have seen some of the largest price increases since January 2020.”
CPG companies have grappled primarily with surging commodity costs, led by meat (up 19%), bakery (up 15%) and personal care (up 15%) over the January 2020-June 2024 period. Also seeing double-digit commodity cost growth in that span were general food (up 14%), beverages (up 14%), frozen food (up 12%) and home care (up 12%), whereas that cost increased only 8% for paper products.
In the eight categories, labor cost growth for manufacturers ranged between 4% and 6% over that time, while conversion and distribution costs grew from 5% to 8%.
“The gap between price increases and cost growth indicates that relying on pricing alone for growth may no longer be sustainable,” Clausen said of CPG companies. “With stagnant incomes and declining savings, consumers are less able to absorb further price hikes. This dynamic creates risks for CPGs, especially in case of potential future commodity cost increases, which could be sparked by geopolitics, including the risk of new import tariffs after the US election.”