• by J. Walker Smith , Op-Ed Contributor, November 29, 2023

Brands have a pricing problem. Or maybe it’s a volume problem.

Whichever it is, brands are out of runway for relying on price rather than volume to deliver organic top-line growth.

There’s no mystery about why. Consumers can no longer afford it.

This is not to say that consumers are reluctant to shop -- only that the binging of the past few years is over.

Let’s remind ourselves what happened.

The unemployment spike from pandemic lockdowns was met quickly and liberally with federal relief programs, first with Trump and then Biden. It was two big infusions of cash to keep people afloat, thereby keeping the economy motoring along, plus debt relief such as protection from evictions for falling behind on rent and a pause in paying back student loans.

But much of the economy was closed, so people couldn’t spend all that money right away. A lot of those dollars got banked instead.

The savings rate hit an all-time high in April 2020, and came close again in March 2021. Estimates vary, but people put away roughly $2.5 trillion in excess savings, or savings above and beyond what people would have saved anyway.

When the economy reopened, people rushed back in with pockets full of money. The surge of consumer spending caught brands by surprise. 

Flat-footed and hamstrung by other things like supply-chain snarls, brands could not keep up. Demand outstripped supply and inflation soared.

Part of higher prices were higher costs for brands. But many brands used the broad upsurge in costs and prices to camouflage price increases taken to boost top-lines that did not cover costs.

Among most FMCG companies reporting like-for-like revenue breakouts, price increases have accounted for between half and all of top-line growth since 2020. For some companies, price increases drove growth despite unit volume declines.

This strategy is well and good so long as the money lasts. But the robust consumer of 2021 has been turned inside out. It’s a fragile consumer heading into 2024.

A detailed look at household finances is sobering. Real income growth vaulted up in 2020 and 2021, but has now dropped below the pre-pandemic trend line of 2013 through 2019. The savings rate has declined to near-record lows.

Aggregate credit-card debt has topped $1 trillion for the first time ever, while interest rates have skyrocketed. The inflationary cost-of-living crisis may soon give way to a debt-driven cost-of-money crisis.

Don’t forget that inflation, like interest rates, is compounding. Increase upon increase. Lower inflation doesn’t mean lower prices. Without deflation, which is not to be expected, the impact of higher prices will continue to be felt.