Cost of living crisis? Consumers continue to spend for now

LONDON, July 27 (Reuters) – Consumer-focused companies are not seeing a shortage of demand despite the soaring cost of living, prompting several to revise their full-year sales forecasts upwards. course, although questions remain as to the length of this period.

As some consumers protect themselves from price hikes by opting for own-brand products, they are spending enough more that McDonalds (MCD.N) risks raising the price of a cheeseburger in Britain for the first time on Wednesday in 14 years. Read more

In another example, U.S. burrito chain Chipotle Mexican Grill Inc (CMG.N) reported better-than-expected results on Tuesday and said it planned to raise menu prices again in August after an increase of more than 4% in the second quarter. Read more

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“Companies will raise prices if and when they feel consumers are willing and able to pay them,” said Brian Nick, chief investment strategist at Nuveen. “It has become more difficult to do so in 2022 as wage growth slows and the savings glut declines.”

The global economy is mired in a severe downturn, with some key economies at high risk of recession over the coming year, according to Reuters polls of hundreds of economists around the world. Read more

“There is real concern about weakening demand which will make it difficult to justify further price increases,” Nick said.

UK shops and supermarkets raised prices by 4.4% in the 12 months to July, the biggest rise since such records began in 2005, reflecting rising food and transport costs, a said the British Retail Consortium on Wednesday. Read more

Consumer goods giants Reckitt Benckiser (RKT.L) and Danone (DANO.PA) both raised their sales forecasts on Wednesday, along with automaker Mercedes (MBGn.DE), healthcare company GSK ( GSK.L) and sportswear company Puma (PUMG.DE). Read more

Reckitt, maker of Dettol and Lysol cleaning products, raised its full-year revenue forecast on Wednesday after strong price increases helped it beat second-quarter sales expectations.

Danone raised its full-year revenue growth forecast after second-quarter like-for-like sales beat analysts’ estimates on strong demand for baby food and bottled water.

Like rival Unilever (ULVR.L), price hikes from Reckitt and Danone boosted revenue. The biggest question for investors is how long this will continue.

“What we have seen is that the consumer has accepted these price increases, but inflation is not coming down,” said Ashish Sinha, portfolio manager at Gabelli. “So as inflation rises, it raises questions about the elasticity of demand.”

Kraft Heinz Co (KHC.O), maker of Philadelphia cream cheese and Heinz ketchup, said on Wednesday that its price increases were largely halted after quarterly volumes fell due to problems at the chain. supply and demand.

Chief Executive Miguel Patricio said about 99% of the price increases planned for the year have been announced, with the majority of them implemented, adding that any new pricing the company takes will be “surgical”. Read more


Low-income households have been hit hard by inflation as a high proportion of that income is spent on essentials ranging from food to fuel and shelter.

By contrast, middle- and upper-income households have been able to rack up substantial savings during the pandemic as restrictions have made everything from vacations abroad to dining out more difficult. While some of these savings have since been eroded by inflation, they have more flexibility to keep spending.

This has led to a growing demand for luxury items such as sports cars and designer handbags.

LVMH (LVMH.PA), the world’s largest luxury goods company, reported better-than-expected second-quarter sales on Monday, with robust growth in the United States and a recovery in Europe offsetting lower revenue in Asia . Read more

“We have double-digit growth with most of our brands, so we can’t complain about European customers. On top of that, we have significant tourist activities in Europe,” said LVMH’s chief financial officer, Jean-Jacques Guiony.

American tourists vacationing in London spent more due to the strong dollar, analysts said. Read more

For now, the increased prosperity of affluent consumers is offsetting the hit to the incomes of low-income people who spend less.

“This is one of those times where investors look at these results in Europe and think that…business has held up,” said Danni Hewson, financial analyst at AJ Bell.

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Reporting by Richa Naidu and Sachin Ravikumar; Additional reporting by Susan Mathew and Mehr Bedi in Bengaluru; Written by Matt Scuffham; Editing by Kirsten Donovan, Elaine Hardcastle and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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