Half of consumer product companies don’t think they can count on price as a source of growth, according to new data from Deloitte’s 2024 consumer products industry outlook. Just 2% of those surveyed said they plan to raise prices as a key part of their 2024 strategy.
Based on that and more, Deloitte identified three reasons it thinks “the price-focused era is likely over”:
- Consumers are less willing and able to pay.
- Retailers may have had enough of price increases.
- Higher prices created new competition from unexpected substitutes.
Deloitte “analyzed a worldwide set of the largest 100 public consumer product companies by revenue, drawn from S&P Capital IQ and filtered for industry definitional fit,” according to its report. That excludes high-end luxury, tobacco and conglomerates with less than 50% of revenue from consumer products. It then “used a five-year composite percentile index of both top-line growth and efficient use of assets (measured in return on assets) to assess relative success.” Deloitte said it also conducted a global survey of 250 consumer products executives spanning food and beverage, household goods, personal care and apparel.
What’s changing for consumer product companies and their pricing in 2024?
To start, higher prices have already forced some consumers to become more selective with their purchases, Deloitte found. Industry executives Deloitte surveyed identified that two of the three most significant consumer challenges for 2024 are that consumers have been divided into “have and have-nots” and that consumers have become less willing to pay higher prices.
“Few executives thought they could continue to raise prices without materially decreasing consumer demand,” Deloitte researchers wrote in the report.
But it’s not just the consumers. The retailers that buy from consumer product companies have “let significant price increases pass through with some sympathy” as inflation spiked in 2023, according to Deloitte. “But that leniency could have been a once-in-a-generation (relatively) free pass. Four in 10 executives in our survey agree that retailers would push back on any meaningful price increases in 2024.”
So many items’ prices have increased that consumers might be “looking to fulfill old needs in new ways,” the authors speculated. For example, consumers might opt for a delivered pizza from a restaurant if it’s as cheap or cheaper than one from their local grocery stores’ grocery aisle.
Deloitte asked which of the following three aspects would receive the most emphasis in executives’ strategies this year:
- Shift the mix to more profitable products and pack sizes (62% selected this)
- Increase unit volume (36%)
- Raise prices (2%)
What does profitability look like in 2024?
Deloitte found that in the past few years, volume suffered from higher prices and reduced advertising and promotion. Some companies faced supply and production constraints that made promotional spending unproductive, it said. But now, about seven in 10 (72%) executives said they must increase their unit volume to meet their 2024 performance goals, according to the consumer products industry report.
“Additionally, six in 10 executives in our survey recently made a significant expansion in their production capacity,” Deloitte said. “Companies that expanded production capacity likely will have additional incentive to do what it takes to keep volumes high to spread that cost.”
Deloitte said it expects “the pendulum to swing back to more spending on marketing” in 2024. More than two-thirds (68%) of executives surveyed said their companies will increase advertising and marketing spending as a percentage of revenue. Meanwhile, 64% will do more promotional spending. Two-thirds of executives (66%) plan to emphasize their company’s existing core brands in their marketing over new brand introductions. Deloitte refers to this as a tool to maintain pricing power.
“It’s worth noting that some analysts think companies may panic about volume and promote too much. We don’t share that concern,” Deloitte said. “Forward-thinking companies will show restraint and manage their volume goals with finesse.”
Many consumer product companies became more aware of the need for revenue growth management (RGM), Deloitte said. It added that RGM capabilities can include, among others:
- Price setting in the context of competitors on the shelf
- Targeted promotion strategies
- White-space expansion
- Changes to the price-pack architecture
- Retailer profitability management
- Consumer perception shaping around categories
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