Skyrocketing Pantry Item Prices Force Kraft Heinz’s Hand

As many name-brand food companies work against inflation, The Kraft Heinz Company is seeing that the only way to protect its margins is to pass inflation onto consumers — even when that means their customers turn to competitors.

On a call with analysts, the food giant, which owns a wide range of popular packaged-food brands including its self-titled lines, Kool-Aid, Jell-O and many others, said it is prioritizing its profit margins rather than bending over backwards to maintain consumers’ loyalty.

“We’ve had very high inflation, and we are leaders in the vast majority of categories where we play,” Miguel Patricio, CEO of The Kraft Heinz Company, said on the call. “It’s our role as leader to try to compensate for these price increases, this inflation, with price increases [for consumers]. … We can always go back on price … when we have to, but we had to the price increases.”

In his prepared remarks, Patricio noted that the brand lost share, as expected, as a result of pricing “above the market,” especially as competitors have not all followed suit in raising their prices.

In addition to base prices, Kraft Heinz has also held off on promotional activity, and as such, the company is “losing incremental share” to competing brands that are being promoting more.

Certainly, consumers are looking both for discounts and low prices amid inflation. Research from PYMNTS’ March report, “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” for which we surveyed more than 2,100 United States consumers in February, revealed that 44% of grocery shoppers are deal chasers, willing to go wherever they will get the best price.

In fact, grocery giant Kroger saw digital coupon redemption grow by 180 million last quarter, and Instacart, noting similar demand, has been stepping up its couponing efforts with more discounting and price-centric features.

Plus, findings from last fall’s study, “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” for which PYMNTS surveyed more than 2,600 consumers, showed that 37% of grocery shoppers are purchasing lower quality products to reduce their expenses in the face of inflation.

These concerns are especially top-of-mind in many of the categories in which Kraft Heinz operates. Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics (BLS) show that, while overall grocery prices are up 4.7%, cereals and bakery product prices have increased nearly twice that much (8.8%), and other food at home prices, outside of perishable items such as meat, dairy and produce, are up more than 7%.

While Kraft Heinz’s promotional activity may have been below competitors’ levels, Patricio maintains that the company has been highly effective in the promotions that it has offered, which he attributes to the firm’s artificial intelligence (AI) capabilities.

“If you look at our promotions this year, we actually have been very effective and efficient. … That’s true because of the focus that we have on those agile AI-driven revenue management tools that we are applying to make sure that every promotion does have that kind of true ROI return,” Patricio said.

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