Based on the data collected on a monthly basis, it is anticipated that companies that deal in consumer goods will experience more robust growth in sales during the fourth quarter in Europe compared to the United States. The fact that Americans paid less than their counterparts in other countries, such as Britain, France, and Germany, can be attributed to the fact that prices in those countries have been consistently higher.
U.S. Companies Are Sounding the Alarm
A number of well-known corporations, including Procter & Gamble (NYSE: P.G.) and Nestle, took the initiative to raise their prices in the United States at the end of the year 2021. The difficulties in terms of freight and input costs that were brought about by the pandemic were the primary factors that influenced this course of action.
Due to the greater flexibility of contracts with companies such as Walmart and Target, the price increases that escalated after Russia’s incursion into Ukraine were more manageable in the United States than in Europe. This is because the agreements in Europe are more tightly regulated, whereas in the United States, the contracts are more flexible.
Increases have occurred earlier in the United States, which indicates that the worst of the situation is now behind us, as analysts have stated. Nevertheless, it might take a more extended period for prices to decrease in Europe.
“Sales expansion in Europe is on the rise … however, it’s only a question of when.” According to analyst Bruno Monteyne from Bernstein, pricing in Europe is expected to stabilize within the next six months, following a similar trend as in the United States, with a corresponding low growth rate.
Earnings Reports From Large Companies Are Expected Soon
P&G, the largest company in the personal goods industry, will begin reporting its fourth-quarter earnings on Tuesday.
Strong store revenue growth in Europe at companies like Nestle, Danone, Kraft Heinz (NASDAQ:KHC), and Reckitt is believed to be driven by price increases, as indicated by monthly estimates from information and market measurement group Nielsen. Meanwhile, growth in the United States was comparatively weaker.
As an example, during the four weeks ending on December 2nd, Reckitt’s store sales in the United States experienced a decline of 4.2%, as reported by Nielsen. However, in Europe, during the four weeks ending on December 3rd, there was an increase of 8.1% in sales. According to the data, Nestle experienced a 2.5% decline in in-store sales in the U.S. during that timeframe, whereas its European sales saw a 5.2% increase. The scope of Nielsen data does not encompass all potential sales channels.
Pepsico (NASDAQ:PEP), currently engaged in intense pricing discussions with French supermarket operator Carrefour (EPA:CARR), reportedly experienced a modest 1.1% increase in in-store sales in the United States during the four weeks ending on December 2nd. Meanwhile, it is estimated that P&G experienced a 3.4% increase in in-store sales in the United States during that time, compared to a 6.1% growth in Europe in the four weeks ending on December 3rd.
The decline in prices coincided with a rise in U.S. consumer confidence during the quarter. Americans have become increasingly optimistic about both current and future business conditions, as well as the labor market. In December, the consumer confidence index reached its highest point in five months.
As anticipated, economic sentiment in Europe increased slightly during the last quarter of the year. This was driven by a slight improvement in services, retail, and consumer sentiment, which offset a decrease in manufacturers’ confidence.
Experts and stakeholders have consistently cautioned about the potential consequences of consistently increasing prices in Europe. This could potentially lead to the disengagement of financially burdened consumers who have been increasingly opting for retailers’ private labels, which are readily accessible.
“Certain companies may have experienced a decline in their market share and might consider adjusting their pricing strategies to regain some of that lost share,” commented Tineke Frikkee, a portfolio manager at Waverton Investment Management, which has investments in Unilever (LON:ULVR) and Reckitt.” “Pricing decisions may differ for each product, in every country, and across different companies.”