Good morning,
“Companies have to think very carefully and very strategically about how they approach pricing strategy,” EY Parthenon chief economist Gregory Daco tells me. “We're no longer in the 2021 or 2022 environment where demand was quite robust and companies were being rewarded for exercising pricing power because everybody was doing so.”
Procter & Gamble (P&G), the maker of consumer goods like Tide, Pampers, and Charmin, has a strategy to offset higher material costs and supplier inflation by continuing price hikes and showing product innovation. Prices across categories increased by 10%, but sales volume decreased by 6% from the year prior, according to the latest earnings report for the period ending Dec. 31. More price increases will go into effect in February, Andre Schulten, CFO at P&G, said on the Jan. 19 earnings call. The drop in sales volume was consumption-driven, and the other half was due to inventory reductions in China and Russia, Schulten said. P&G net sales for the quarter ($20.77 billion) were down 1%, but surpassing analysts’ average projections of $20.73 billion. The higher pricing resulted in organic revenues increasing by 5%.
Regarding product innovation, P&G chairman, president, and CEO Jon Moeller pointed to Dawn Powerwash dish spray. The product creates suds inside the spray chamber, letting you apply those directly to the dishes. Compared to non-ultra Dawn, the company claims Powerwash is five times faster at cutting through grease. Powerwash hit the market in January 2020. It was at a premium price, Moeller said on the earnings call. “The brand has grown at 50% since that introduction, and Dawn has driven 90% of category growth in that situation,” he said. “We've got a lot of innovation coming.”
Meanwhile, in 2022, Chipotle Mexican Grill, Inc. (NYSE: CMG) increased menu prices at least three times. That’s due to factors such as inflation in ingredient costs, wage inflation, and energy prices, CFO Jack Hartung told me late last year. "When we look at our menu prices compared to competitors, we’re still a terrific value,” Hartung said. “Our food cost and our people cost are by far the largest items on the P&L," he said. "We don’t want to cut back on our food. We’ve never tried to reduce the quality of our fresh ingredients. We want to invest more in food and our people.”
Chipotle's total revenue increased 13.7% to $2.2 billion in Q3 2022. In-restaurant sales rose 22.1% year-over-year. However, that’s less than the second quarter, when in-restaurant sales increased 35.9% compared to the year prior. During our talk, Hartung told me that in Q4, prices could increase 15% year over year until it drops down to 11% in the first quarter of 2023. Chipotle's Q4 earnings are scheduled to be released on Feb. 7. On Oct. 25 (when Q3 earnings were announced), CMG closed at $1,584.02. It closed at $1,555.19 on Jan. 20.
Then there's Disney. Under returning CEO Robert Iger, The Walt Disney Company is trying to get back into the good graces of loyal customers by reversing some park-related fees from former CEO Bob Chapek's era. However, they're not exactly lowering ticket prices across the board.
Disney’s parks chief, Josh D’Amaro, said in a blog post on Jan. 10 that customers of Disneyland resort in Anaheim will have greater access to the lowest priced tickets—"nearly two months worth of $104 park ticket dates." After a price increase in October, a one-day Disneyland ticket now ranges from $104 to $179, based on the day. Other perks include, beginning on Feb. 4, customers can access photos taken at rides for free instead of paying for a photo pass.
At Disney World Resort in Orlando, guests with annual passes are now able to enter the parks after 2 p.m. without first securing a reservation. (With the exception of weekends at the Magic Kingdom park.) Overnight self-parking will once again be complimentary to guests staying at Disney resort hotels. Guests buying the Disney Genie+ service will also get digital downloads of their attraction photos.
“While this doesn’t address everyone’s feedback, these changes will increase flexibility and add value to our guests’ experience,” D’Amaro said in the blog post. Disney's latest earnings report is scheduled for Feb. 8.
In order to create the most effective price strategy, “every company has to evaluate its market position, brand position, and client base," Daco says. “There's no one formula for every company," he says.
*Quick note: I have a question for finance chiefs: What is the most important thing you did before landing your first CFO position? (For example, was it networking, or P&L management, or something else?) What made you ready to take on a CFO position? Share your experience and insights with the next generation of CFOs for an upcoming column. Send me an email!
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
