Upbeat outlooks by name brands indicate rising consumer spending
Signs of an improving economy might be in your kitchen or bathroom cupboards.
Consumers are showing a willingness to pay a little more to get Colgate toothpaste, Kellogg’s Frosted Flakes and Gillette Fusion shavers. That’s good news for the economy and the multibillion-dollar companies that make those products and have been battling to keep shoppers from trading down to store brands to save money.
Procter & Gamble Co., Col-gate- Palmolive Co. and Kellogg Co. all gave upbeat earnings reports and even stronger outlooks for next year Thursday, a day that included an announcement that the U. S. gross domestic product rose for the first time in a year.
“The strongest brands are the most resilient to economic stress and the first to bounce back as soon as consumers can pay for it, because they don’t want to trade down,” said Allen Adamson, managing director of branding firm Landor Associates. “They want to get what they want.”
The companies are taking different paths to strength.
Tide detergent and Pantene shampoo maker Procter & Gamble Co., which has been stung by customers switching to cheaper options, has cut prices and launched cheaper versions of some products, including Pampers diapers. But it hasn’t had to cut prices as low as store brands and has added such products as Tide Total Care and Tide Stain Release to a premium lineup that includes the fast-selling, five-bladed Fusion shaver.
Colgate-Palmolive, P&G’s top competitor, has stuck to its guns on price increases made in the past year and emphasized heavy advertising, helped by a weak ad market that’s made such marketing cheaper. Despite the higher prices, it still sold more products this quarter than the same time last year.
Kellogg, which has mostly benefited from consumers looking for cheap meals and eating at home more, also has spent heavily on marketing.
All three companies have loaded their advertising messages with the notion their products deliver more for the dollar than Brand X, even if they are more expensive.
P&G said sales were rebounding faster than expected after a year of declines — and following price cuts to narrow gaps with cheaper competitors biting into its market share. P&G is an economic bellwether as the world’s largest consumer products maker and seller of a broad range that includes cleaners, baby, grooming and beauty products.
Trading down mostly hurts brands that aren’t the top in their categories, but even sales of best-sellers have eroded in this recession, Adamson said. P&G, for example, is known for wanting brands only if they’re No. 1 or No. 2 in their categories.
Other, scattered signals have indicated that shoppers’ relentless focus on price might be easing.
In Safeway’s last quarterly report, Steve Burd, chief executive officer, said shoppers remain focused on low prices but are showing some early signs of relaxing their frugal ways — such as trading back up to premium wines.
“That suggests to me that we’re at or near the bottom of this whole thing, and that would be good for all of us if that’s true,” Burd said.
Consumer spending is perhaps the single strongest driver of the economy, accounting for about 70 percent of the economy by federal measures. It has remained weak, and one prominent measure of consumer confidence has fallen the past two months as a still-weakening jobs picture takes a toll.
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