As weakening consumer sentiment meets recent high inflation, US companies are reducing quantities while launching cheaper products or value-for-money packages. To serve consumers worn down by inflation, some companies are even cutting margins by rolling back prices they had previously raised.
According to The Wall Street Journal on Wednesday, Coca-Cola has launched products with smaller bottle sizes at lower prices. Target introduced a new $5 product in its toy section. Stellantis brought two new models priced under $30,000 to market, and Boston Beer is selling four-packs of 16-ounce beers, including Samuel Adams.
The backdrop for the value-for-money strategy is weakening consumer sentiment. April consumer prices rose 3.8% from a year earlier. The personal consumption expenditures (PCE) price index also rose 3.8% year-on-year, hitting its highest level in two years and 11 months. The revised first-quarter gross domestic product (GDP) figure fell 0.4 percentage point from the advance estimate. This reflected a slowdown in personal consumption from 1.6% to 1.4%. However, the first-quarter GDP only partially reflected the Middle East war period, so the decline is expected to widen in the second quarter. According to Walmart, the average fuel purchase per customer in the first quarter this year was less than 10 gallons (about 38 liters). It marked the first time since 2022.
In response, Walmart cut prices on 7,200 items last week. The company also announced plans to use tariff refunds as a funding source for additional price cuts. It is also running a promotion offering barbecue party ingredients for a family of eight—including hamburgers, hot dogs, and bread—for less than $5 per person. PepsiCo also cut prices on snacks such as Cheetos and Doritos by up to 15%. McDonald's has been selling menu items priced under $3 since April, and KFC expanded its $10 chicken bucket promotion, previously offered only on Tuesdays, to all weekdays.
"The best return you can get by investing $1 right now is to invest in customers and prices," said Walmart Chief Financial Officer John David Rainey.
Large retailers are intentionally reducing their profit margins. Kraft Heinz announced it would absorb about 80% of this year's price increases itself. "Typically, food companies pass about half of cost increases on to consumers through price hikes and make up the rest by raising productivity," Kraft Heinz CEO Steve Cahillane said. "There is a limit to what consumers can absorb, so this year we decided to give up some of our own profit."
