Despite the Biden administration claiming 'Bidenomics' has kick-started an economic renaissance and the Conference Board's Consumer Confidence Index for July rising, cautionary signs from corporations suggest inflation continues to crush the pocketbooks of the working class. The latest warning comes from Coca-Cola's CEO, who highlighted a trend of consumers becoming more budget-conscious and switching to less expensive private-label brands.
"Across the sector, consumers are increasingly cost-conscious. They're looking for value and stocking up on items on sale," CEO James Quincey told investors during the company's second-quarter earnings call on Wednesday.
"As we look towards the second half, the global inflationary environment is impacting consumers and our business differently across geographies. In developed markets like North America and Western Europe, inflation is beginning to moderate, and labor markets remain strong. Our elasticities continue to be relatively low, however, we have seen some willingness to switch to private label brands in certain categories," Quincey added.
He pointed out the trade-down phenomenon is occurring in Europe and the US with certain products:
"It's, in our view, highly related to the strength of the brands in any specific category. So we see it more in terms of beverages happening in water and juices rather than soft drinks, and certainly less when you get to colas."
Coca-Cola also announced that its two-year hiking cycle of raising the price of drinks to combat high costs is ending in developed markets like the US and Europe.
Regardless of the gloom about consumers, the company raised its full-year outlook and reported earnings and revenue for the second quarter that topped Wall Street estimates.
So far, Coca-Cola's multi-year pricing strategy hasn't sparked significant backlash, but signs of thrifty consumers and trading down indicate the breaking point nears.
Several companies, such as railroad company Union Pacific and containerboard company Packaging Corp of America, warned about softening consumer demand.
As macroeconomic headwinds mount, credit conditions tighten for consumers, and student debt payments restart in a little over a month, the strong consumer narrative might falter into the end of the year. After all, we've already reported some consumers are trading down from Walmart to Dollar Tree.
