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Walmart and Chipotle criticized over pricing
The three join a growing list of consumer brands grappling with deep customer frustration with high prices — and wariness that prices will only rise further. Many retailers, restaurants and other consumer businesses have seen sales decline as shoppers cut back on spending. Companies are now trying to convince customers they offer the best deals, fueling a surge in discounts, promotions and value meals.
Consumers are fed up with misleading prices, said Jean-Pierre Dubé, a marketing professor at the University of Chicago Booth School of Business. They’ve seen lesser items on the shelves, paid extra fees and felt pressure to tip workers for things they wouldn’t have tipped for in the past.
“We’re reaching a boiling point on this,” he said.
Companies that stock supermarket aisles say consumer perception is distorted. Supermarket prices increased by only 1% last yearaccording to data from the U.S. Bureau of Labor Statistics. But food prices at home have risen more than 24% since May 2019, stretching consumers’ wallets and stoking the anger of companies.
Consumers’ purchasing power has also increased as inflation cools and the labor market remains strong, increasing real hourly earnings for the average private-sector worker, according to BLS data.
Other major costs are adding to Americans’ spending, including electricity and rent, which have both increased over the past 12 months.
“People experience the price of consumer products constantly, and it tends to be a focus of what they can remember buying last,” said David Chavern, president of the Consumer Brands Association, a trade group that represents Coca-Cola, Procter & Gamble and dozens of other consumer packaged goods companies. “But the reality is that what’s happening in the supermarket, in the drugstore, has not been a source of material inflation over the last 12 to 18 months.”
In a May Pew Research Center survey, 62% of U.S. adults said that inflation was “a very big problem in the country today”, a higher percentage than any other issues they were asked about, including illegal immigration, gun violence, violent crime and the federal budget deficit.
That percentage has remained roughly steady even as inflation has cooled. In last year’s Pew survey, 65 percent of Americans said inflation was a very big problem.
Inflation has also become a major talking point in the presidential campaign. Former President Donald Trump blamed the president Joe Bidenwhile Biden accused corporations of greed.
U.S. President Joe Biden delivers remarks on reducing costs for American families during a visit to Goffstown, New Hampshire, March 11, 2024.
Kevin Lamarque | Reuters
Food inflation may be back to pre-pandemic levels, but that hasn’t eased the frustration of Americans who are paying far more for groceries than they did years ago.
Consumers, businesses and the Federal Reserve will get the latest information on inflation on Thursday when the federal government releases its consumer price index for June.
Dianna Campbell, 69, a television producer and consultant in Manhattan, said she had noticed that prices were rising and staying high, whether for laundry detergent or restaurant meals.
“You’re paying more for it, but you’re giving me less, and the quality is worse,” she said.
Campbell isn’t the only consumer upset with inflationary contractionthe practice of cutting the size of an item but not its price.
Over the past year, the term has become a household phrase through references in pop culture and politics. In March, both the Cookie Monster and Biden have criticized shrinkflation by name, the former for reducing the size of his beloved treats and the latter for decimating Snickers bars. (Snickers’ parent company, Mars, has denied skimping on the candy bars.)
Customers saw many other examples on trips to the supermarket.
In a report on inflation, Sen. Bob Casey, D-Pennsylvania, criticized Gatorade for switching from a 32-ounce bottle to a 28-ounce version and keeping the price the same.
Gatorade denies changing its packaging to make a profit. PepsiCo Spokeswoman Andrea Foote told CNBC that the 28-ounce Gatorade bottle has been around for more than a decade and that expanding its distribution was part of the company’s long-term strategy, not a response to the current economic climate.
Retailers also have has been accused of downsizing private label items. WalmartFor example, it cut the number of sheets in its Great Value paper towel rolls from 168 to 120, but it didn’t reduce the price. Company spokeswoman Tricia Moriarty said it’s not shrinkflation because Walmart reformulated the product to make each sheet more absorbent.
Awareness of portion reduction has contributed to the recent backlash against Chipotle. After some customers thought their burrito bowls were smaller, they started filming employees placing their orders and posting the videos on TikTok.
In an interview with Jim Cramer on CNBC “Mad Money” In late May, CEO Brian Niccol said Chipotle had not reduced portion sizes and described TikTok’s trend of filming workers as “a little rude.”
“The whole thing is kind of crazy to me,” he said. “We’ve always said we want to give people great portions. We want to give them what they want.”
Wells Fargo analyst Zachary Fadem tested the theory himself, ordering 75 burrito bowls from eight New York City Chipotle restaurants and weighing them. The weight of the burrito bowls varied based on location, leading the analyst to conclude that consistency was the problem—not shrinkflation.
A customer pays for their food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas.
Brandon Bell | Getty Images
But the feeling of paying more and getting less isn’t just in the minds of consumers. It’s become a common experience as shoppers stock up on groceries and prepare for backyard barbecues.
This 4th of July, for example, customers paid an average of $71.22 for a 10-person barbecue, according to the American Farm Bureau Federation. That’s up 5 percent from last year and 30 percent from 2019.
Wendy’s and Walmart has also recently felt the wrath of consumers worried they might be duped
In late February, the burger chain had to backtrack after CEO Kirk Tanner told investors that Wendy’s would test features as early as 2025 that included “dynamic pricing” — adjusting menu prices to boost demand during slower times of the day. Wendy’s later said it had no plans to raise prices when demand was higher and blamed misleading media reports for the uproar.
A Wendy’s Co. restaurant in the Queens borough of New York City, U.S., on Wednesday, Feb. 28, 2024.
Yuki Iwamura | Bloomberg | Getty Images
More recently, social media users criticized Walmart for its decision to roll out digital shelf labels, high-tech price tags that allow you to quickly and easily change prices. The retailer said last month that it would add the technology to more of its stores and plans to have them in 2,300 locations, or about half of its U.S. footprint, by 2026.
On TikTok, some saw the move as the first step for the country’s largest retailer to use dynamic pricing. similar to Uber’s surge pricing.
Walmart, on the other hand, said the new price tags will cut a tedious task from store employees’ to-do lists. The digital shelf tags are designed to save time, Walmart spokeswoman Cristina Rodrigues said. They have LED lights that flash to guide store employees who are restocking items or to help them find products for a customer’s online order. They eliminate the need for store employees to replace traditional paper tags.
She said Walmart has “no plans to change the frequency or implement different pricing methods.” Rodrigues said all price changes will still be approved by the merchandising team. With the technology, a store associate has to stand in front of the shelf and use a mobile app to increase or decrease the price, she said.
Dubé, of the University of Chicago, said the resistance stems from years of consumers feeling cheated by price increases.
“The knee-jerk reaction from consumers is, ‘This seems like another unfair thing that companies are going to do to try to cheat us,'” he said. “The assumption is that this is just another attempt to hurt them.”
But he added that dynamic pricing could have an upside if restaurants and retailers follow suit. Prices can go down as well as up, he said. In Europe, for example, some supermarkets cut prices later in the day to speed sales of baked goods or perishable items and reduce food waste. If Wendy’s lowered prices during slower periods, he said customers could actually get cheaper meals.
Customers at a Walmart store in Secaucus, New Jersey, USA, on Tuesday, March 5, 2024.
Gabby Jones | Bloomberg | Getty Images
But consumers don’t have to wait much longer to start seeing lower prices.
As foot traffic declines for retailers and restaurants, some are leaning into value to bring customers back. In recent months, Target, McDonaldsAldi and others have intensified price cuts and launched new offers for customers.
Walmart said it reduced prices on nearly 7,000 items across its grocery categories in the first quarter of the year. AmazonasCompany-owned Whole Foods has cut prices over the past six months on about 25 percent of its items, including nearly 900 of its private-label items. And a number of fast-food chains, from McDonald’s to Starbucks to Burger King, have recently unveiled new value meals to boost sales.
Consumer packaged goods companies are also reversing course as their volumes decline and investors worry about slow sales. During Covid, companies like Mondelez paused promotions while they focused on meeting demand and dealing with supply chain issues.
But now Mondelez is one of the companies trying to lure consumers back with lower prices. The snack company, which makes Oreos and Clif bars, is expecting a challenging year for its U.S. business as lower-income consumers buy its cookies and crackers less frequently. Mondelez executives said in June that they are planning promotions for brands like Chips Ahoy!, which tend to lose ground to cheaper private-label options. The company has also cut prices on some of its larger package sizes.
“The top priority is really to continue to grow the company and continue to generate volume growth,” Mondelez CFO Luca Zaramella said at the Evercore ISI Consumer & Retail Conference last month.
Krogerwho sells many of these items, also noticed this trend.
Kroger CEO Rodney McMullen said on a mid-June earnings call that brands are spending more of their own money to offer discounts to customers and drive more volume. And he said the level of promotions is similar to pre-pandemic.
It remains to be seen whether companies can contain consumer outrage as offers and discounts begin to take effect.