Corporations Raise Prices as Consumers Spend ‘With a Vengeance’
Corporate America is lifting prices and bragging about bigger profits as consumers open their wallets and spend heartily.Doughnut sellers, milkshake purveyors, tire manufacturers and rental car agencies are all discovering that something is different about America’s pandemic-weathered economy: People are willing to pay more for the goods and services they want to buy.Companies are taking advantage of a moment of hot and seemingly unshakable demand — one in which consumers are spending “with a vengeance,” to borrow the words of one executive — to cover rising costs and to expand their profit margins to prepandemic or even record levels. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.If it pans out, that trend that could have big economic implications.Planned corporate price adjustments could continue to boost inflation, which is running at its fastest pace in 40 years. The Federal Reserve is trying to assess whether businesses and households are changing their expectations in a way that might make rapid price gains a more permanent feature of the economic landscape.A selection of comments from recent earnings calls show just how companies are thinking about this moment..Rental Car CostsEverything related to automobiles seems to be increasing in cost, and rental cars are the vanguard of that trend. Company leaders are trying to make the profitable moment last.“The overall rent-a-car industry still has more demand than supply,” Joe Ferraro, the president and chief executive officer at Avis Budget Group, the rental car company, said on a Feb. 15 earnings call. “Given the current trends, we are cautiously optimistic about what a rebound in demand could mean once Covid is behind us,” he added.The year “2021 showed us what’s possible,” he said, noting also that he expects the first quarter of 2022 to be the most profitable in the country’s history.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The company has realized, “especially given what we’ve been through in the last two years,” that targeting the most possible rentals — effectively competing by offering lower prices — is “not how you maximize profit,” Brian Choi, its chief financial officer, said on the call.“We choose instead to compete based on the quality of our product and our service,” he said.Tire DemandDemand for cars has also bolstered the market for tires.“It’s a really very, very good constructive pricing environment that we’ve seen right now, probably the best in recent memory,” Richard J. Kramer, the chief executive at Goodyear, said on a Feb. 11 earnings call.The company does look to its competitors as it makes its price increases — but they, too, are charging more.“There are nine competitors that we tend to track, and seven out of the nine have announced price increases in the first quarter, and one of the ones who hadn’t raised prices right at the end of last year,” Darren Wells, its chief financial officer, said on the call. Goodyear saw profit margins expand last year, driven in part by price increases.Sizing Up Beef CostsThe restaurant family that includes Outback Steakhouse, Bloomin’ Brands, is planning to raise prices about 5 percent across its brands to cover rising labor and food costs — and, by pairing that with efficiency improvements, it is managing to increase its profits.“It became clear that the 3 percent pricing we previously discussed was not be enough to offset the increased inflationary pressures our industry is facing,” said Christopher Meyer, the chief financial officer at Bloomin’ Brands, speaking of the last quarter. “Given that we had not taken a material menu price increase since 2019, we are confident that 5 percent is appropriate.”Mr. Meyer noted that operating inflation was 4.9 percent and labor inflation was 8.9 percent in the final quarter of 2021, but that the company had managed to increase its profits through improving efficiency by simplifying its menu and by cutting food waste.In 2022, he said, the company expects beef inflation “in the mid-to-high teens” and wage inflation “in the high single-digit range.”Recovering Profits in FoodShake Shack is among the companies hoping to benefit as consumers spend.Amy Lombard for The New York TimesAs beef and other food costs have increased, so have Shake Shack’s menu prices. But officials think consumers will be able to spend through the burger and ice cream inflation as virus risks fade and foot traffic picks up in the cities where its stores are located.Inflation F.A.Q.Card 1 of 6What is inflation? More
