The CEO of US retailer Safeway Inc today (24 February) played down the impact that rising prices would have on consumer behaviour and said that the US retailer would continue to pass on price increases.
On an earnings call today, chairman, president and CEO Steve Burd said that Safeway would pass price increases from suppliers onto consumers “as we see them” and as its competition passes them on.
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The announcements came as the retailer recorded a rise in fourth quarter income to reach US$229.6m against a $1.61bn net loss in the same quartr of 2009. For the full year, revenue rose to $41.05 against $40.85bn in 2009, however net income fell from $720m in 2009 to $589.8m in 2010
Amid volatile commodity costs, Burd said the retailer was “seeing the first signs of inflation”, that it has had “no difficulty passing them on” and that “all retailers are passing them [price increases] on”.
Burd emphasised that the retailer is “protecting the margin” and that there has been “virtually no delay” in passing increases on.
The Safeway chief suggested that inflation “may break 2%” in the latter part of the year, but seemed unfazed that the retailer would be able to pass these rising costs onto consumers.
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By GlobalData“When inflation gets to 5% you can have a demand-depressing result. You don’t have a problem at 3%, it’s between 3-5% that consumers start to have a problem”.
He also suggested that it would be unlikely that manufacturers would be able to avoid raising their prices across the course of the year. “It is unlikely that any vendor will end the year without any price increases,” he said.
Burd argued that, while there has been a “real reluctance” to raise the cost of goods, there are “no efficiencies that can take care of underlying cost increases”. He added that underlying commodity cost increases were “pretty extraordinary”.
Burd said that cost increases would vary across the board, with single commodity products set to see the biggest hikes. He said a processed product may see its price increase 3-5% increase if commodity prices increase but added that “if the cost of coffee beans increases 20% that will mean a 20% increase in the price of coffee”.
He suggested that consumer sentiment had been more positive and that he is seeing a “bifurcated” recovery, with people on higher incomes being more confident and starting to trade up, while those in hourly jobs are “not seeing much recovery”.
Burd also suggested that even without the commodity cost pressure the industry is seeing, retailers across the board would be looking to increase prices. He said that after two years of economic challenges it was necessary to pass costs along. It was a matter, he said, of “preservation”.
