Customers' willingness to pay higher prices is destroying one of the biggest arguments companies have to not raise wages
Customers don't seem to mind paying higher prices as companies hike up staff pay.
Companies from Nestlé to Chipotle have been raising prices to offset higher wages and rising costs.
"We have not seen any material reaction from consumers," P&G's CFO said.
Companies say customers might be deterred if they hike their price to cover wage rises. But customers don't seem to care.
The US is suffering from a huge labor shortage as record numbers of Americans quit their jobs. Some companies have been hesitant to introduce higher wages, even though this would likely attract more workers, because they'd have to lift prices too. They say that this would impact sales.
The owner of a small cleaning company in Virginia said that offering more benefits to workers could prevent the business from making enough profit to cover its expenses. A Checkers franchisee told The New York Times that raising wages to $14 or $15 would allow her to fully staff her restaurants — but that she'd have to raise menu prices, which could deter customers. So she turned to automated drive-thrus instead.
And even former McDonald's CEO Ed Rensi warned that wage hikes could cause companies to go broke.
But companies from Nestlé to Krispy Kreme have been raising their prices to offset a combination of bigger paychecks and rising costs across the supply chain, and they say that buying behavior hasn't been affected.
Consumer-goods giant P&G has so far announced price increases in nine of its 10 product categories, which its chief financial officer, Andre Schulten, said were generally in mid-single digit percentage terms. But he told investors last month that P&G's sales were so far unaffected by price hikes.
"We have not seen any material reaction from consumers," Schulten said. "So that makes us feel good about our relative position."
Nestlé has been raising prices, too. CFO François-Xavier Roger said last month that the company expected inflation to increase its cost of goods sold by around 4% this year.
He told investors that the pricing changes weren't behind decreases in Nestlé's sales volume. He also said that the company hadn't seen any evidence of consumers stockpiling because of inflation.
And fast-food chain Chipotle, which put prices up by about 4% in the summer, posted third-quarter revenues of $2 billion, up from $1.58 billion in 2020 and $1.4 billion in 2019.
Consumers have little choice but to shoulder price hikes
Across social media, more vocal consumers say that they don't mind paying a little more for products if it means the workers get a fairer wage. But, in many cases, consumers have little choice but to shoulder the price hikes. This is because products are getting more expensive across the board, and some say they're cutting back on spending.
Customers' acceptance of price hikes depends on how elastic demand is, how often products are bought, and whether there are cheaper substitutes available. Insider previously reported that having fewer competitors makes it easier for companies to raise prices.
Krispy Kreme CFO Josh Charlesworth, for example, said that the brand's doughnuts are "largely resilient to pricing actions," which he credited to how they're usually shared or gifted and not bought very often. He said that the company's low, single-digit price increase in September hadn't significantly impacted sales.
Companies that don't have enough labor may have to cut their hours, slash their services or production, and watch their revenues plummet. If they want to stay in business, they'll need to do a better job of attracting and retaining talent – and offering decent wages, even if it means hiking prices, is a pivotal part of this.
Got a story about the labor shortage? Email this reporter at gdean@insider.com.
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