PRICE WARS REDUCE PROFITS. European grocery discounters like Lidl make a big push in the United States, driving down the costs of staples.. By Todd Horwitz, Bubba Trading

 

PRICE WARS REDUCE PROFITS
By

Todd Horwitz Chief Strategist BubbaTrading.com

Price Wars are On

Household goods from diapers to toilet paper to razors are getting cheaper, but what is a boon for shoppers is squeezing profits at the world’s biggest consumer-goods companies. Under pressure to boost sales, Proctor & Gamble Co. resorted to widespread discounting late last year to win back customers. P&G, which makes Tide detergent and Pampers diapers, said Tuesday that average prices on its products fell in the most recent quarter for the first time since 2011.

Kimberly-Clark Corp., which sells Huggies diapers and Kleenex tissues, partly blamed its rival’s lower prices for weak sales as it unveiled a broad restructuring Tuesday, including at least 5,000 layoffs. A healthy U.S. economy and the lower corporate tax rate have done little to alleviate the challenges these companies face. Retailers such as Wal-Mart Stores Inc. are pushing for steeper discounts as they struggle to compete with Amazon.com Inc. Meantime, costs of pulp, oil and other raw materials used in the products have risen more than expected.

The price war shows no signs of letting up, as European grocery discounters like Lidl make a big push in the United States, driving down the costs of staples like diapers and milk in certain cities. “It is marginally better for consumers but lousy for workers,” said Peter Cappelli, a professor at management at University of Pennsylvania’s Wharton School. “That is the story of modern society.”

P&G, Kimberly-Clark and Johnson and Johnson reported earnings Tuesday. J&J CEO Alex Gorsky told analysts and investors on a conference call that the company’s consumer-health business had maintained market share despite a “global category slowdown” in the market for the goods. He acknowledged J&J needed to do more to accelerate the consumer-health unit’s growth and pledged to take a number of steps. That includes “relaunching” the Johnson’s Baby franchise, which includes baby shampoo, “with new formulations and new packaging to meet the purchasing preferences of millennial parents.”

For its part P&G aims to combat price pressure with new offerings and by focusing on the higher end of the market, where products have richer margins and shoppers are more willing to spend, finance chief Jon Moeller said on a call with analysts. He pointed to the company’s new Oral B power toothbrush and pricier new Olay skin-care products as examples and added that the discounting won’t last.

Keep those stops tight
Todd “Bubba” Horwitz

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About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.