A customer shops for produce at an H-E-B grocery store in Austin, Texas, on Feb. 12, 2025.
Brandon Bell | Getty Images
Shoppers will likely pay more for coffee, bananas, vanilla and toilet paper over the coming weeks as the Trump administration’s new tariffs go into effect.
The U.S. plans to hike tariff rates on goods imported from more than 180 countries and territories in the hopes of bringing jobs back stateside. However, some “critical” ingredients and materials found in food, drinks and goods used daily by U.S. consumers are not available domestically, according to the Consumer Brands Association, an industry trade group that represents Coca-Cola, Procter & Gamble, Target and other consumer giants.
“However well intended, the success of the President’s America First Trade Policy, must recognize the U.S. companies that are already doing it the right way but depend on imports for specific ingredients and inputs that cannot be sourced domestically,” Tom Madrecki, vice president of supply chain resiliency for the CBA, said in a statement. “Reciprocal tariffs that do not reflect ingredient and input availability concerns will inevitably raise costs, limit consumer access to affordable products and unintentionally harm iconic American manufacturers.”
On CNBC’s “Squawk Box” on Thursday morning, Commerce Secretary Howard Lutnick brushed off the idea that countries could win exemptions for specific goods. But the CBA is seeking exemptions for key ingredients and materials slapped with tariffs to keep prices down for its members and their customers.
For one, the U.S. climate limits the production of some staples of the U.S. diet, such as coffee, cocoa and tropical fruits, according to the CBA. The U.S. was the top global importer of bananas in 2023, based on Observatory of Economic Complexity data. Nearly 40% of those bananas came from Guatemala, which will face a 10% tariff on goods exported to the U.S.
Trader Joe’s has long bragged about not raising the price of its bananas, as seen in this photo from 2014.
Rj Sangosti | Denver Post | Getty Images
Spices will also become pricier for home cooks and bakers because of climate limitations, the CBA said. For example, Madagascar accounts for more than three-quarters of U.S. imports of vanilla, which is already the second-most expensive spice in the world. Exports from Madagascar will be subject to tariffs of 47%.
Shares of spice purveyor McCormick were down less than 1% in afternoon trading on Thursday. The company plans to offset tariffs through “some very targeted price adjustments” and a broader cost-savings program, McCormick executives said in late March.
In other cases, decadeslong shifts in the U.S. agricultural system mean domestic supply will not be able to meet demand easily.
For example, more than 90% of oats milled for food in the U.S. come from Canada to be turned into cereal, the CBA said. But U.S. oat acreage peaked more than a century ago and has been declining in the decades since then, according to the U.S. Department of Agriculture. The domestic food system can no longer grow, store or transport U.S. oats at the scale necessary to meet demand, the CBA said.
Shoppers will likely also find themselves paying more for inedible household staples. Toilet paper, diapers, lotions and shampoo could become more expensive as manufacturers pass on the increased costs for wood pulp, bamboo fibers, shea butter and palm oil, according to the CBA. For example, the U.S. imports most of its palm oil supply from Indonesia, which now faces a 32% duty.
Markets plunged on Thursday in response to the tariff announcement. However, stocks in the consumer staples sector, which includes many of the CBA’s members, rose in afternoon trading as investors ditched riskier bets for the relative safety of household necessities.
Shares of Procter & Gamble climbed more than 1%, while Coke’s stock was up 2%. General Mills’ shares ticked up 3%.
Independent presidential candidate Robert F. Kennedy Jr. makes an announcement on the future of his campaign in Phoenix, Arizona, U.S. August 23, 2024.
Trump’s announcement on Thursday gives Kennedy, a notorious vaccine skeptic, a good chance of securing the nation’s top health-care job. The coming Republican-held Senate will ultimately decide whether to confirm him, though Trump has raised the prospect of sidestepping that process with recess appointments.
If confirmed, Kennedy will take the reins of a $1.7 trillion agency that oversees vaccines and other medicines, scientific research, public health infrastructure, pandemic preparedness, food and tobacco products. HHS also manages government-funded health care for millions of Americans – including seniors, disabled people and lower-income patients who rely on Medicare, Medicaid, and the Affordable Care Act’s markets.
The heads of the Food and Drug Administration, Centers for Disease Control and Prevention, National Institutes of Health and Centers for Medicare & Medicaid Services all report to the HHS secretary, though Trump has yet to nominate them. Kennedy will likely have some influence over who the president-elect chooses for those roles, health policy experts said.
Some health policy experts told CNBC that Kennedy could elevate vaccine skepticism and deter more Americans from taking recommended shots, attempt to cut funding or entire departments at different agencies, and shift research and development toward more alternative treatments or disease areas of interest to him, among other efforts.
Kennedy’s so-called Make America Healthy Again platform argues a corrupt alliance of drug and food companies and the federal health agencies that regulate them are making Americans less healthy. Kennedy has long contended that the agencies that HHS oversees need reform or a sweeping overhaul, part which could mean cutting funding, purging staff and hiring new employees who share his often disproven views on health and science.
He has also said he wants to remove fluoride from drinking water systems and target chronic diseases by cracking down on food and chemical additives, among other efforts.
But there will be some limits to Kennedy’s power – even with a Republican government trifecta. Some of his proposals, such as cutting funding, may not easily pass through Congress. Other efforts could spark expensive and prolonged litigation against the federal government.
Spokespeople for Kennedy and Trump’s campaign did not immediately respond to requests for comment.
Here are some of the things that Kennedy may – or may not – be able to accomplish as HHS secretary.
Vaccines
Brandon Guerrero, 34, of Compton, receives both a flu and COVID-19 vaccine at CVS in Huntington Park on August 28, 2024.
Christina House | Los Angeles Times | Getty Images
Kennedy is a staunch critic of vaccines, which have saved the lives of more than 1.1 million children in the U.S. and saved Americans $540 billion in direct health-care costs over the last three decades, according to CDC research released in August.
He has long made misleading and false statements about the safety of shots. He has claimed they are linked to autism despite decades of studies that debunk that association. Kennedy is also the founder of the nonprofit Children’s Health Defense, the most well-funded anti-vaccine organization in the U.S.
Ultimately, Kennedy’s influence over immunization policy could lead to an increase in diseases preventable by vaccines, several health policy experts told CNBC.
“He could create considerable distrust in vaccines and make some vaccines highly politicized, so in particularly red states, we could see outbreaks of fully preventable childhood diseases,” said Lawrence Gostin, a health law and policy expert at Georgetown University. That includes measles, mumps, rubella and polio.
That would be a difficult task, experts said. The FDA can pull a product from the market if further trials after approval fail to confirm that its clinical benefits outweigh its risks, or if unexpected risks are detected among patients. That has not been the case with the approved shots on the market.
“It would be hard to imagine that a new HHS secretary would be able to immediately remove vaccines that are already approved and already being used and recommended by the government from the market,” said Josh Michaud, associate director of global health policy at KFF, a health policy research organization. “He can’t just make that change with a simple wave of a wand.”
Still, Kennedy has repeatedly argued that there is not enough data on vaccines and their effects. He told NPR earlier this month that the Trump administration is going to “make sure those scientific studies are done and that people can make informed choices about their vaccinations and their children’s vaccinations.”
As HHS secretary, Kennedy could “cherry-pick” data from additional government studies and release misleading results that undermine trust in the safety and efficacy of vaccines, Gostin said.
That misinformation could deter some Americans from receiving certain shots. Michaud added vaccine misinformation could push health officials on the state and local level to “perhaps allow for more individual choice rather than mandating routine vaccination” for certain diseases.
Many state health departments and clinicians rely on vaccine recommendations from an advisory committee to the CDC. Those include who should get what shots and at what age.
Those guidelines have broader implications for public health. Vaccines recommended by that advisory panel and approved by the CDC director are covered under the Affordable Care Act. The agency also administers the Vaccines for Children program, which provides free vaccines for children in low-income families.
Kennedy could attempt to influence that CDC advisory committee and a similar panel linked to the FDA by stacking them with people who hold anti-vaccine views, Gostin said. The HHS secretary has the power to form an advisory committee, remove members, and set the terms and qualifications for them.
That could produce more limited vaccine recommendations that aren’t firmly rooted in science, he added. It could also translate to a “fragmentation of vaccine policy” across the U.S. if only some states accept recommendations from advisors selected by Kennedy.
Federal agency funding, staffing
Kennedy in recent weeks has pledged to end what he calls “corporate corruption” at federal health agencies and purge staff when he steps into his role in the Trump administration.
He has said he would clear out “entire departments” at the FDA, saying that workers who stand in the way of approval of several controversial or dubious treatments should prepare to “pack their bags.”
Kennedy, before dropping out of the presidential race, also said he wanted to shift NIH’s focus away from infectious disease and toward chronic diseases like obesity for eight years. In September, Kennedy said half of the NIH’s $48 billion budget should go toward “preventive, alternative and holistic approaches to health.”
A shake-up at the NIH – the largest public funder of biomedical research in the U.S. – could have major implications for research and the pharmaceutical industry. The NIH funds and conducts research on everything from vaccines and cancer to new drug targets, laying the groundwork for treatments that companies can develop.
More CNBC health coverage
“He could certainly allocate funding away from drugs that he’s not interested in and more towards maybe areas that are more speculative,” said Genevieve Kanter, associate professor of public policy at the University of Southern California.
Kanter pointed to his long history of embracing disproven treatments, such as claiming that hydroxychloroquine and ivermectin work against Covid, even though several studies say they do not. Hydroxychloroquine is an immunosuppressive drug, while ivermectin is used to treat infections caused by parasites.
Major changes or funding cuts at the NIH, FDA and CDC would require congressional approval. Federal employees are also protected against arbitrary or politically motivated firing.
FDA staff are further shielded because Congress does not fully fund their salaries. Nearly half of the agency’s $7.2 billion budget this year came from so-called user fees, or payments made by drug and medical device manufacturers to fund the staff resources needed to quickly review their products, conduct inspections and ensure the safety of clinical studies.
It seems “unlikely” that Kennedy would be able to end that user fee program, according to Richard Frank, director of the Center on Health Policy at Brookings. But he may attempt to influence negotiations around how the program is implemented when Congress decides whether to reauthorize it after 2027, Frank said.
Gostin said other “cuts across the board” at the three agencies are possible, especially in areas that are “part of the culture wars.” The CDC could see funding reduced for key functions related to vaccines, chronic disease, sexual and reproductive health, and firearm injury and prevention, according to Gostin.
He added that the FDA’s nutrition departments could also see cuts or be “on the chopping block” altogether, given Kennedy’s intent to change what he calls the “broken” U.S. food system.
Cracking down on pharma
Some Wall Street analysts are less concerned about Kennedy stifling drug approvals and regulation.
“We anticipate RFK to focus on U.S. food policy and its relationship to chronic illness, not medicine,” BMO Capital Markets analyst Evan Seigerman said in a note last week.
Wall Street has fewer immediate concerns about pharmaceutical companies. Seigerman said, “there is little precedent in recent history for HHS policy dictating or affecting FDA regulation or approval of drugs.”
He added that the impact on the biotech and pharmaceutical industry is still unclear until Trump selects an FDA commissioner, and that the firm is more confident that he will tap a candidate with a “robust medical background and ties to the industry.”
Still, Kennedy appears to favor “tighter controls and intervening a bit more” in the biotech and pharmaceutical industry, according to Dave Latshaw, co-founder and CEO of artificial intelligence drug development company BioPhy.
That could bring some uncertainty to the drug development and approval process, which poses a greater risk to companies that primarily have products in the earlier stages of development than to large pharmaceutical companies, Latshaw added.
Kennedy could attempt to crack down on the biotech and pharmaceutical industry in other ways – but they may not be successful.
He has said he wants to ban direct-to-consumer television drug advertisements. In 2023, pharmaceutical companies spent nearly $3 billion on advertising for the 10 most promoted drugs.
Experts said the First Amendment, which guarantees freedom of speech, would make that an extremely difficult task. Trump also tried to take on pharmaceutical advertising during his first administration by requiring companies to disclose the list prices of products in their ads. Drugmakers sued the government, and a federal court blocked the rule.
Kennedy’s position on the drug pricing provisions in the Inflation Reduction Act, President Joe Biden‘s signature legislation, is unclear. That 2022 law gave Medicare the power to negotiate drug prices with manufacturers for the first time in history – a provision that the pharmaceutical industry is challenging in court.
But the Trump administration won’t have much flexibility to dismantle or scale back the law without change from Congress. It also seems unlikely Kennedy would want to scrap efforts to lower drug prices, an issue top of mind for Americans, according to Amy Campbell, associate dean for law and health sciences at the University of Illinois Chicago School of Law.
Fluoride, food supply
Kennedy earlier this month proposed advising all U.S. water systems to remove fluoride from drinking water, falsely claiming that it is “an industrial waste” linked to several medical conditions, such as thyroid disease and neurodevelopmental disorders. Trump has since said that idea sounds “OK to me.”
But fluoride is a naturally occurring mineral found in soil, water and plants. Adding low levels of fluoride to drinking water is widely considered one of the greatest public health achievements of the 20th century for its role in preventing tooth decay.
Campbell said the decision to add fluoride to water happens at the state and local level, so Kennedy could only advise its removal. But even that could eventually lead to certain states doing away with fluoridation, she noted.
Kennedy has been vocal about tackling the root causes of chronic diseases rather than spending resources on treating those conditions with drugs from the pharmaceutical industry. There are still few details on what exactly that would look like, but Kennedy is targeting a real issue in the U.S.
An increasing share of people in America are dealing with multiple chronic conditions, with roughly 42% having two or more, according to the CDC. More than 40% of school-aged children and adolescents have at least one.
Some of Kennedy’s ideas, such as stripping ultra-processed food from school cafeterias and cracking down on food dye, have found public support on the right and left. But he has pushed misleading claims and comparisons related to food in the U.S. and how it is regulated, such as incorrectly claiming that Froot Loops cereal in Canada contains just two or three ingredients when it has 17.
Some experts said Kennedy could pressure the FDA commissioner to scrap or cut down the agency’s Center for Food Safety and Applied Nutrition. But banning the use of already-approved food additives would require more rather than fewer resources, experts added. They said that the process would likely involve extensive reviews of data and real-time monitoring of the food supply, among other efforts.
Other changes may need to be spearheaded by the U.S. Department of Agriculture, which does not fall under HHS. For example, the USDA sets guidelines that govern school lunch programs.
The McDonald’s logo is displayed at a McDonald’s restaurant in Burbank, California, on July 22, 2024.
Mario Tama | Getty Images
Subway started phasing out its $5 footlong sandwiches a decade ago. But these days, other fast-food chains have revived the $5 price point, hoping to win over customers who have cut back their spending.
As many restaurant companies prepare to report their second-quarter results, investors are expecting to hear that diners are visiting their locations less frequently and that sales have turned sluggish, with few exceptions such as Chipotle. In the hopes of lifting their results for next quarter, chains such as McDonald’s, Taco Bell, Burger King and Wendy’s have unveiled or revived meal deals with a $5 price tag.
McDonald’s said it is seeing traffic increase as a result, although Wall Street is not expecting a big sales bump from the promotions.
Fast food typically fares better than the broader industry during economic downturns. But the last several years of price hikes have led many consumers to conclude that fast food just is not a good deal anymore. More than 60% of respondents to a recent LendingTree survey said they have cut back their fast-food spending because it is too expensive.
Runaway menu prices have scared off many fast-food customers, including those in the low-income bracket who make up a sizable chunk of the sector’s customer base. Sensing diners’ fast-food backlash, players such as Brinker International’s Chili’s have used their marketing to highlight their own value relative to the cost of a fast-food meal. Casual-dining chains have taken some market share from the fast-food sector, Darden Restaurants CEO Rick Cardenas said in June.
“It’s the war for the less affluent customer,” said Robert Byrne, senior director of consumer research for Technomic, a restaurant market research firm.
That change in consumer behavior has also scared away Wall Street. Shares of McDonald’s, Burger King parent Restaurant Brands International and Wendy’s have all slid by double digits this year. Taco Bell owner Yum Brands is down more than 1% in 2024. Meanwhile, the S&P 500 is up 14%.
“The sense among investors is that the second quarter is probably going to be one to forget — you’re going to see a lot of large chains probably miss consensus [estimates],” KeyBanc analyst Eric Gonzalez told CNBC.
McDonald’s is expected to report its second-quarter earnings on Monday, while Wendy’s is slated to announce its results on Wednesday. Restaurant Brands and Yum Brands are expected to report their quarterly earnings the following week.
Can value meals fuel bigger purchases?
A sign advertises meal deals at a McDonald’s restaurant in Burbank, California, on July 22, 2024.
Mario Tama | Getty Images
Generally, fast-food chains tend to focus their discounts and value meals on the first quarter, when consumers are trying to save their dollars after the holiday season and stick to New Year’s resolutions. As temperatures rise, so do restaurant sales, and operators usually do not need to rely on deals to bring in customers.
But this summer is different. Fast-food chains need discounts to fuel traffic — and sales growth.
“The fact is that restaurants are running out of space to take more price on their menus,” Byrne said.
But the value meals are not only about growing traffic.
“It’s also about converting the consumer who’s coming for the deal to a higher-ticket consumer by introducing other add-ons or other things that they might do,” Byrne said. “The risk is that they don’t.”
Without convincing customers to add a milkshake or another entrée to their order, the discounts ding profits and become unsustainable in the long run. That is a big worry for investors who are already skeptical that chains will not see the traffic bump they are hoping for.
“The value menus rolled out toward the end of the quarter. There’s just a fear that it’s not going to get any better, and it’s going to be a race to the bottom,” Gonzalez said.
Subway’s $5 footlong presents its own cautionary tale. Although the deal was popular with customers, it outstayed its welcome with operators, eroding their profits and compounding other issues with the brand, such as sales cannibalization from its massive footprint. That led to restaurant closures, angry operators and years of searching for a new way to bring back customers.
Franchisee skepticism
Investors are not the only ones skeptical about the promotions — so are franchisees, who often push back against discounts because they hurt their profits.
Franchisees have also gained more power to resist parent companies’ deal strategies in recent years. Many franchisees are larger these days, with more restaurants and sometimes even private equity money.
At McDonald’s, franchisees banded together to form the National Owners Association in 2018, rebelling against the burger giant’s unpopular discounts and plans for store renovations. Since then, the chain’s operators have fought back more against management’s plans.
An initial proposal of McDonald’s $5 value meal did not pass muster, so Coca-Cola chipped in marketing funds to make the deal more attractive to operators. Coke CEO James Quincey said on Tuesday’s earnings call that the beverage giant has seen weaker away-from-home sales in the U.S. as quick-service restaurants struggle. To boost demand, Coke is partnering with food-service customers to market food and drink combo meals, according to Quincey.
McDonald’s on Monday extended its value meal past its initial four-week window. Ninety-three percent of its restaurants voted in favor of the extension, executives wrote in a memo to the U.S. system viewed by CNBC.
The promotion is bringing customers back to its restaurants, according to both executives and foot traffic data. June 25, the launch day of McDonald’s $5 meal, drew 8% more visits than the average Tuesday in 2024 so far, according to a report from Placer.ai. The pattern repeated in the following days as the chain exceeded year-to-date daily visit averages. Placer.ai also found that discounts helped drive traffic to Buffalo Wild Wings, Starbucks and Chili’s.
In his quarterly survey of more than 20 McDonald’s franchisees, analyst Mark Kalinowski of Kalinowski Equity Research asked respondents what percentage of their sales were helped incrementally by the $5 meal deal. The average response was 1.3%.
“These responses may suggest that the $5 Meal Deal should be viewed as an initiative that may help prevent some customers from going elsewhere, as opposed to a big sales builder,” Kalinowski wrote Wednesday in a research note about the survey results.
An employee hands an order to a customer through a drive-thru window at a McDonald’s restaurant in Oakland, California, on April 9, 2020.
David Paul Morris | Bloomberg | Getty Images
An independent advocacy group of McDonald’s franchisees is weighing in on the company’s upcoming value meal promotion, cheering affordability for the consumer, but pushing for future contributions from the company to make the discounted offering sustainable for operators in the long run.
“The fact remains that in order to provide the consumer with more affordable options, they must be affordable for the owner/operators. McDonald’s vast resources and financial investment are essential to any sustainable affordable strategy,” the board of the National Owners Association wrote in a letter to membership.
The letter calls the McDonald’s business model a “penny profit business, with 10-15% margins,” and says “There simply is not enough profit to discount 30% for this model to be sustainable. It necessitates a financial contribution by McDonald’s.”
CNBC reported last week that the $5 value meal would be hitting menu boards beginning June 25 and lasting roughly a month. It will include a McChicken or McDouble, four piece chicken nuggets, fries and a drink. The combo would be substantially less than purchasing those items individually.
The offering comes as lower-income consumers pull back from certain restaurants in the face of stubborn inflation, and brands look to offer greater value to customers.
CNBC reported Coca-Cola had added marketing funds to make the deal more appealing for McDonald’s and its franchisees after an initial proposal did not pass internal hurdles. In a statement last week, Coca-Cola said, “We routinely partner with our customers on marketing programs to meet consumer needs. This helps us grow our businesses together.”
McDonald’s declined to comment on the NOA letter to its membership. In a statement to CNBC last week on the value meal, the company said, “We know how much it means to our customers when McDonald’s offers meaningful value and communicates it through national advertising. That’s been true since our very beginning and never more important than it is today.”
The company has previously noted cash flows for U.S. franchisees are up nearly 50% on average since 2018. Even when accounting for inflation, 2023 was one of the best years for franchisee cash flow in the company’s history, McDonald’s has previously said.
Beyond the $5 promotion, the NOA letter goes on to suggest the company should continue to innovate on the menu, bringing back items such as snack wraps that use existing chicken breasts, creating affordable options with lower food costs so they are more affordable for owners to sell.
The group also suggested taking the top two beverages from McDonald’s spinoff chain, CosMc’s, and bringing them to flagship locations as a way to excite both customers and employees.
These ideas were initially floated by the advocacy group earlier in the year, as it pushed to add affordable options to the menu without discounting “core and iconic” items.
“Recently [McDonald’s CEO Chris Kempczinski] has made public comments about the US consumers’ growing need for affordability. This is not a new or unique message; value has always been at our Brands’s core,” NOA said in a letter to membership viewed by CNBC in February.
A McDonalds located on Santa Monica Blvd in Los Angeles, California, April 1, 2024.
Robert Gauthier | Los Angeles Times | Getty Images
McDonald’s is working to introduce a value meal in U.S. stores to help offset an increasingly challenging environment for consumers, two people familiar with the matter told CNBC.
The people said the $5 meal could include four items: a McChicken or McDouble, four-piece chicken nuggets, fries and a drink. The value meal was first reported by Bloomberg News.
The potential new offering comes at a time when low-income consumers are beginning to pull back on spending, particularly at fast-food brands. Mentions of low-income consumers on company earnings calls are at their highest levels in nearly two years, according to data from Bank of America. Executives from McDonald’s to Wendy’s to Dave and Buster’s have all noted the restraint in spending.
McDonald’s recently reported a mixed first quarter, with U.S. same-store sales slightly missing expectations. Higher prices helped grow average checks, but some consumers pulled back as a result of the steeper costs.
“Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the [quick-service restaurant] industry,” CEO Chris Kempczinski said on the company’s earnings call on April 30.
He added that McDonald’s has to be “laser-focused” on affordability to attract diners.
On the call, Kempczinski said the company is working on a national value deal in the U.S., and the company’s Chief Financial Officer Ian Borden said the U.S. leadership team was working closely with owner-operators in this environment. McDonald’s corporate and franchisees, who run 95% of McDonald’s locations and weigh in on such offerings, are often at odds over promotions that could eat into owners’ profits.
An initial proposal by McDonald’s for the $5 value meal did not clear necessary hurdles, and additional details are now being discussed, according to a person familiar with the process. A second person said Coca-Cola added marketing funds to the equation to make the deal more appealing.
McDonald’s and Coca-Cola declined to comment to CNBC.
— CNBC’s Amelia Lucas contributed to this article.
As Gatorade approaches its 60th birthday, the brand is staying spry, branching out into new categories from unflavored water to energy drink mixes.
Since its founding in 1965, Gatorade has been the dominant sports drink. It accounted for 63.5% of the U.S. sports drink market in 2023, according to Euromonitor International data.
Owner PepsiCo’s archrival Coca-Cola takes the second and third slots with Powerade, a perennial No. 2 choice to Gatorade, and Bodyarmor, a newer addition to its portfolio. But combined, Coke’s two brands account for only about a quarter of the U.S. sports drink market. Last year, Pepsi reorganized its portfolio to house Propel, Muscle Milk and other fitness-related brands under the Gatorade name.
But Gatorade’s dominance doesn’t mean that it can rest on its laurels. As more competitors enter the market, the brand has tried to reinvent itself.
“There’s probably been more change in the industry in the last five years than there was 20 years before,” said Rabobank beverage analyst Jim Watson.
Pepsi’s rivals are looking to steal its market share as they branch into new products. Unilever bought drink mix company Liquid I.V. in 2020 for an undisclosed amount; Gatorade’s individually packaged hydration powders resemble the upstart’s. Nestle Health Science bought hydration tablet maker Nuun in 2021, the same year that Coke bought Bodyarmor.
With Coke’s acquisition of Bodyarmor, it bought a brand that could price its sports drinks higher, thanks to its marketing as a healthier option. Coke’s other sports drink, Powerade, is typically cheaper than Gatorade, appealing to consumers looking for a deal.
“That means they have a different and better story to tell the retailers to try to get more shelf space and to take some of that from Gatorade,” Watson said. “That’s where Gatorade has to come up with all kinds of new innovations so they have a new story to tell the retailers so they keep all of their shelf space.”
Even smaller brands without the firepower of Coke or Unilever have been putting pressure on Gatorade. PepsiCo CEO Ramon Laguarta called out influencer Logan Paul’s Prime Energy as one brand stealing share from Gatorade.
“It is true that the emergence of Prime in the category took some share from Gatorade, [though] less than other brands in the category or less proportionally to the size of the brand,” he said on the company’s third-quarter conference call in October, adding that Prime’s market share weakened as summer turned to autumn.
Gatorade’s market share should improve this year but will likely still fall from the prior year, according to a Citi Research note from February.
Gatorade President Mike Del Pozzo told CNBC that the competition is good for the category overall – and shows his brand’s own strength.
“There’s plenty of loud voices right now, trying to make a name for themselves,” said Del Pozzo. “This is a competitive business, and because we’re in the business of sports, we love competition. Clearly, we’re winning, and I think many of them are spending more time on talking about us and less about their own brand, the consumer approach.”
For its part, Gatorade has been thinking about its own pitch to consumers. Del Pozzo said that the line between hydration and wellness has blurred, and more consumers are focused on hydrating throughout their day, not just during exercise.
They now like low- or no-sugar drinks, “functional” beverages that tout health benefits like improving immunity and alkaline water, he said.
Gatorade has responded by branching out with new products: Gatorade Zero Sugar, tablets with vitamin C and zinc for immune support, a Pedialyte lookalike called Gatorlyte, a caffeinated spinoff called Fast Twitch and its first unflavored alkaline water, which launched nationwide in February.
“It’s off to a great start so far, but we were super patient to get it right,” Del Pozzo said about Gatorade Water, which has about a fifth of the electrolytes found in classic Gatorade.
Year to date, Gatorade is gaining share in every hydration category it has products, according to market research firm Circana. And Propel’s annual sales are projected to cross $1 billion for the first time this year, Del Pozzo said.
Gatorade’s long history has given the brand the ability to step into new categories and blur the lines, according to Rabobank’s Watson.
“This is one of the brands that has the best marketing campaigns, such great brand equity, consumer awareness, consumer love,” he said.
For now, classic Gatorade remains the brand’s top seller.
A man with a paper bag of groceries looks surprised and upset at a receipt from a supermarket with high prices against the background of an escalator with customers in the shopping center.Â
Elena Perova | Istock | Getty Images
Just ahead of the holiday season, Walmart had encouraging news for inflation-weary shoppers: Prices on food and other staples were falling instead of rising. The retail giant said if the trend continued, it would soon contend with deflation in some of those key household categories, which would be a welcome sight for consumers emerging from the worst price increases in decades.
But the retail giant backpedaled this week, saying higher prices on many grocery items and household staples like paper goods have stuck.
“There is deflation in certain categories â the possibility overall still remains â but prices are more stable than where they were three months ago,” CFO John David Rainey told CNBC.
In recent weeks, corporate leaders have sung a similar tune â at a time when inflation is cooling but prices are still rising faster than the Federal Reserve would like. Home Depot said the prices of home improvement items have “settled” rather than fallen. Coca-Cola and the makers of other popular brands of snacks, sodas and household essentials said their prices are still ticking higher than a year ago. While they’re planning for more modest price hikes, shoppers should not expect price cuts, either.
“If one looks at inflation over time, we very rarely get into periods of sustained deflation. That’s just not a consumer effect,” Coke CEO James Quincey said Feb. 13 on CNBC’s “Squawk on the Street.”
The latest government data backs that up: while the rate of price increase is dipping year over year, the latest inflation metric came in hotter than expected. The consumer price index, a broad measure used to track what shoppers pay for goods and services across the economy, rose 3.1% in January from the prior year.
Food prices climbed 2.6%, fueled by a 5.1% jump in prices for food away from home, a category that includes restaurant meals and vending machine purchases.
While prices broadly are still climbing, shoppers have seen relief in some areas. For instance, prices of consumer electronics, used cars and some other categories of general merchandise have tumbled. Wages have also kept rising, softening the blow as some prices have stayed high.
Inflation vaulted to the top of the minds of shoppers, executives and investors over the last two years as soaring prices stretched household budgets and forced shoppers to reevaluate where and how much they spend. Price hikes helped companies offset higher input costs and maintain growth â even as consumers bought less while they were forced to fork up more money. The Federal Reserve took on the challenging task of reining in rising prices without tipping the economy into a recession, slowing inflation, but shoppers have only felt so much relief.
The cost of everyday items topped Americans’ economic worries in a Pew Research Center survey conducted Jan. 16 to Jan. 21. Seventy-two percent of respondents said that they were “very” concerned about the price of food and consumer goods.
While deflation could offer consumers relief, it can be a tricky dynamic to navigate, too. In many cases, companies might opt to protect profits rather than pass on lower input costs to consumers. Otherwise, they risk shrinking sales and a falling stock price.
Plus, executives may not want to cut prices or say deflation is happening, since investors could take it as a sign that a company’s brand or the economy as a whole has weakened.
“You rarely see prices go down on a uniform basis outside of recessions or deep recession,” said Gregory Daco, chief economist at EY.
However, consumers sometimes benefit from price “corrections,” he said. For example, airfares plunged during the pandemic and surged after it, but now have leveled out again.
The prices that are falling â and aren’t
So far, the unwinding of historic inflation has been uneven.
Products like chicken or eggs have been more likely to see prices slashed inside the grocery store. Tyson said chicken prices fell 3.9% in its fiscal first quarter. Egg producer Cal-Maine Foods reported that the average price per dozen eggs was cut in half in the quarter ended Dec. 2 compared with the year-ago period, when the price of eggs spiked. Unilever CFO Fernando Fernandez also called out price cuts for at-home ice cream, laundry and skin cleansing bars on the company’s Feb. 8 conference call.
“We’ve seen deflation first in the commodity-oriented categories,” said CFRA analyst Arun Sundaram. “I think it will take some time before packaged food pricing comes down.”
But not all commodities have tumbled in price. Cocoa, sugar and tomatoes have all shot up more recently, hurting companies like Kraft Heinz and Nestle. Chocolate maker Hershey said it raised prices slightly on some items earlier this month.
Though many input cost pressures for businesses have eased, expenses are climbing faster than before the unprecedented demand boom of 2021. Most companies are seeing costs up around 3%, still higher than pre-pandemic inflation of 1% to 2%, according to Edward Jones analyst Brittany Quatrochi.
Chocolate bars are displayed for sale at Hershey’s Chocolate World store in Hershey, Pennsylvania, on July 13, 2018.
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Items with strong brands, such as soda or snacks, typically have greater pricing power and less competition from private label products because of their distinct flavor or fan following. That gives their makers the ability to keep raising prices to mitigate higher costs, even as their volume drops.
On the other hand, customers are more likely to swap to a cheaper product or a store brand for items that don’t have a unique flavor or taste, such as a container of peanuts. That’s one reason why Kraft Heinz sold its Planters nuts business to Hormel three years ago.
“The more ingredients in the product, the more pricing power you have typically,” Sundaram said.
Retailers, including Target and Kroger, have rolled out new private brands to better compete with national brands and undercut them on price. Earlier this month, Target debuted Dealworthy, a brand made up of products including dental floss, paper towels and shampoo. Most of the new brand’s goods sell for under $10.
By stealing away sales, retailers can pressure national brands to lower an item’s price, introduce a cheaper version or offer a discount.
Some industry watchers expect a meaningful wave of price cuts as food makers struggle with weaker demand and lagging sales growth.
A number of food suppliers reported shrinking volume in North America in their latest quarters, including Kraft Heinz, Pringles maker Kellanova and PepsiCo’s food divisions. Volume excludes pricing and currency changes, giving investors a more accurate view of demand.
Heinz ketchup is displayed on a shelf at a grocery store in Washington, DC, on February 15, 2023.
Stefani Reynolds | AFP | Getty Images
KeyBanc retail analyst Brad Thomas said those softer trends will force brands to cut their prices or give customers another reason to buy their product, such as offering a short-term promotion or innovative features.
“The ongoing ‘frenemy’ relationship between retailers and suppliers â where you push for lower prices â is part of the normal course of business,” he said. “What’s different about what’s happening now is how much volume the CPG [consumer packaged goods] brands are losing.”
He predicts that food-at-home prices will turn negative later this year. CFRA’s Sundaram echoed that prediction, while noting that costs need to keep falling, too.
Historically, food deflation happens about once a decade and lasts about eight months, according to Thomas. The last time was in 2016 and 2017, and Walmart was the biggest winner. Rival Target did not see the same benefit.
Even some of the biggest U.S. brands have signaled that consumers’ tolerance of higher prices has worn thin. Some companies have said they’re done hiking prices or pledged that the increases will be more modest this year.
A man climbs into the fridge for milk at a Walmart store in Rosemead, California on November 22, 2022.
Frederic J. Brown | AFP | Getty Images
For example, Kraft Heinz said on Feb. 14 that it expects its input costs will rise 3% this year; however, the Oscar Mayer owner is only planning to raise prices by 1%. The company is counting on productivity savings to make up the difference.
PepsiCo executives also said they expect to return to more “normalized” pricing in 2024. In the fourth quarter, Pepsi’s prices for its North American Frito-Lay business rose 5%, while those for its North American beverage unit climbed 9% compared with the year-ago period.
Still, Thomas acknowledged that brands with a strong following, such as Coca-Cola, will likely keep products pricier. Mid-tier brands are more vulnerable and will have to reduce their prices.
Who’s wary of deflation
Just as inflation has become a dirty word, deflation can be one, too, said Greg Melich, a retail analyst for Evercore ISI.
“High inflation is bad, but deflation is bad, too, because you have fixed costs that aren’t going down,” he said.
Wage costs have risen as new minimum wage laws take effect and the labor market remains tight. Many food companies are locked into supplier contracts signed when commodities cost more.
Deflation can also cause concern that a company’s overall revenue may fall.
According to a KeyBanc estimate, a 1% drop in food prices would add $1 billion per month more to consumer spending, and lower-income households would benefit the most. But shoppers can choose to hang onto those savings instead of spending the extra cash.
For instance, Home Depot saw lumber prices drop over the past year, but it still has seen weaker demand for larger home projects amid higher interest rates. Best Buy sells consumer electronics, another deflationary category, but has struggled to drive more sales after the buying boom during the pandemic and as product innovation lags.
Melich said if customers spend less on necessities like food, they may buy more discretionary items, “but you can’t assume there’s a one to one transfer.”
Wall Street reflected those concerns in November when Walmart said deflation could be coming soon. Shares of the retail giant slid about 8%, their worst day in over a year at the time. (Walmart’s shares have been hovering near an all-time high).
Home Depot CFO Richard McPhail acknowledged the loaded meaning of deflation in a recent CNBC interview.
“I’m very careful with the word ‘deflation’ because of what it represents in people’s minds,” he said.
McPhail described prices as “settling” rather than declining. He said the home improvement retailer had not seen “significant movement in prices” since early August.
Even as Walmart scaled back widespread deflation predictions, its CFO Rainey said the discounter ultimately believes lower prices would be a good thing.
Walmart has seen deflation in general merchandise categories, even though food prices are still rising by low-single digits year-over-year.
“To be very clear, we want lower prices for our customers,” Rainey said.
â CNBC’s Christopher Hayes contributed to this report.
Traders work on the floor of the New York Stock Exchange (NYSE) during morning trading on January 26, 2023 in New York City.
Michael M. Santiago | Getty Images
Stocks dropped on Tuesday after hotter-than-expected inflation data for January spiked Treasury yields and raised doubts that the Federal Reserve would be able to cut rates several times this year, a key part of the bull case for the equity market.
The consumer price index rose 0.3% in January from December. CPI was up 3.1% on an annual basis. Economists polled by Dow Jones expected CPI to have increased by 0.2% month over month in January and 2.9% from a year earlier.
Core prices, which exclude volatile food and energy components, rose 0.4% month over month and 3.9% from a year ago. Core CPI was expected to have increased 0.3% in January and 3.7% from a year earlier, respectively.
“This may well come as a easy excuse to take some of the froth out of the top of this market that’s been universally higher thus far this year,” said Art Hogan, chief market strategist at B. Riley Financial. “The CPI was, as reported today, just a touch hotter than expectations and proof positive that we’re not on a linear path, but we’re on a path headed lower.”
The 2-year Treasury yield jumped above 4.6%, and the 10-year yield topped 4.27% following the CPI data. Tech shares including Nvidia, Microsoft and Amazon, which have led the market run to record highs as rates declined, led the losses in early trading Tuesday. All three were off by more than 1% in premarket trading.
Wall Street is coming off a mixed session in which the Dow closed at a record, while the S&P 500 ended the day down slightly along with the Nasdaq. All three of the major averages are riding a five-week winning streak.
In corporate news, JetBlue Airways spiked 10% after activist investor Carl Icahn reported a nearly 10% stake in the airline. Toymaker Hasbro plunged nearly 6% after missing analyst expectations for the fourth quarter. Similarly, shares of Avis Budget Group slipped 4% premarket on the back of disappointing fourth-quarter revenue.
Bottles of Coca-Cola are displayed in San Anselmo, California, on April 24, 2023.
Justin Sullivan | Getty Images
Coca-Cola on Tuesday posted quarterly earnings that met expectations and sales that topped estimates, as higher prices helped the beverage maker overcome a volume decline in North America.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:
Earnings per share: 49 cents adjusted vs. 49 cents expected
Revenue: $10.85 billion vs. $10.68 billion expected
Shares of the company rose less than 1% in premarket trading.
Coke reported fourth-quarter net income of $1.97 billion, or 46 cents per share, down from $2.03 billion, or 47 cents per share, a year earlier.
Excluding items, the company earned 49 cents per share.
Net sales rose 7% to $10.85 billion. Coke’s organic revenue, which strips out acquisitions and divestitures, climbed 12% in the quarter.
Coke reported unit case volume growth of 2% for the quarter. The metric excludes pricing and foreign currency.
However, North American volume shrank 1%, as demand for Coke’s water, sports drinks, coffee and tea fell. For comparison, rival PepsiCo saw volume for its North American beverage unit fall 6% in the fourth quarter. Pepsi executives said high borrowing costs and lower personal savings squeezed consumers’ budgets, leading shoppers to seek out private-label options or smaller pack sizes.
For 2024, Coke is forecasting organic revenue growth of 6% to 7% and an increase in comparable earnings per share of 4% to 5%. The company expects that foreign exchange rates will weigh on both its earnings and revenue for the full year.
Looking to the first quarter, Coke is anticipating a 4% headwind from currency exchange rates on its comparable revenue. The company also expects foreign exchange to slow its earnings per share growth, and anticipates an 8% hit from currency changes during the period.
On Friday, the S&P 500 closed above 5,000 for the first time in history. The broader index has now risen more than 5% since the start of the year.
All three major averages are coming off their fifth straight week of gains, with the S&P 500 and Nasdaq Composite respectively adding 1.4% and 2.3% last week. The Dow edged fractionally higher.
Some 61 names in the S&P 500 are set to report earnings in the week ahead, including gig economy stocks Lyft, Instacart and DoorDash. Companies such as AutoNation, Kraft Heinz, Hasbro and Coca-Cola will also shed light on the state of the U.S. consumer.
Traders will also watch out for the latest level on the consumer price index — or CPI, a key inflationary gauge — set to be released on Tuesday morning. More key economic data is expected on Thursday and Friday, including January’s reading on retail sales, production, imports and exports, housing starts and the producer price index, or PPI.
“CPI and PPI should print in line, but still be bullish,” Infrastructure Capital Advisors’ Jay Hatfield told CNBC. “We think that the market will continue to rally for the next week or two, and then maybe stall out as we wait for this inflation data to continue to come out.”
