All the pasta-bilities

So October's consumer price index report was released last week and showed an increase of 0.4% compared to September and +7.7% from a year ago.?

While these numbers are still quite high, they were below the Wall Street expectation of 7.9%, which drove a ~5% increase in the equities market this past week.?

In playing my role of the bearer of bad news, this latest report is just one data point on a pretty ugly chart of rising inflation:

To see how strong the market’s reaction was, take a look at the comparison of an index of unprofitable companies (like Carvana, MongoDB, and Teladoc) to the S&P 500. You can see a nice bump this past week:

I love that this index even exists as it reminds me of what a special time January 2021 was for us all.

So what did the October pricing report tell us?

• Used vehicle prices declined 2.4% m/m
• Apparel prices fell 0.7% m/m
• Shelter costs, which make up about one-third of the CPI, rose 0.8% for the month. This is the largest monthly gain since 1990, and the 6.9% y/y increase makes this the highest annual level since 1982.?
• Food prices rose 0.6% for the month and 10.9% annually
• Energy was up 1.8% for the month and 17.6% annually

Because of the rise in inflation, workers took another pay cut in October. Real average hourly earnings declined 0.1% for the month and were down 2.8% on an annual basis.

Put this in real terms for me Ben!

Okay, since grocery shopping is something that we all do. Let’s use data from IRI , who basically powers all of the grocery loyalty programs…

According to them, average prices at the grocery store increased 1.4% compared to September, and are now up 13.3% compared to last year.

Because of this, volumes are down more than 10% in categories that Americans love to shop such as frozen poultry, deli service lunchmeat, frozen dinners, and shelf-stable dinners.

The price of everyone’s upcoming Thanksgiving meal is about to increase close to 14% this year, driven by pies and side dishes, up 19.6% and 18.8%:

How does this affect my business?

Put simply, as the prices of things that people need continue to increase, consumers are forced to make tradeoffs between the ways they spend their money.?

This means that if you sell products that aren’t essential, you’re going to need to market your products more and differently than before.?

Consumers will likely make more touchpoints and need more proofpoints to make their decision. The WSJ wrote a great piece about this , showing how consumers are trading down from Lulu to Uniqlo.?

We’re no longer in a “sales always go up” environment and the quicker brands realize the need to invest in better storytelling, targeting, and measurement the higher chance they will be able to outlast those that stick to what’s previously worked for them.?

Below is an excellent example of this at work at the grocery store. This chart shows how premium brands have been able to defend sales through differentiation and/or innovation.?

I don’t know if I’d (personally) say that Rao’s is authentic but premium brands like them and LiquidIV have grown despite these headwinds.?

This pasta sauce example is pretty clear-cut proof that consumers will either pay up for quality or trade down to save money. The purposeless brands in the middle are the ones who aren’t going to make it.?

Strategy Corner?

Based on the overflow of emails in my inbox and the text messages from brands, it seems like it’s safe to say that the Black Friday deals are here.

To help ensure you’re using promotions to their maximum advantage, here’s a 7 minute walkthrough of how discounting affects your margins and how you should account for that in your performance KPIs:

TLDR; promotions eat into your margins and reduce your ability to acquire customers profitably BUT the increase to your conversion rate should offset the need for a high ROAS.

You can use this calculator and performance planner to run through a few scenarios to understand these tradeoffs and set the right performance KPIs to maximize the season.?

That’s all for this week.?