Post Holdings’ incoming CEO has outlined the risks of raising prices as the US group weighs up options from the building pressures coming from the Middle East.
Before Nicolas Catoggio takes the reins in October from Robert Vitale, the current Post COO joined management on a call to discuss the company’s second-quarter results, on which he suggested Post may initially absorb costs.
Options will largely depend on the extent of inflation from the crisis in the Middle East, with CFO Matthew Mainer indicating Post’s assumptions are that it could last for the whole of the company’s fiscal year through September.
Discussing the results to 31 March, Catoggio framed his inflation and pricing remarks broadly but also pertaining to the business he will soon lead.
“If it is in the low single digits, I think we will see more of CPGs trying to absorb that within their P&L and that could be in the form of maybe lowering promotional intensity. If it is more than that, we will probably see more targeted pricing,” he said.
“Right now, we are seeing it in fuel and a little bit impacting packaging. If things get worse, we will have to think about pricing and it is probably going to be in the new fiscal year. It is way too early to say.”
Catoggio used the example of its 9Lives pet-food brand to highlight the risks around pricing, a category where 60% of Post’s portfolio is in dry dog food, which saw second-quarter pound volumes drop 4%.
“We raised prices on a third of the brand that is more functional. As we raised prices, we saw higher elasticities than what we anticipated and we lost distribution in a couple of retailers,” Catoggio explained on 9Lives.
Similarly, less than a year ago Post encountered pricing turbulence in its Grape-Nuts breakfast cereal brand, which have since been addressed.
“We raised prices on Grape-Nuts, we saw the same elasticities, we fixed that with rollbacks in the short term, and now we have fixed it with price-pack architecture, and that brand in one of our larger retailers is growing at 40% in pounds now. So we see that as the same playbook,” he said.
Post, nevertheless, has private label in its toolkit as well as branded products as a shield against pricing pressures.
Its Consumer Brands division, for example, is the largest for own label across the business, Catoggio said.
“In terms of our position, we have a very strong position in cereal, granola and peanut butter. We are a smaller player in private-label pet; we have more of a premium private-label presence in pet. In terms of opportunities, we see opportunities in all of those categories.”
