Archive for Sunday, November 27, 2011

If you raise the price, they’ll still come

November 27, 2011

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— The way Americans are chomping Big Macs, lacing up pricey sneakers and gulping peppermint mochas in this economy, you’d think they’re taking advantage of big holiday discounts.

The truth is they’re paying more.

McDonald’s, Nike, Starbucks and other companies initially worried that customers would run the other way when they started raising prices to offset their higher costs for ingredients, fuel and packaging. But so far, cash-strapped Americans largely have swallowed the price spikes. And they’re continuing to do so during this holiday shopping season.

On a recent weekday, five full floors of shoppers in a Nike store in New York didn’t seem to mind paying more for their favorite kicks, including the almost $200 sneakers named for NBA star LeBron James. At a McDonald’s across town, people munched on Big Macs and fries that cost a dime or two more than last year. Customers also piled into a Starbucks down the street, where cappuccinos and many other specialty drinks now top $5.

Timothy and Katrin Sullivan, a San Diego couple, estimate that together they spend about $100 a month on skinny caramel macchiatos and pumpkin spice lattes at Starbucks, where prices on some drinks have risen in some regions this year. As parents of five children, they worry about the economy and have cut back on travel and ball games, but so far, their morning cup of joe has survived the chopping block despite the rising price.

“It’s cheaper than therapy,” says Katrin Sullivan, 39.

The prices Americans pay for food, travel and other things have steadily risen this year, according to government data. Prices went up 3.5 percent in October compared with the same month a year ago. At the same time, every month for the past year except one, spending grew 2 percent or more compared with the same month a year ago. That’s given retailers some cautious optimism as they try to gauge just how much more consumers are willing to pay.

Pete Bensen, McDonald’s chief financial officer told analysts during the company’s earnings call that the question boils down to this: “Is the consumer in a place that we’re comfortable we can continue to add price increases?”

Companies of all stripes have been asking that question a lot. In the past year, they’ve been paying more for materials like beef, corn and fuel that they use to make, package and transport their goods. A combination of poor crop yields in some parts of the world, unrest in the Middle East and greater demand from countries like Brazil and China have sent those costs up.

Many costs have come down after spiking in the spring. A pound of coffee, for example, is trading at about $2.30, down from $3 in the spring. But that’s up from $2 a year ago.

Comments

pace 3 years, 4 months ago

The calories will add up faster than the tab. Better to suck on peppermint toothpicks.

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