Just as Grocery Prices Began to Ease, a New Cost Surge Is Closing In

The original story by Gregory Meyer and Madeleine Speed for the Financial Times.

For the first time in a while, big food companies were backing off.

After years of pushing prices higher, brands behind everything from toothpaste to baked beans had started to blink. Shoppers were cutting back, switching to cheaper options, and forcing companies to rethink. Discounts came back. Some prices were even set to drop.

Now that shift is in trouble.

The war in the Middle East has triggered a fresh wave of cost pressures, and the timing couldn’t be worse. Companies are bracing for what looks like a second inflation hit in less than five years – but this time, they’ve got far less room to pass it on.

At the center of it is the Strait of Hormuz. Iran’s grip on the route – used to ship about a fifth of the world’s oil and gas – has pushed energy prices sharply higher. And when energy rises, everything tied to it follows.

That includes packaging. Plastics made from petrochemicals are getting more expensive fast. Polyethylene, used in bottles and bags, has jumped more than 50% since the conflict escalated.

Fertilizer costs are climbing too – up more than 40% – adding pressure further up the food chain, from farms to factories.

Before all this, companies like PepsiCo and Kraft Heinz were already shifting strategy. Sales volumes had stalled or fallen as consumers pushed back against high prices. Executives were talking openly about cutting prices to win people back.

PepsiCo, for example, had planned discounts of up to 15% on some snacks, acknowledging that household budgets were stretched. Kraft Heinz admitted its pricing had become “unfriendly” and needed adjusting.

That plan now looks a lot harder to pull off.

Oil has surged from around $72 to roughly $115 a barrel since the conflict began. Transport costs are rising alongside it. Diesel prices in the US have jumped more than 40%, and trucking companies are passing those costs straight through to suppliers.

For food companies, freight alone can account for close to 8% of input costs. When that spikes, margins get squeezed quickly.

The problem is familiar – but the context has changed.

Back in 2022, companies responded to soaring costs by raising prices aggressively. Consumers grumbled, but mostly absorbed it. That playbook may not work this time.

Analysts say shoppers are far less willing – and less able – to accept another round of increases. Many companies are already seeing weaker demand after pushing prices too far during the last inflation cycle.

That leaves them stuck.

Raise prices, and risk losing more customers. Hold prices steady, and watch margins shrink. Either way, growth becomes harder to find.

Some companies are already weighing their options. Colgate-Palmolive has said it may need to hike prices or cut costs. Clorox is preparing for a longer squeeze from higher energy bills, with pricing, cost cuts, and even smaller packaging sizes all on the table.

The knock-on effects won’t hit shelves overnight. Retail contracts usually delay price changes by a few months. But once they start, they tend to spread.

Perishable foods are likely to move first. Then drinks, which are expensive to transport. Chilled and processed goods could follow, especially those that rely heavily on energy.

For companies carrying more debt, the pressure is even more immediate. Some may choose to raise prices sooner rather than later, just to protect margins and stay afloat – even if it slows sales further.

That’s the trade-off now facing the industry.

The brief window where companies could ease prices and rebuild demand is closing. Costs are rising again, and the balancing act between protecting profits and keeping customers is getting tighter.

And this time, consumers are already on edge.