what is apology investing explained

In this series, we break the jargon and explain a popular investment term or topic. Here it is sorry.

What is that?

Some companies use all sorts of economic, geopolitical, and other excuses to raise prices — in some cases by more than inflation — and keep them high.

This term, invented to describe this practice, has appeared in the US media and is now being heard here. Sorry is also known as greedflation.

However, Bank of England Governor Andrew Bailey is now warning companies to refrain from further price hikes. He says if they don’t, interest rates will keep going up.

What excuses are used?

The list of excuses put forward in recent years includes bird flu, blockages in the Suez Canal, Covid, higher transport costs, supply chain problems and war in Ukraine. These may be perfectly legitimate reasons for raising prices, but the companies that engage in apologies are seen as taking advantage of the situation.

How do companies deal with this?

They start raising prices incrementally and see if customers grin and put up with it, or switch to cheaper competing brands. Some products, especially food, have a dedicated fan base that will save elsewhere to afford their favorite treat.

Sales can be sacrificed in favor of the higher profit margins that the strategy can produce. The company may also want to attract a more affluent clientele that’s less concerned with making ends meet.

Another term for practice?

Some companies will claim that they go POV (price over volume) and would rather sell lower-margin items than maximize sales at a lower margin. But only companies that believe they have pricing power are likely to take that course.

Which companies do this?

The most well known name is PepsiCo Inc, the name behind Alvalle Gazpacho, Doritos and of course Pepsi.

Chairman and CEO Ramon Laguarta seems happy to admit that he has jumped at the opportunity to impose hefty price increases, saying: “So we’re going to continue that focus and try to create brands that can represent greater value for consumers and that Consumers are willing to pay more for our brands.”

Pepsico seems to have proven that customers prefer Pepsi to any other cola. But last month the company said it would suspend price hikes.

Any other companies?

Wingstop, the US chicken restaurant with 1,500 locations around the world, is another group cited by American commentators.

The chain, famous for its Spicy Korean Wings, has 29 stores across the UK. There has been a lot of commentary about British companies pricing ever higher, meaning the apology allegations could start soon.