Alongside its third-quarter results today, Unilever became the latest consumer goods manufacturer to warn that more price rises were on the cards as it battles spiralling input cost inflation.
Over the three months to 30 September, the group’s underlying sales rose a slightly better-than-expected 2.5% to €13.5bn. This was driven by an average price increase of 4.1% across its product range which counteracted a 1.5% fall in volumes.
Manufacturers are feeling the pressure from accelerating raw material prices, soaring energy costs, and logjams at ports and warehouses driving up shipping fees. P&G, Colgate-Palmolive, General Mills, Kimberly-Clark, Nestlé, and PepsiCo are just a few of the consumer goods companies that have announced price increases this year to help make up the difference.
“You can see that we’ve stepped up the pricing,” said Graeme Pitkethly, Unilever’s Chief Financial Officer. “That’s in response to the really very high levels of inflation that we are seeing … We expect that inflation for next year could be higher than this year.” The company expects cost pressures to peak in the first half of next year.
Branded goods manufacturers face a challenge in raising prices without prompting consumers to switch to cheaper supermarket own-label ranges. Unilever stressed that it has been seeking to offset some cost rises with efficiency measures.
Alicia Forry, an analyst at Investec, said Unilever’s pricing push was “proof that the company can price to protect its margins – which is a good thing in the current inflationary environment”.
Unilever’s Chief Executive Alan Jope is under pressure to boost the group’s long term growth prospects to revive its share price, which has shed nearly 20% of its value over the past year.
During the last quarter, volumes declined across its three divisions of Beauty & Personal Care (-1.3%), Home Care (-3.2%), and Foods & Refreshment (-0.8%). This was partly due to continuing Covid restrictions in some markets and tough comparatives with last year when Unilever benefitted from the surge in demand for in-home food and hygiene products.
There were also mixed results around the world, with India, China and the US delivering growth, whilst volumes in Europe and South East Asia declined. E-commerce grew 38% and is now 12% of Unilever’s sales.
Unilever said group margins were still on track for around flat for the full year. Meanwhile, underlying sales growth will be “well within” Jope’s 3% to 5% target range, defying some analysts’ fears of a cut.
Martin Deboo, an analyst at Jefferies, said: “Relative to low expectations, this feels like a ‘good enough’ quarter to us, with decisive progress on pricing a positive for us in the current climate. But the underlying challenge remains the one of accelerating volume growth.”
Meanwhile, Deborah Aitken, Senior Consumer Analyst at Bloomberg Intelligence, commented: “It’s unlikely Unilever will report such an extraordinarily bad 4Q for it to miss 2021’s organic multiyear organic sales-growth target of 3-5%, yet the way 3Q’s 2.5% growth is made up shows a 1.5% volume hit due to raised prices and the fragility of category positioning. This suggests margin weakness into 2022. Volume erosion is across all three divisions, an indicator of market share losses, which won’t easily be recouped.”
NAM Implications:
- P&G, Colgate-Palmolive, General Mills, Kimberly-Clark, Nestlé, PepsiCo and now Unilever…
- Price rises are coming.
- The only issue is whether average increases of 4.1% for Unilever…
- …are anything like enough?
- i.e. can we anticipate even steeper hikes to come?
- Meanwhile, rivals in Unilever’s categories might benefit from a line by line comparison with Unilever brands and geographies…?
