Makers of Dove Soap, Nescafé are raising prices again
Consumer-goods makers report stronger sales, buoyed by higher inflation
Two of the world’s largest consumer-goods companies, Unilever PLC and Nestlé SA, reported stronger sales as a wave of inflation in many markets emboldened them to raise prices.
The new pricing power gives a boost of confidence to the entire industry, which has struggled in recent years with fierce competition and rapidly changing consumer tastes.
Unilever, the maker of Hellmann’s mayonnaise and Dove soap, on Thursday said thirdquarter sales climbed 3.8 per cent on an underlying basis, with prices up 1.4 per cent. Nestlé, which makes Kit Kat chocolate and Nescafé coffee, reported organic sales up 2.9 per cent for the quarter, saying prices grew by 0.9 per cent.
Both companies’ figures exclude the impact of currency changes and acquisitions and disposals. Neither reported profits figures. Shares in Unilever fell 1.2 per cent, while Nestlé rose 0.4 per cent.
Many consumer goods makers have in recent quarters struggled to raise prices amid weak inflation, Amazon.com Inc.’s growing prowess in selling more household staples, and a decline in brand loyalty as consumers use the internet to shop around. A shift to discount retailers, from dollar stores across the U.S. to European discounters like Germany’s Aldi, has further pushed down prices.
But inflation, especially in emerging markets, is changing the picture.
“The combination of underlying commodity increases but also
the stronger U.S. dollar is really putting a lot of inflation into our market,” said Unilever chief financial officer Graeme Pitkethly. “I see pricing being a key feature of the entire sector through the balance of the year and in 2019.”
After years of falling or stagnant consumer prices, inflation in some major markets has moved closer to a sweet spot where companies can raise prices, without it being so high that interest rates rise rapidly, hurting consumers.
Annual U.S. inflation is running at 2.3 per cent, after approaching 3 per cent over the summer, slightly above the 2 per cent rate many central banks consider optimal. The Federal Reserve has gradually raised rates over the past two tears. Official Chinese data showed annual inflation at 2.5 per cent last month, a seven-month high, while eurozone inflation was 2.1 per cent last month.
Unilever said price rises were particularly strong in emerging markets, to offset commodity
increases. Both companies said prices rose in the U.S., although in Western Europe they cut prices.
Kimberly-Clark Corp., which makes Huggies diapers and Kleenex tissues, in August said it was raising prices in North America to offset higher commodity costs. It reports third quarter results next week.
Procter & Gamble Co. reports fiscal first-quarter results Friday. The maker of Tide and Bounty has grappled with fierce competition in categories like hair care and laundry detergent, forcing it to keep a lid on prices. In July it reported prices in the fourth quarter dropped 2 per cent.
In developed markets, Unilever said underlying thirdquarter sales climbed by 1.3 per cent, driven mostly by volume gains. Emerging market sales jumped 5.6 per cent as Unilever was able to raise prices by 2.1 per cent. The results exclude pricing in Argentina, which is going through a period of hyperinflation. The company raised prices there by 34 per cent in the third quarter while volumes dropped 10 per cent.
Overall Unilever’s third-quarter sales came in at 12.5 billion euros ($14.4 billion U.S.)
Finance chief Pitkethly said investing in brands was key in an inflationary environment to ensure that volumes continue to grow even as the company raises prices.
“We got to get the price moving but keep volume first,” he said. “The true test of the strength of a brand is the ability to price and give a degree of inflation protection.”
Switzerland-based Nestlé said third-quarter sales came in at 22.5 billion Swiss francs ($22.6 billion US). Revenues were held back in part by the strength of the Swiss franc against emerging-market currencies, which weakened foreign sales when they were translated into francs.
Jefferies analyst Martin Deboo noted that Nestlé’s thirdquarter pricing was ahead of forecasts and a sharp improvement from the 0.2 per cent growth it reported in the first half, which he said bodes well for profit margins.