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Wednesday, November 6, 2024

Unilever to maintain price hikes on food items in European market

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Unilever, the British multinational consumer goods company, has declared its intention to keep raising the prices of food items in the European market.

While some of Unilever’s competitors, such as Associated British Foods and Kraft Heinz, have expressed concerns about losing customers to lower-priced alternatives or store-branded products, and have therefore decided to scale back price hikes on grocery items, Unilever, the owner of brands such as Marmite and Magnum ice cream, has stated that it is not yet prepared to do the same.

Following the announcement of Unilever’s first-quarter sales on April 27th, CFO Graeme Pitkethly restated the company’s strategy, as outlined in February, during a discussion with analysts.

“We are continuing to see inflation in nutrition and ice cream,” he said.

“We will continue to price as necessary. There is more to do in nutrition and ice cream which has a big European footprint.”

However, he added, “We do seem to have seen the peak in materials inflation.”

Unilever experienced a price growth of 10.7% across all its product categories in the quarter, with higher rates in nutrition (13.4%) and ice cream (10.5%).

Unilever had previously highlighted the necessity of implementing price hikes to restore margins. However, according to Pitkethly, the company is now monitoring consumer elasticity, particularly as financially constrained shoppers consider their purchasing alternatives.

“We are seeing some trading down to lower-price products in the ice cream and nutrition categories,” he said.

He added, “European sentiment is lower than the rest of the world and price elasticities have been higher. North American consumers are more resilient than in Europe.”

Unilever experienced a 10.5% year-on-year increase in quarterly sales, amounting to €14.8bn ($16.33bn). The company’s nutrition division reported a growth of 11.9% to €3.4bn, while its ice cream segment saw a 6% rise, reaching €1.7bn.

Despite a 10.5% increase in group sales during the first quarter, Unilever’s sales volumes declined, with a 0.2% drop, although the company noted that this was an improvement from the 3.6% decrease reported in the fourth quarter of 2022.

Volumes for Unilever’s nutrition category experienced a decline of 1.3%, while its ice cream segment saw a 4.1% drop in volumes.

Unilever’s billion-euro brands, such as Hellmann’s mayonnaise, contributed to 54% of the group’s turnover and achieved a 12.1% growth in underlying sales.

CEO Alan Jope said, “We remain focused on navigating through continued macroeconomic uncertainty and are confident in our ability to deliver another year of strong growth, which remains our first priority.”

Unilever has stated that it anticipates the underlying sales growth for 2023 to be “at least at the upper end” of its multi-year range of 3% to 5%.

Unilever announced that the underlying operating margin for the first half of the year will be no less than 16%.

Unilever exceeded analyst predictions with its first-quarter sales, following similar positive reports from Nestlé and Danone.

“Another result, another strong beat,” Bruno Monteyne, an analyst covering all three companies for investment bank AllianceBernstein, wrote in a note to clients. “Unilever grew organically at +10.5% in Q1, a 322 basis-point beat on consensus’ +7.3%. Reassuringly the beat came entirely in volumes (-0.2% vs consensus -3.3%), a big step up from a 3.6% volume decline in Q4. The beats are across regions and categories. The message remains constant across companies: CPG companies can keep raising prices, without much impact on volumes.”

At 11:40 BST, Unilever’s shares had risen by 1.98% to 4,458p.

SnackTeam
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