‘There’s only so many rises it can make’: Could Unilever’s price hikes eventually cost it customers?

By Oliver Morrison

- Last updated on GMT

Unilever volumes under pressure as price hikes dent demand / Pic: GettyImages-Pauws99
Unilever volumes under pressure as price hikes dent demand / Pic: GettyImages-Pauws99

Related tags Unilever

Equity analysts have raised concerns about Unilever’s reliance on price rises to drive growth.

Unilever announced underlying sales growth of 2.5% in the third quarter. That was slightly ahead of what the market was expecting (the consensus was 2.2%) and was led in part by price rises across all its divisions to counter falling sales and rising commodity costs. Total sales volumes fell 1.5% while 4.1% of total growth came from higher prices.

Growth lagged in developed markets. In Europe total sales rose 0.3%, which was less that what was expected. In Unilever’s food and refreshment division underlying sales grew by 3%. Volume sales fell by 0.8% with price increases contributing 3.8% of growth.

Chief Executive Alan Jope said: “We have delivered a good quarter against strong comparators, with underlying sales growth of 2.5%. The combination of our strategic choices and focus on operational excellence continue to drive competitive growth. Underlying sales growth is now at 4.4% for the year to date and we are confident that we will be well within our multi-year framework of 3–5% for the full year.”

“Our strategic choices are having a positive impact on our growth and business momentum.”

Pricing actions are being taken in countries across Europe, Unilever said, revealing it had raised prices by 4.1% in its third quarter. It expects price pressures to intensify even further next year as it warned of "unprecedented cost inflation" globally.  

Unilever’s rivals Nestle and Danone have recently warned of rising inflation too and also announced price hikes to cope with extra costs.

Jope said: “Cost inflation remains at strongly elevated levels and this will continue into next year. We have and will continue to respond across our categories and markets, taking appropriate pricing action and implementing a range of productivity measures to offset increased costs.”

Jefferies analyst Martin Deboo 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 from its current level.”

Bloomberg Senior Consumer Analyst Deborah Aitken said the fact third quarter growth came from higher prices and contained a 1.5% sales volume hit suggests ‘margin weakness into 2022’. “Volume erosion is across all three divisions, an indicator of market-share losses, which won't easily be recouped,”​ she said.

Freetrade Senior Analyst Dan Lane said a slight uptick in sales on Q3 last year won’t be cause for celebration among Unilever shareholders, although he highlighted Unilever’s ability to pivot towards its ecommerce channels is paying off. Unilever’s e-commerce division grew 38% in the third quarter and now makes up 12% of sales.

But the analyst added that COVID is going to leave a very tricky path ahead for Unilever. “The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.

“If consumers and investors fall out of love with the Ben & Jerry’s maker, its Beauty range might be the only thing attractive about it."

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