Consumer packaged goods giant Unilever has ended the first half of the year on a high note after recording an underlying sales growth of 9.1%, owing to price increases.
On July 25, the company announced an underlying sales growth of 7.9% in Q2 driven by an 8.2% price rise with volumes down 0.3%.
As a result, the company finished the first half of the year with the aforementioned sales growth on the back of a 9.4% price increase and 0.2% negative sales volume.
The company’s underlying operating profit also improved by 3.3% to €5.2 billion.
While the result is a cause for celebration for the multination business, which beat market expectations, the sales growth on the back of rising prices will likely draw regulatory scrutiny.
Supply chain under the microscope
The UK’s Competition Markets Authority (CMA) has started taking a closer look at the industry to find evidence of price exploitation amidst the cost of living crisis.
Unilever previously denied any profiteering from the crisis, insisting that it had only passed on three-quarters of the price hikes to the consumers.
However, Unilever may now be tasked with proving its stance as the CMA moves to take a closer look at the supermarkets’ supply chains for any evidence of price exploitation. While it has not mentioned Unilever by name, the consumer goods brand does fall into the category.
The CMA had scrutinised the supermarkets earlier this year for the same issue but concluded this month that there was no evidence of excessive price hikes. It will now be looking into the supply chain to determine the fairness of price increases.
Regulators’ examination of the industry comes as criticisms against inflationary prices continue to mount. While the war in Ukraine, the pandemic and general global instability and economic volatility have contributed to price rises, evidence of overcharging for fuels has opened the doors for closer inspection of the market competition and prices.
Unilever price hikes across the brands
Akin to the wider industry trends, Unilever also increased its prices across its business.
Its food solutions unit saw the biggest increase in prices this year, with underlying price growth of 12.6%. The underlying volume growth reached 1.9% while the underlying sales growth reached 10.4%.
Its ice cream and home care products also saw double digits incremental in its pricing at 11.5% and 11.2%, respectively.
Home care products recorded an underlying value growth of 2.5%, but underlying sales growth reached 8.4%.
Ice cream products recorded the biggest underlying value growth in H1 at 5.2% against an underlying sales growth of 5.7%.
Impact of high prices
Additionally, the unfair and increased prices have pushed consumers to dip into their savings for their shopping, pushing them to take on debts.
According to the latest research from the Centre for Research in International Finance (CRIF), 20% of young and middle-aged Brits now rely on borrowing money as a normal means to help them get by.
In both Europe and the UK, 23% of adults admitted that their debt levels have never been so high. The UK’s Office for National Statistics (ONS) also reported that one in 20 adults had run out of food in the past two weeks during the survey period between 8 February and 1 May 2023 and had no money to replenish them.
Brands risk consumer loss amid competitive pricing
As consumers hike up the prices to pass on their own costs to consumers, excessive overpricing could force cash-strapped consumers to look for cheaper alternatives.
According to Kantar’s Brand Footprint 2023 study, global consumers have already initiated a shift towards cheaper alternatives. It highlighted that there was an increase of 6.3% in households switching to private labels and 10.3% in switching to cheaper retailers.
In the UK, a survey of 1,000 consumers by Attest found a similar trend, with UK consumers looking for the best deals and often open to shunning branded products for in-house alternatives.
Attest warned that failing to remain competitive would lead to consumers stopping shopping at the supermarkets, a warning to sign to rein in the price hikes.
Furthermore, more than 60% of respondents said they were very likely to purchase own-label brands, owing to their affordability in comparison to branded products.
While Unilever’s price hikes have brought them growth this half of the year, persistently high prices could eventually bite back. After all, increasing consumer losses could lower the revenue, which so far this year has been fuelled by the increased prices.
Graeme Pitkethly, CFO at Unilever, did acknowledge the trend among the consumers in the earnings call, stating, “there is a trend of value as consumers look to balance the household budget. This can be seen in the growth of unbranded loose tea in India and the growth of very low-priced laundry brands in Brazil.”
However, Pitkethly noted such developments Unilever had witnessed were at low profitability segments where they have little to no presence.
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