Unilever raises prices to battle impact of rising inflation

UNILEVER plc said it’s still pushing up prices as it faces the biggest cost surge in decades with “truly unprecedented” inflation hitting many of its key markets.

The maker of Dove soap and Surf detergent said it is charging shoppers more for products to help offset its own surging costs as it forecast that sales growth will exceed a previously stated range of 4.5% to 6.5%. In a sign that some shoppers are prepared to accept higher prices for consumer products, Unilever said its full-year operating profit margin will be about 16% which is within its guided range.

Unilever stock rose more than 1% in early trading in London.

Unilever is among consumer goods makers performing a careful balancing act as they seek to pass on some price increases to customers without deterring shoppers too much. The company warned earlier this year that it’s facing the worst inflation since the financial crisis and that it will take two years to return to 2021’s profitability level.

The company said Tuesday that inflation meant it was having to absorb an extra 4.6 billion euros (US$4.7 billion) of costs this fiscal year, only some of which it can offset.

“It’s a truly unprecedented cost landscape,” said Chief Financial Officer Graeme Pitkethly on a media call.

Volumes at Unilever are beginning to fall as some shoppers start to switch from branded goods to own-label products in a bid to make ends meet, said Pitkethly. In Europe private label manufacturers have been gaining market share in food, in ice-cream and in household cleaning products as people economise, he said. In the US, Unilever’s ice cream division, which owns Ben & Jerry’s and Magnum, has been facing significant pressure as people switch to cheaper brands.

Britain’s biggest grocer Tesco Plc also recently said it was starting to see some early evidence of shoppers swapping some branded staples, such as pasta, for own label products. Kantar, the grocery consultant, said that sales of branded goods fell 2.4% in the 12 weeks to July 10, in further evidence of some shoppers reacting to cost pressures.

Unilever’s first half was “good,” according to RBC analyst James Edwardes Jones, adding that there was no indication that disruption from the management reorganisation had found its way into the results yet.

Chief Executive Officer Alan Jope has been under pressure for months after a failed approach to buy Haleon Plc, the consumer unit spun out of drug company GSK Plc, last year. He also needs to show investors he has a plan for growth and contend with activist investor Nelson Peltz who was appointed as a non-executive director in May and joined the board this month.

In January, Jope announced plans to cut 15% of senior managerial positions in a bid to speed decision-making and improve accountability. He has also reorganised the business with independent units for ice cream, beauty and personal care. – Bloomberg