Unilever has warned it will push through further price rises over the coming months as the Marmite, Dove and Hellmann’s owner tries to recoup its own growing costs. The Anglo-Dutch consumer goods group said underlying sales rose 5.8% in the second quarter, pushing turnover up 3.8% to €13bn (£11.1bn), helped in part by World Cup marketing campaigns.
Why is Unilever expecting more price rises?
Unilever said the pace of price rises slowed in the second quarter, owing in part to World Cup-related discounts and efforts to stay competitive in Brazil, but described those as “temporary factors” that would not protect shoppers for long.
“We expect underlying price growth to accelerate in the second half as commodity-driven pricing continues to land in market,”
The company told shareholders on Tuesday that it expected pricing pressure to intensify as commodity-driven increases filter through. That could translate into higher profits for Unilever if consumers continue buying its products despite the price rises.
Are consumers still buying branded products?
Unilever said demand remained strong, with consumers continuing to choose its branded products rather than switching to unbranded cheaper alternatives despite cost-of-living pressures. Victoria Scholar, the head of investment at Interactive Investor, said this showed the strength of Unilever’s brand loyalty.
“Consumers continued to demand Unilever’s branded products, rather than switching to unbranded cheaper alternatives, despite cost-of-living pressures, proving the strength of Unilever products’ brand loyalty,”
What is driving the higher costs?
Companies such as Unilever have been dealing with rising costs for ingredients and services, driven by higher oil prices since March, when the US-Israeli war on Iran effectively stopped tanker traffic through the strait of Hormuz. Oil prices have been oscillating amid temporary ceasefires, but that has so far not produced a sustained fall in manufacturing costs. Producers are hoping to pass the higher costs on to customers.
What does this mean for inflation and interest rates?
UK inflation fell by more than expected in June to 2.6%, but City economists are warning that if oil prices return to above $100 a barrel, the Bank of England could be forced to rethink its plans and raise interest rates later this year. Mohamed El-Erian, a professor at the University of Pennsylvania and a former chief economist at the International Monetary Fund, said a sustained rise in oil prices to $90 a barrel could be enough to rewrite UK policymakers’ forecasts.
“Should oil prices remain above $90 a barrel, an important ‘if’, then headline inflation would face significant upward pressure. This, in turn, would heighten concerns over immediate indirect effects, including rising food prices driven by diesel transportation costs, and broader second-round effects over time,”
That could increase pressure on customers of London-listed Unilever, which has factories across the country making Pot Noodle in Crumlin, Wales, and Hellmann’s, Marmite and Colman’s in Burton-on-Trent.
Key Facts
- Unilever said underlying sales rose 5.8% in the second quarter.
- Turnover increased 3.8% to €13bn (£11.1bn).
- The company expects underlying price growth to accelerate in the second half.
- UK inflation fell to 2.6% in June.
- Unilever makes Pot Noodle in Crumlin, Wales, and Hellmann’s, Marmite and Colman’s in Burton-on-Trent.
