Inflation exposes consumer groups’ portfolio duds

3 minute read

Various products are displayed at a supermarket in Zurich, Switzerland, June 24, 2020. REUTERS/Arnd Wiegmann

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LONDON, April 29 (Reuters Breakingviews) - The world’s biggest consumer goods companies largely weathered the first-quarter inflation storm. In general, $392 billion Procter & Gamble (PG.N), $366 billion Nestlé (NESN.S), $56 billion Reckitt (RKT.L) and $41 billion Danone (DANO.PA) raised prices without customers buying less of their wares. The struggles of $118 billion peer Unilever (ULVR.L), however, suggest some product lines may prove better bets than others.

A few groups looked good because of a temporary post-pandemic surge in their business lines. The end of lockdown spurred sales of bottled water: Danone’s water volumes rose 11% even as prices increased 5%. Healthcare at P&G and Reckitt also enjoyed higher volumes and prices because looser Covid-19 restrictions meant more people getting colds and buying medicine. That carries a particular sting for Unilever boss Alan Jope, who in January was ready to swap his slower-growing food lines for GlaxoSmithKline’s (GSK.L) consumer health business, only to be rebuffed read more .

Other businesses suffered by relying on commodities whose prices have grown faster, pushing marketers to increase prices more to dampen the margin hit. Crude palm grew 32% from January to March – bad news for Unilever, which buys a tenth of the global palm oil supply for products like Knorr stock cubes. Unilever also saw lower volumes than P&G in homecare, partly because its input costs are dearer, so it had to hike prices more.

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Mark Schneider probably feels pretty pleased, though. The Nestlé chief executive’s coffee business benefitted from prices that fell 6%. And he has lots of pet care brands, where he managed to sell 6% more Purina mush and the like even as prices rose 8%. Pet food, like baby food, appears relatively unresponsive to higher prices – inelastic, in economist-speak – because it’s bought for loved but very fussy dependants and doesn’t represent a big proportion of household budgets.

Jope must wish the same could be said for beauty. Organic volumes in Unilever and P&G’s beauty divisions fell as prices rose 7% and 4% respectively. Unilever has in recent years focused on fancier beauty M&A, and underlying sales of these prestige lines grew 14% in the quarter, but the broader unit’s volumes slipped. Despite food being seen as relatively inelastic, customers may also be substituting Nestlé, Unilever and Danone’s branded products for cheaper alternatives.

The inflationary wave has a long way to run. But right now, Schneider and his fellow bosses big in pet and health care probably feel less edgy than Jope.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


- Reckitt’s total net revenue was 3 billion pounds in the first quarter, up 5.6% on last year on a like-for-like basis, the Nurofen maker said on April 29.

- Unilever’s sales were 14 billion euros, an underlying increase of 7% on the same period of 2021, the company said on April 28.

- Nestlé’s revenue was 22 billion Swiss francs ($23 billion), rising 7.6% organically compared to the previous year, the food group said on April 21.

- Danone’s net sales were 6 billion euros, a like-for-like increase of 7% on 2021, the yoghurt maker said on April 20.

- Procter & Gamble’s sales were $19 billion, rising 10% organically, it said on April 20.

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Editing by George Hay and Oliver Taslic. Graphic by Vincent Flasseur.

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Dasha is a columnist in London writing about the consumer goods sector, as well as Russia and Turkey. She has been at Reuters since 2012 as deals reporter in London and Turkey correspondent, covering the 2016 coup and the war in Syria. Prior to that she produced business news on BBC radio and worked as an investment banking analyst. She holds a degree in Politics, Philosophy and Economics from the University of Oxford.