Unilever lifts sales outlook while shoppers cut spending

The maker of Knorr stock cubes, Unilever ramped up prices by 12.5% in Q3. Picture: Denis Minihane.

Unilever gave a dire assessment of consumer sentiment in Europe and China, two of its key markets, but raised its full year sales forecast as it lifted prices to counter soaring costs.

The maker of Knorr stock cubes now expects sales this fiscal year to increase more than 8%, up from a prior range of 4.5% to 6.5%, after reporting a better than expected third quarter.

However, the group said volumes are falling in a sign that cash-strapped shoppers are starting to cut back on essential spending.

The Anglo-Dutch group said it ramped up prices by 12.5% during the period, the biggest increase on record and the seventh consecutive quarter of higher prices.

However, consumers are starting to take strain and Unilever sold fewer items with its volume falling and further declines are expected during the final quarter as consumers trade down to cheaper supermarket brands.

Mixed outlook

Unilever, whose CEO Alan Jope will step down next year, said the global macroeconomic outlook remained mixed and it expected high inflation to persist in 2023.

Nestle, the world’s biggest food retailer, also said last week that inflation will remain an issue next year and shoppers should brace for more price increases.

Mark Schneider, CEO of the maker of Nescafe and Maggi stock cubes, said consumer goods companies are facing huge upward pressure on energy, transportation costs and commodities. The Swiss maker reported a small drop in the volume of goods it sold in the third quarter too after raising prices 9.5%.

Beer maker Carlsberg earlier this week also flagged that very high inflation is starting to hit consumer demand and said it could have to raise prices further to counter higher costs.

Unilever’s price rises this year were lower than cost price inflation, CEO Graeme Pitkethly said on a call with journalists, which is why operating margin will fall to 16% this year.

Unilever expects its operating margin to grow in 2023 and 2024, through pricing, reducing the size of pack sizes, and cost cutting.

Unilever makes more than 400 brands ranging from Persil detergent to Ben & Jerry's ice cream.

In China, Unilever's third biggest market that has been doubling down on Covid-19 lockdowns, sales grew by 1%.

"The China number, 1%, was in fact a competitive performance in a Chinese market that is still quite subdued by continued lockdowns in China," Pitkethly said, adding that confidence in China is lower relative to historical norms and that Unilever was not as able to increase prices in the country.

In the US, Unilever’s biggest market, inflation accelerated to a fresh 40-year high in September.