Grocery giant Unilever sees consumer backlash worsening on rising prices

Unilever's chief executive, Alan Jope, said: “We are now probably past peak inflation, but we’re not yet at peak prices.”

The maker of Hellman's, Knorr, Cif, Domestos, Sunsilk, Persil, and Ben & Jerry’s ice cream, will keep raising prices because it has only passed off three-quarters of its higher costs onto consumers, chief executive Alan Jope said.

Unilever, grocery and foods giant, said consumers may buy fewer of its products this year as they baulk at price increases on items like Dove soap and Hellmann’s mayonnaise.

Sales growth will probably weaken this year from last year’s 9% pace, the company forecast, while Unilever also reported its weakest operating margin in at least seven years.

The maker of Hellman's, Knorr, Cif, Domestos, Sunsilk, Persil, and Ben & Jerry’s ice cream, will keep raising prices because it has only passed off three-quarters of its higher costs onto consumers, chief executive Alan Jope said. Raw material inflation will be about €1.5bn in the first half, and a lower amount in the second, Unilever predicts.

“We are now probably past peak inflation, but we’re not yet at peak prices,” he said. 

Pricing rose 11% last year. The company said price growth will remain high in the first half and that later it will soften, which may lead to an improvement in demand.

Hein Schumacher, set to replace Mr Jope in July, will be under pressure to boost growth and make the company more efficient. Unilever’s shares have lagged behind those of Nestle and Procter & Gamble, and shareholder activist Nelson Peltz last year joined the board to push for better performance at the conglomerate.

The shares were little changed after the company forecast modest improvement in its 2023 operating margin. Unilever predicts raw material costs will decline in the second half.

Unilever’s 2023 adjusted margin will struggle to meet consensus with downgrades due after its warning of extended price inflation, limited volume erosion, and only a modest improvement in this year’s underlying operating margin, said Deborah Aitken, a consumer products analyst at Bloomberg Intelligence. 

Meanwhile, the maker of Pepsi and 7UP said it will not raise the price of its drinks and snacks further after multiple rounds of price hikes last year helped the beverage giant post fourth-quarter profit and revenue ahead of analysts' estimates.

A near duopoly in the carbonated drinks market with Coca-Cola helped PepsiCo raise prices with little pushback from consumers as it battles higher freight and commodity costs, as well as the impact of a stronger dollar on international revenue.

"We have most of our price increases for the year already in place," PepsiCo chief financial officer Hugh Johnston said. While the company expects inflationary pressures to persist in 2023, it still sees consumer demand being resilient.

PepsiCo is in a "real sweet spot" in terms of consumers since they have enough money to buy themselves affordable treats, Mr Johnston said.

The slowdown in pricing should ultimately be offset by better volumes and demand for non-alcoholic beverage products are going to remain strong, Wedbush Securities analyst Gerald Pascarelli said.

The company's North America beverages unit, which houses brands such as Mirinda, 7UP and Gatorade, posted an organic revenue growth of 10% in the fourth quarter. Average prices jumped 16%, while organic volume slipped 2%.

Bloomberg and Reuters