Grocery giants Unilever, Reckitt, and Danone hike consumer prices to keep up with inflation

Some investors seek new strategy to offset a decline in sales volumes

Unilever this week beat underlying sales growth forecasts after again raising prices to offset higher costs. 

European consumer products makers including Unilever and Reckitt have shown they can raise prices to cope with higher costs, but investors say they want to see more innovation to drive dwindling sales volumes.

Major consumer goods companies — from Nestle to P&G — have managed sharp rises in input costs that began with the pandemic and worsened after Russia's invasion of Ukraine by passing them on to retailers and shoppers.

But the rise in prices over the last two years risks alienating consumers struggling with a cost-of-living crisis, who have already started buying private label alternatives to more expensive branded products.

Demand for everyday essentials remains resilient but has weakened in some consumer categories — appliance makers Electrolux and Whirlpool are among companies which have been hit as people choose cheaper products.

Dove soap maker Unilever, Dettol maker Reckitt, and French dairy group Danone have all reported hiking prices again in the second quarter even as their sales volumes suffered.

"We're still seeing these companies maintaining pretty strong pricing," said Richard Saldanha, a portfolio manager at Aviva, which holds shares in all three. 

"There has been some moderation, as we expected, but so far companies are showing their resilience," he said. 

Top US and European investors have been flagging their concerns to consumer goods companies that high prices will damage customer loyalty and hit future sales.

'Greedflation'

Some lawmakers and regulators in the US and Europe have accused consumer goods manufacturers and retailers of price gouging and "greedflation", or padding revenues by charging more than they need to recoup high input costs.

Nr Saldanha said Aviva now wanted the three companies it holds to focus on boosting sales by investing in core brands, such as Reckitt's Finish dishwasher tablets or Dettol cleaning products. "We really want to see that volume improvement," he added.

Danone's finance chief Juergen Esser told Reuters the company had improved some products in Spain and the US, which immediately translates into volumes, helped by increased promotional activity. He said the company had also taken products that were not performing well off the shelves.

"The frequency with which a number of households are buying [some of] our products on a monthly basis has doubled," Mr Esser said. "We focus on what makes sense for the company and are putting money — I mean serious money — behind [innovation]," he said. 

Unilever this week beat underlying sales growth forecasts after again raising prices to offset higher costs. 

"Unilever beat on all levels and demonstrated better volumes in two of their divisions," said Tineke Frikkee at Waverton Investment Management, a shareholder in Unilever and Reckitt. 

"Reckitt volumes continued to be very negative in hygiene, leading to concerns on regaining market share going forward."

Nestle, the world's biggest food maker, will report earnings on Thursday.

• Reuters