Consumer goods giant thanks raising prices for profits boost

Unilever, the consumer goods giant behind brands including Marmite and Magnum ice creams, has reported a leap in underlying sales thanks to price rises.

The company said it was raising its full-year sales guidance after recording an increase of 8.1% during the first six months of the year.

The growth was achieved thanks to average price rises of 9.8% as sales volumes – the amount of goods bought – fell by 1.6% over the period.

Unilever, which also includes the likes of Dove soap, Domestos and Knorr stock cubes in its stable, said it had hiked prices enough to offset around 70% to 75% of the increases in its costs.

They have surged since the start of the COVID-19 pandemic, which created global supply chain logjams, while the war in Ukraine has since boosted energy costs and sent prices of raw materials such as wheat, sunflower oil and pulp used in packaging to record highs.

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The business said it expected a £3.9bn hit from inflation this year.

“Unilever has delivered a first-half performance which builds on our momentum of 2021 despite the challenges of high inflation and slower global growth,” said chief executive Alan Jope.

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Its first-half operating profit margin fell to 17% from 18.8% a year earlier.

The figure suggests resilience in the company’s battle to mitigate the impact from rising costs though customers, such as supermarkets, have been resisting the pace of price increases demanded by consumer goods firms.

Image: Unilever’s ice cream line-up includes Magnum and Twister. Pic: Newscast Limited via AP Images

That was seen in Tesco’s recent fight, now resolved, with Heinz.

Grocery industry research suggests more customers than ever before are seeking out supermarket own-brands.

A report by NielsenIQ released on Tuesday showed that spend per visit was down 5% during the four weeks to 16 July as shoppers continued to make trade-offs in a bid to cut their bills.

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Inflation’s impact on trade

It said 90% of people in the UK were increasingly watching what they are spending amid the cost of living crunch, with inflation at 40-year highs and only tipped to accelerate in the months ahead.

Nevertheless, Unilever said it expected to beat its previous forecast for full-year underlying sales growth of 4.5% to 6.5%.

Its shares rose by almost 3% in early deals.

Matt Britzman, equity analyst at Hargreaves Lansdown, said of the performance: “Having a host of strong brands is essential if any business wants to pass on rising costs, and Unilever has those up its sleeve – the ability to raise prices just shy of 10% and only have a 1.6% drop in volumes is a good place to be.”

But he added: “There’s a limit to how much someone will pay for a Magnum though, and we’ve heard from supermarkets that shoppers are now starting to slide down the value chain in an attempt to keep shopping lists intact.

“Juggling higher prices and weaker consumers is a tough act to nail”.