Unilever provides prediction for 'peak cost inflation'

26 July 2022

Marmite and Dove owner Unilever has announced it has raised product prices by 11.2% “in response to significant commodity inflation”.

Alan Jope, CEO and executive director of Unilever, said in the company’s earnings call it was “prepared to accept a short-term hit to competitiveness in some places as we lead on pricing”.

The company said “record levels” of commodity inflation are making operating environments “uncertain and volatile”. 

Steep rising in commodity prices, resurgence in cases of Covid-19 and lockdowns at ports in China have hit the company and Jope said these issues mean “we're likely to see peak cost inflation sometime in the second half of the year.

“The threat of recession is starting to impact consumer confidence and change spending patterns and behaviours.” 

He continued: “There will be a significant carryover inflation in the first half [of 2023]. That could be partially offset in the second half depending on future commodity price movements.”

The consumer goods giant reported half-year profits before tax fell by 0.2% year-on-year to €4.35bn.

The company’s underlying operating margin declined due to “the very high inflation in input costs that was only partially mitigated by the strong pricing action and savings delivery”.

When asked about negotiating with retailers on price in light of Heinz's disagreement with Tesco over pricing, Jope said he expected “patches of disagreement with our retail partners”. He described price negotiations in Europe as “intense”, and said US retailers “pushed back on price increases” but the discussions resulted in a “balanced position”.

He said: “Overall, I think there's a sober and rational tone to the engagement. It's not a space that I'm losing much sleep on at the moment.”

Unilever previously announced it was expecting €3.5bn (£2.95bn) additional input costs over the course of 2022 due to market uncertainty on the outlook for commodity, freight and packaging costs.

In October 2021, it announced it had increased prices by 4.1% due to supply chain cost increases, which at the time was the company’s biggest price increase since early 2012.

Meanwhile, research by the Confederation of British Industry (CBI) found UK business sentiment fell for a third consecutive quarter in a survey of 237 businesses. 

Anna Leach, CBI deputy chief economist, said: “The manufacturing sector has been an economic bright spot in recent months, but output and orders have softened amid ongoing cost pressures, supply challenges and a generalised weakening in economic conditions both in the UK and globally.”

Maddie Walker, head of Industry X at Accenture, said: “Manufacturers are still contending with sky-high costs and uncertainty, and while order books remain above normal for now, a continued easing in demand will test their resilience. 

“There are strong signs that manufacturers are pursuing long-term strategies to see themselves through current volatility with investments in their people, plants and machinery. Rather than pull back on innovation, investing in technology will help to improve productivity, keep costs down, and unlock new ways to make products more effectively.”

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