Big Brands Struggle to Raise Prices
April 19 2018 - 5:19AM
Dow Jones News
By Saabira Chaudhuri and Brian Blackstone
Unilever PLC and Nestlé SA struggled to raise prices in the
first quarter, illustrating how the world's largest consumer goods
companies are facing increasingly fierce competition.
The industry has long relied on selling new or improved versions
of products at higher prices to boost growth. That's now challenged
by weak inflation, Amazon.com Inc. selling more household staples
and less brand loyalty as consumers use the internet to shop
around.
Unilever, which sells Dove soap and Ben & Jerry's ice cream,
said prices rose just 0.1% in the first quarter, while Nestlé
reported price growth of 0.2%. The growth rates were the weakest
since 2010 and 2000, respectively, according to analysts at
Bernstein.
Both companies instead had to rely on selling more products to
lift sales.
Unilever reported a 3.4% rise in first quarter underlying sales,
which strip out foreign-exchange movements, while Nestlé posted
2.8% growth in organic sales, which exclude currency fluctuations,
acquisitions and divestments.
"Pricing is the big theme for this morning," Unilever's finance
chief, Graeme Pitkethly, said in an interview. "It looks like we've
gone from all price and no volume to all volume and no price."
Prices were held back by a handful of big markets like India,
Brazil, Indonesia and the U.K., which together make up 25% of
Unilever's sales, Mr. Pitkethly said. He also said it was harder to
charge more in the U.S., which accounts for 15% of sales, where
there was heavy discounting.
However, Mr. Pitkethly said Unilever was able to raise prices in
most other markets and that he expects the company to strike a
better balance between volume and price growth in the second half
of the year.
Unilever is less exposed to the price wars hitting some of its
big U.S.-based rivals because it doesn't sell products like diapers
and toilet paper that have been fiercely hit by Amazon and the rise
of discounters Aldi and Lidl.
Overall, the company's headline results were hit by
foreign-exchange movements in the first quarter, with revenue
falling 5.2% to EUR12.6 billion ($15.59 billion) from a year
earlier. Currency movements hit sales by 9.8%.
Unilever's underlying sales in emerging markets rose 5.1%,
weaker than the 6.1% reported in the year-earlier period, as
pricing growth dropped to 0.8% from 5.3%.
The company announced a share-buyback program of up to EUR6
billion starting next month to return cash accrued from the sale of
its spreads business. Unilever in December agreed to sell the unit
to U.S. private-equity firm KKR for EUR6.83 billion after years of
declines.
Nestlé blamed weak price growth on lower levels of inflation in
emerging markets, saying prices declined in Brazil as well as
Western and Eastern Europe. Prices in North America were slightly
positive.
The owner of Purina petfood and Nescafe coffee said total sales
for the three months to March 31 were 21.26 billion Swiss francs
($21.97 billion), compared with 21 billion francs a year
earlier.
Like other consumer good companies, Nestlé has struggled to keep
pace with changing consumer tastes toward locally grown, organic
food while at the same time being limited in raising prices amid a
weak inflation trend globally.
Faced with pressure from activist investor Daniel Loeb to raise
shareholder returns, Nestlé sold its U.S. confectionery business
earlier this year, launched a share-buyback program, and has also
made a string of acquisitions in high-growth businesses including
Blue Bottle Coffee, vitamin maker Atrium Innovations and
meal-delivery service Freshly.
On Thursday, Nestlé reported a return to growth in its biggest
market, the U.S., with the company citing "an improved performance
in petcare, particularly in the natural segment and the e-commerce
channel."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
April 19, 2018 05:04 ET (09:04 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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