Daily Management Review

Unilever Claims Price Increases Will Continue In 2023 And Moderate In The Second Half


Unilever Claims Price Increases Will Continue In 2023 And Moderate In The Second Half
In order to offset rising input costs, Unilever Plc said on Thursday that it would hike prices for its packaged foods, detergents, and soaps while reducing them in the second half of 2023.
The London-based manufacturer of Marmite, Fairy dishwashing liquid, Dove soaps, Ben & Jerry's ice cream, and Dove soaps anticipates cost inflation to continue in 2023 and projects net material inflation of approximately 1.5 billion euros ($1.6 billion) in the first half.
The price of packaged goods has increased over the past year to keep up with rising costs for everything from wheat and sunflower oil to cocoa. When Russia invaded Ukraine, the industry was already dealing with COVID-era supply chain problems and raw material costs, which further increased prices of energy and other commodities.
"When it comes to coverage of the inflation that we've seen, we're currently only sitting at about 75% of the total cost inflation covered," said finance chief Graeme Pitkethly. "That needs to go above 100% to repair our gross margin."
In the second half, prices would continue to rise. However, Pitkethly predicted that the rate of growth would be slower. "We are probably past peak inflation, but not yet past peak pricing," he said.
For the fourth quarter, underlying price growth was a record 13.3% while underlying volume growth was down 3.6%.
As the rising costs of energy and other raw materials have subsided, some businesses in Europe have indicated they may roll back price increases from recent years, potentially bringing some relief to consumers.
Three offers to purchase the consumer health division of GSK were turned down, activist Nelson Peltz joined the board, and Chief Executive Alan Jope announced his departure in the dramatic past year for Unilever. It appointed dairy industry veteran Hein Schumacher as its new CEO at the end of the previous month.
According to Tineke Frikkee, a fund manager at Waverton Investment Management, the company should be able to regain market share with the help of the new CEO as input costs begin to decline.
Unilever's underlying sales increased 9.2% in the fourth quarter, exceeding the analyst estimate provided by the company of 8.2% growth.
The underlying operating margin dropped from 16.1% to 16.1% by 230 basis points, and it is anticipated that it will remain there throughout the first half.
"Some commentators had hoped for an improving margin," Waverton's Frikkee said. "Any margin improvement will be second-half weighted. We may see some downgrades on this."