Cost of living: McDonald’s and Reckitt raise prices, as gas soars – business live | Business

Full story: McDonald’s UK raises price of cheeseburger for first time in 14 years

Zoe Wood

McDonald’s has announced a supersized price increase, putting up the price of a cheeseburger by a fifth to £1.19 with immediate effect.

The chain blamed its first cheeseburger price hike in 14 years on soaring costs and said other big price increases were on the horizon.

The chief executive of McDonald’s UK and Ireland, Alistair Macrow, said it was committed to selling food at affordable prices but cost pressures meant it was having to “make some tough choices”.

He said: “This summer our restaurants will be adding between 10 and 20p to a number of menu items impacted most by inflation. From today we’ll be increasing the price of our cheeseburger for the first time in over 14 years, taking it from 99p to £1.19.

“We understand that any price increases are not good news, but we have delayed and minimised these changes for as long as we could.”

McDonald’s said some menu prices would be unaffected and that they would continue to vary across its 1,300 UK restaurants, because the majority are run by franchisees.

It is expected that its McFlurry desserts will be among the items affected by the price rises, and that the cost of the “go large” option – sizing up from a medium drink and fries on a meal deal – will double to 60p.

Back in the energy markets, gas prices are climbing higher on fears of winter shortages.

The British wholesale gas contract for October-December delivery jumped 32% today, Reuters reports, and the European benchmark for the first quarter of 2023 has risen 10%.

As flagged earlier, contracts for today, tomorrow, and the summer months have also leapt. Prices are soaring as Gazprom follows through on its threat to halve gas flows to just 20% of full capacity through its Nord Stream 1 pipeline.

The FT points out that the European benchmark TTF contract has reached €220 a megawatt hour, leaving it on track to hit a new record closing high, exceeding the previous peak in the immediate wake of Russia’s invasion of Ukraine.

Kit Juckes of French bank Société Générale explains:

As the flow of gas between Russia and Germany drops again, prices have risen above the highs they reached at the start of the war in Ukraine.

Juckes adds:

The US is now paying 5 times as much for its gas as it was, but Europe is paying 18 times. Economists are scrambling to update estimates of the economic impact, but two things are clear, one bad and one slightly more encouraging. The first is that growth is going to be substantially slower than expected.

The second is that the response has been significant in terms of building capacity to import LNG from the US, reduce demand, and find other sources of energy (Germany is even talking about restarting nuclear power plants).

Fast food chain McDonald’s is hiking its prices, including the first rise in the cost of a cheeseburger in 14 years.

The company told customers this morning that its popular cheeseburger will now rise from 99p to £1.19, as the company passes on rising costs.

Alistair Macrow, CEO of McDonald’s UK and Ireland, told customers in an email that the company, its franchisees, and its suppliers are all feeling the impact of rising inflation such as food and energy costs.

Macrow says:

We know things are tough right now. We’re living through incredibly challenging times and we’re all seeing the cost of everyday items, such as food and energy, increase in a way many of us have never experienced.

And this means many items at McDonald’s are going to cost more, as Macrow explained:

This summer, our restaurants will be adding between 10p and 20p to a number of the menu items impacted most by inflation. From today, we’ll be increasing the price of our cheeseburger for the first time in over 14 years, taking it from 99p to £1.19.

Some prices remain unaffected, and some will continue to vary across our restaurants. We understand that any price increases are not good news, but we have delayed and minimised these changes for as long as we could.

Wholesale gas prices in the UK and continental Europe have climbed this morning, as Russia’s Gazprom squeezes supplies.

Gazprom plans to cut supplies through the Nord Stream 1 pipeline to Europe to just 20% of its usual capacity today, half its levels earlier this week.

The move intensifies the risk of shortages this winter, as European countries struggle to stockpile supplies.

The next-day price of UK gas has risen 7.5% to 360p per therm, the highest since March, at the start of the Ukraine invasion. Gas for immediate delivery is up 10.8%.

The European benchmark has also jumped, with Dutch wholesale gas for August delivery up 11.6%, and the September contract up almost 11%.

Gazprom has blamed the cuts on technical problems with a gas turbine, but Ukrainian president Volodymyr Zelenskiy has accused Moscow of waging a “gas war”.

Millions of rail travellers across Britain are facing rail disruption as the latest strikes get underway.

Normally busy stations were largely deserted this morning as services were cancelled, while unions and government ministers have clashed over the failure to reach a deal on pay and conditions.

RMT general secretary, Mick Lynch has insisted that an acceptable pay offer has still not been made, saying:

“The government need to stop their interference in this dispute so the rail employers can come to a negotiated settlement with us.”

But transport secretary Grant Shapps has blamed “extreme hard left unions” for rejecting a deal worth up to 8% over two years.

My colleague Geneva Abdul is live-blogging the latest developments here:

Lloyds profits take hit after more money put aside for defaults

Kalyeena Makortoff

Lloyds Banking Group has revealed it is struggling to boost profits, amid fears that soaring inflation could lead to a jump in defaults on loans and mortgages.

The country’s largest mortgage lender, which is considered a bellwether for the British economy, took a £200m charge between April and June as it put aside more money to protect the bank from potential defaults.

That compares with the £374m it released during the same period last year.

It comes as UK households are squeezed by soaring inflation, which hit a fresh 40-year high of 9.4% last month and could make it harder for borrowers to keep up with payments long term.

However, Lloyds assured that so far, the number of customers in arrears remained at “low levels”.

Here’s the full story:

In a busy morning for corporate news, mining giant Rio Tinto has reported a 29% drop in profits.

Falling iron ore prices hit Rio’s earnings, with demand from China weaker due to Covid-19 lockdowns. Recession fears have also pulled down commodity prices, with central bankers hiking interest rates to slow inflation.

Rio sys:

We saw significant movement in the pricing for our commodities in the half, amidst growing recession fears and a decline in consumer confidence.

Rio Tinto chief executive Jakob Stausholm says the market was good so far this year, but “become more challenging at the end of the period”.

Net profits fell to $8.9bn for January-June, down from $12.3bn a year ago when soaring commodity prices boosted earnings.

Unlike Unilever, Reckitt is managing the trick of lifting prices and growing sales volumes.

Both companies can hit consumers with higher prices because many health, cleaning and hygiene products remain essential even in a downturn, as Victoria Scholar, head of investment at interactive investor, explains:

“Reckitt Benckiser reported revenue growth of 11.9%, ahead of expectations for 6.8% and raised its full-year 2022 sales guidance to between 5% and 8%.

In a similar story to Unilever, the consumer goods giant behind brands including Dettol, Strepsils and Durex is managing to successfully offset the painful inflationary environment with soaring fuel and raw material costs by lifting its prices. During the quarter, Reckitt increased prices by 9.7% without having a detrimental impact on sales.

Consumer staples businesses like Reckitt and Unilever look well positioned to navigate the unfavourable macro environment and the threat of recession given their ability to pass on extra costs to consumers and given the essential rather than discretionary nature of their product offering.”

Matt Britzman, equity analyst at Hargreaves Lansdown says Reckitt’s performance is impressive (although customers won’t be impressed with higher bills at the checkout…)

Price hikes were all but guaranteed given the double-digit inflation in certain costs the group’s seeing, but impressively volumes are still growing.

That’s testament to the defensive nature of Reckitt’s portfolio, cleaning and hygiene products are hardly going to be the first things left off shopping lists when wallets are stretched.

Performance from key brands Dettol and Lysol continue to support the argument that increased hygiene awareness is here to stay. Sales may be down from last years astronomical highs, but both products look to be rebasing well ahead of pre-pandemic levels.

Reckitt’s Nutrition division, which sells baby formula, has swelled its revenues by around 40% in the US so far this year.

US families have suffered a nationwide shortage of baby formula in recent months, due to problems at Abbott Laboratories, the United States’s largest baby formula manufacturer.

Chief Executive Officer Laxman Narasimhan has told a media call that the company is currently “feeding about half of all infants in the US” (via Bloomberg):

“We’ve clearly seen the supply situation help us with regard to overall market share.

We will see some normalization as a competitor comes back online, but we have a business with a brand that’s the number one recommended brand.”

Abbott recalled products and temporarily halted production at a major factory after an FDA investigation found contamination in the wake of four bacterial infections among infants.

Torrential flooding caused a second temporary closure in June, slowing the effort to get more Abbott products onto the shelves

Reckitt clearly benefited, with Nutrition net revenue growing 23.6% on a like-for-like basis to £1,189m.

This reflected volume growth of 10.7% and price rises of 12.9% (which includes around 7.5% of gross price), with some consumers switching brands and others stockpiling more in case of wider shortages.

Reckitt adds:

Our focus remains doing everything possible to put more infant formula on shelves, addressing concerns of parents across the US, while safeguarding the highest levels of quality.

We have recently been granted a temporary import approval by the Food and Drug Administration (FDA) which enables us to import additional infant formula supplies into the US from our manufacturing facilities in Singapore.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

With shop prices rising at a fastest pace in the shops, Reckitt Benckiser has become the latest consumer goods firm to hike its prices in the inflationary squeeze.

Reckitt, the firm behind Dettol, Nurofen, Strepsils and Durex, has reported this morning that its lifted its prices by 9.7% in the last quarter, year-on-year.

These steep price hikes helped to lift Reckitt’s sales by 11.9% in the quarter — beating forecasts — with the company also benefitting from the US baby formula crisis in which rival Abbott Laboratories has recalled products.

Reckitt reports it saw…

Strong [revenue] growth across our Health (+24.2%), Nutrition (+26.8%) and Hygiene (-2.5%, +8.9% excluding Lysol) portfolios, with Lysol in line with expectations.

Growth includes an estimated 3.3% benefit from US Nutrition temporary competitor supply issues.

Like companies across the economy, Reckitt has seen its costs jump this year as commodities such as oil, paper, plastic and chemicals become much more expensive.

It says:

The input environment remains unpredictable. We continue to expect inflation on our cost of goods sold to remain in the high teens for the full year, based on current commodity pricing.

But despite these pressures, Reckit has now lifted its expectations for 2022, predicting revenue growth of between 5% and 8%, up from 1%-4%. It expects growth in adjusted operating margins too (as those price rises support profitability).

These rising prices will be passed onto consumers, intensifying the squeeze on households.

Shoppers are already under pressure, with UK shop price annual inflation accelerating to 4.4% in July, up from 3.1% in June, according to the British Retail Consortium this morning.

That’s the highest reading since its survey began 17 years ago, with food prices rising sharply.

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said:

“July saw the highest rate of shop price inflation since our index began in 2005, as heightened cost pressures continued to filter through to customers. Rising production costs – from the price of animal feed and fertiliser to availability of produce, exacerbated by the war in Ukraine – coupled with exorbitant land transport costs, led food prices to rocket to 7 per cent.

Some of the biggest rises were seen in dairy products, including lard, cooking fats and butter. Meanwhile, non-food prices were hit by rising shipping prices, production costs and continued disruption in China.

Yesterday Unilever, which owns brands including Marmite, Ben & Jerry’s, Domestos and Dove, yesterday announced it had raised its prices by 11.2% in the last quarter – with more hikes expected as it passed on costs.

But Unilever also expects to boost its profit margins next year and the year after by raising prices, making savings and shifting the mix of product it sold.

The TUC say such companies need to rein in their profits, at a time when workers are facing real terms pay cuts as inflation hits 40-year highs.

Also coming up today

Rail passengers were suffering fresh travel chaos today as workers strike again over pay, job security and working conditions.

Services across Great Britain will be badly disrupted again, as a dispute over jobs, pay, pensions and conditions worsens. The strikes involve more than 40,000 workers at Network Rail, 14 train companies, and members of the Rail, Maritime and Transport union (RMT).

Only around one in five trains will run on Wednesday, on around half the network, with some areas having no trains all day.

European stock markets are expected to open higher, as traders await tonight’s US interest rate decision.

The Federal Reserve is expected to announce another large increase in borrowing costs, probably 75 basis points, as it tries to curb inflation.

Google’s parent company, Alphabet, has reassured investors last night by reporting that its search and cloud businesses was faring well despite increasing macroeconomic headwinds, as it narrowly missed forecasts.

The agenda

• 7am BST: GfK’s German consumer confidence report
• 12pm BST: US weekly mortgage applications
• 1.30pm BST: US durable goods orders for June
• 7pm BST: US Federal Reserve interest rate decision