[ad_1]
Some of the world’s leading consumer goods manufacturers are raising the prices of branded products, from diapers to vegetarian burgers, testing their ability to pass on higher entry costs to households.
Nestlé, Procter & Gamble and Unilever are among the global groups that have established plans to increase prices in their latest market upgrades following price jumps in commodities and rising transport and packaging costs.
“We’re seeing one of the highest commodity price inflation we’ve seen in a decade,” Graeme Pitkethly, CFO of Unilever, told reporters this week.
Mark Schneider, CEO of Nestlé, said last week: “This is a very volatile environment right now, with very low visibility, with a lot of surprises. We will take pricing actions “.
Although Nestlé, Unilever, Reckitt Benckiser and their rivals said prices had risen in the first quarter, most said most of the cost increases, some of which were covered in the short term, had yet to happen. in consumer baskets.
As hedging contracts expire and brands negotiate with retailers, that will change, said Will Hayllar, global managing partner of OC&C strategy consultants.
In the United States, Procter & Gamble and Kimberly-Clark do announced “Medium to high digit” prices increase from the end of the year, covering basic items such as diapers and toilet paper.
“Overall, the experience when rapid price inflation hits the consumer goods industry is that there is some margin squeeze for a year or so, and most of it goes to the consumer,” Hayllar said.
Bruno Monteyne, an analyst at Bernstein, said that powerful brands in premium or fast-growing market segments would be more expensive, while “people with weak brands in highly commodified categories have difficulty differentiating themselves from their own brands and of me too “.
“It will be difficult for them to pass on cost inflation; first raising prices means punishing yourself disproportionately, ”he said.
Commodity prices have reached multi-year highs or record highs thanks to factors such as the impact of the pandemic on labor and logistics, countries like China building their inventories and bad weather.
Palm oil, which is used in food and consumer products, from pizza and chocolate to lipstick and shampoo, has risen to levels not seen since 2008 due to the shortage of migrant labor. Other vegetable oils are rising in price due to Chinese demand and the growth of biofuels. Dairy products and grains have been affected; in Europe, milk prices have risen by about 50% since the beginning of the year.
50%
Leap in milk prices in Europe this year
Packaging costs have risen nearly 40% since early 2020 amid intense demand, according to commodity data group Mintec. Its overall packaging index is at a record level due to sharp rises in the costs of paper and pulp, plastic and metals.
Commodity market tension is expected to continue through 2021, while Pitkethly said he expected Unilever’s entry cost growth to accelerate in the second half.
Companies will try to offset some cost increases by other means. François-Xavier Roger, chief financial officer of Nestlé, said the group will look for “productivity gains, industrial efficiency, product combination and innovation”. But he said “the main way to deal with input cost inflation is through price increases.”
Richard Cook, head of NielsenIQ’s analytical products team, said “essential categories,” such as wheat, eggs, cheese, bread and first aid products, could raise prices easily. At the other end of the scale, premium products (or those that meet specific needs, such as cakes and lotions for tanning skin) could also support increases.
Those that allow the consumer to make statements about themselves, such as vegan products and makeup, can do the same, Monteyne said. “Brands are a way to record emotions. The more we care about the categories, the more we buy there ”.
He said “weaker” portfolios included Danone’s bottled water and dairy business and Unilever’s food portfolio, which could be vulnerable to loss of market share if prices rose too quickly. “What has Danone really done to innovate and make yogurt more exciting?” he asked.
Products in cultivation areas such as pet care will have little trouble raising prices, Monteyne said, while there are some “big brands in bad categories” – Beyond meat within the broader and more commercialized field of packaged food or Nespresso in coffee – with strong power pricing.
Alcohol and “indulgent” products, such as chocolate and snacks, appear vulnerable, Cook said; “It is very likely that the rise in prices will lead to a decrease in demand,” he said.
These products can opt for “reducing inflation,” reducing portion sizes and keeping prices the same, Hayllar said. They can also start by changing promotional offers instead of adjusting list prices.
Hayllar said the unequal impact of the pandemic will affect the way households respond. “The last real wave of commodity inflation was in 2012, and that added to market price sensitivity,” he said. “[But] this time there is a segment of consumers for whom there is an accumulated spending power ”.
Not all companies will take the same approach. Roger, of Nestlé, said that “globally, our strategy is to offset everything we receive through pricing.” But Unilever said it would try to avoid it.
“We operate in very competitive markets,” Pitkethly said. “And so price becomes our last resort tool, not our first resort tool”
[ad_2]
Source link
