16.07.2024
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Unilever signals further price actions for food products in Europe
Magnum says its food and ice cream business continues to grow in value.
British consumer goods giant Unilever said it will continue to raise food prices in Europe.
While some of Unilever’s competitors, including Associated British Foods this week and Kraft Heinz, have said they are halting food price increases for fear of losing business to cheaper rivals or private labels, the owner of Marmite and Magnum’s ice cream brands said it is not ready to follow suit.
Speaking to analysts today (April 27) after Unilever’s first-quarter sales results, CFO Graham Pitchettley reiterated the approach the company outlined in February.
“We continue to see inflation in the food and ice cream sector,” he said.
“We will continue to change prices as necessary. In the food and ice cream segment, which has a large European footprint, there is still work to be done.”
However, he added: “We seem to have passed the peak of material inflation.”
Price growth across the group was 10.7% in the quarter, but was higher in the food (13.4%) and ice cream (10.5%) sectors.
Unilever has previously indicated the need to take action on pricing to restore margins, but today Pitchettley said the company is keeping an eye on elasticity as consumers with limited financial means weigh their shopping options.
“We are seeing a shift to lower cost products in the ice cream and food categories,” he said.
He added: “European sentiment is lower than the rest of the world and price elasticity was higher. North American consumers are more resilient than in Europe.”
Unilever’s quarterly sales rose 10.5% year-on-year to €14.8 billion ($16.33 billion). Sales of the food division grew by 11.9% to 3.4 billion euros, while sales of ice cream increased by 6% to 1.7 billion euros.
The group’s 10.5% sales growth in the first quarter meant that Unilever’s sales declined, although the company said the 0.2% drop was an improvement over the 3.6% decline it reported in the fourth quarter of 2022.
Food volumes fell by 1.3%. In ice cream, volumes fell by 4.1%.
Unilever brands worth more than €1 billion, including Hellmann’s mayonnaise, accounted for 54% of the group’s turnover and delivered underlying sales growth of 12.1%.
CEO Alan Jope said: “We remain focused on overcoming the ongoing macroeconomic uncertainty and are confident in our ability to deliver another year of strong growth, which remains our first priority.”
Unilever said it expects underlying sales growth in 2023 to be “at least at the high end” of its multi-year range of 3%-5%.
The underlying operating margin in the first half of the year will be at least 16%.
Unilever’s first-quarter sales exceeded analysts’ expectations and followed similar announcements from Nestlé and Danone.
“Another result, another strong beat,” wrote Bruno Monteith, an analyst at investment bank AllianceBernstein, which covers all three companies, in a note to clients. “Unilever grew organically by +10.5% in the first quarter, 322 basis points above the consensus forecast of +7.3%. It is reassuring that the growth was driven solely by volumes (-0.2% vs. consensus of -3.3%), which is a significant step forward after a 3.6% decline in volumes in Q4. The decline was across all regions and categories. The message remains the same for all companies: “FMCG companies can continue to raise prices without much impact on volumes.”