Unilever announces that it will raise prices gradually to compensate for the rising costs related to the war with Iran.
“The increases will be frequent, but in small doses” announced CFO Srinivas Phatak.
In practice, this means increases of approximately 2-3 percent, introduced selectively depending on the market and product category, as Reuters writes.
Costs are rising faster than expected. Where will prices increase the most?
The company estimates that full-year cost inflation will range from EUR 750 to EUR 900 million – even several hundred million more than expected at the beginning of the year.
The growth is responsible for, among others: rising prices of raw materials, energy, logistics and disruptions in supply chains resulting from the conflict in the Middle East.
The increases will not be even. They will be most felt in the regions where inflation is the highest – in Asia, Africa and Latin America.
The changes will mainly cover products related to oil prices, especially cleaning products. In North America, the impact is expected to be smaller because this segment of the business is weaker there.
Pressure across the industry
Unilever is no exception. The analysis shows that dozens of companies around the world are signaling price increases in connection with the conflict.
Competitors such as Nestlé, Procter & Gamble and Reckitt also warn of rising costs and pressure on margins. At the same time, some companies – such as L'Oréal – are doing better thanks to the sale of premium products.
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Growth driven by demand, not prices
Despite the difficult environment, Unilever started the year solidly. Sales rose 3.8% in the first quarter, beating analysts' expectations, Reuters reported.
Importantly, this time the result was mainly driven by higher sales volumes – especially in the beauty and home care segments – and not price increases. This is a signal that the company is starting to regain customers after a period of aggressive price increases.
In previous years, the company raised prices significantly, passing the rising costs on to consumers. The result was the loss of some customers who started choosing cheaper own brands.
Currently, the strategy is more balanced – Unilever is focusing on marketing, innovation and volume recovery, while carefully raising prices.
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Strategic change of direction. Consumers under pressure
As Reuters writes, CEO Fernando Fernandez continues to rebuild the company, focusing on the beauty and personal care segments. After separating the ice cream business, the company also plans changes in the food area, which are intended to improve profitability and simplify the structure.
Demand remains the biggest risk. If energy and raw material prices remain high, household budgets may shrink, which will translate into lower sales.
Therefore, Unilever – like other players – is trying to balance between the need for pay raises and maintaining competitiveness in an increasingly difficult market, as Reuters writes.
