Unilever hikes prices ‘significantly,’ warns there is more to come amid high inflation, supply chain challenges

22-Oct-2021 - Last updated on 22-Oct-2021 at 14:06 GMT

Source: Getty/ Alex Potemkin

Related tags Unilever Inflation Supply chain

Unilever joins the parade of CPG manufacturers hiking prices “significantly” to offset rising commodity costs and other inputs, with CEO Alan Jope warning, “there is more pricing still to come.”

The company announced yesterday that it raised prices a notable 4.1% during the third quarter – the highest increase in seven years and nearly three times the 1.6% price increase of the previous quarter, which was already on top of a 1% increase in the first quarter and a 0.3% increase in fiscal year 2020.

“As a result of cost inflation that we’ve seen building through the year, we’ve significantly stepped-up pricing in the third quarter, and we now have good pricing momentum,” said Jope.

He added that as “inflation will continue to be a key theme for the remainder this year and for next year,” he expects “high pricing levels for the remainder of the year and into 2022.”

Increases will consider the wide range of rising costs across commodities from a year agon, including palm and soybean oil, petrochemical derived materials, paper and boards, transport and logistics, energy and labor rates, Jope said.

Given the impact of inflation across commodities falls along a spectrum, Jope added, pricing will be “thoughtfully planned and carefully executed,” and likely will deliver a net benefit to the top line, he added.

Pricing buoys sales

Indeed, pricing helped buoy the company’s third quarter sales, which climbed 2.5% despite a dip in volume of 1.5% in the period. Underlying volume growth for the full year-to-date is up 2.1% and the underlying sales are up 4.4%.

The drop off in Q3 does not necessary signal consumer resistance to the price increases, but rather was up against tough comparables from the same quarter last year when more consumers cooking and eating at home due to the pandemic.

To that end, Jope said he is pleased with the company’s competitiveness as indicated by 54% of the business winning at moving annual total basis.

He acknowledged that MAT is a controversial metric to measure competitiveness but justified it as a “vital” way to drive operational excellence across the business at time when Unilever “had been slipping for several years prior to 2020.”

He explained the metric “helps drive broad based growth across the business, with all sales that are winning share [contributing] to the measure, obviously with large sales contributing more than small sales. And this drives all of our teams to be competitive, regardless of the market conditions they face. We aim to keep this metric consistently above 50% on a 12-month moving annual total basis.”

In addition to higher costs, Jope said Unilever is managing supply chain disruptions, which “seem to be in the news daily,” and staffing shortages that are impacting logistics costs – especially in the US and UK.

Despite these challenges, Jope assured investors that Unilever is managing the volatility “well, and our supply chain has again show the necessary resilience to keep our on-shelf availability – the ultimate measure – at strong levels across our top 10 markets.

“Our most popular SKUs have on-shelf availability of over 96%, and we’ve actually improved this measure by 70 basis points versus the same period in 2020.”

So even though “we are operating in a global environment that is far from business as usual,” Jope said “Unilever’s resilience and agility is serving us well.”