Unilever warns of prolonged cost inflation and price rises throughout 2022, says GlobalData

Following today’s release of Unilever’s figures for Q1, FY2022; Sofie Willmott, sector head for heath & beauty at GlobalData, a leading data and analytics company, offers her view: “Unilever’s results clearly show that consumers globally are cutting back in response to higher prices, with volumes dropping into negative territory in Q1 2022 (-1.0%). Price growth accelerated (+8.3%), driving overall performance, reflecting how the FMCG giant has raised prices to maintain margins as raw material costs soar, and painting a similar picture to that of competitor P&G’s quarterly results. When Unilever reported in early February it expected cost inflation to subside in H2, but since then the Ukraine conflict has heaped more pressure on supply chains and heavily impacted the production and price of key materials. It now anticipates H2 cost inflation to reach €2.7bn versus a previous forecast of €1.5bn, and €2.1bn in H1, indicating more price increases to come.

“Unilever’s beauty and personal care division, anchored by Dove, accounts for the biggest proportion of turnover – 41.7% in Q1, and saw the smallest impact on volumes (down 0.3%). The essential nature of many of its product areas and the robust reputation of its brands offers some protection against price rises. Prestige beauty sales increased 14% up against strong comparatives as consumers bought skincare, makeup and haircare items that they overlooked throughout the pandemic, as social occasions returned, and workers went back to offices. L’oréal reported a similarly impressive performance for the same period, with L-F-L sales rising 13.5% and its Luxe division L-F-L sales up 17.5%. However, as the cost of living crisis hits we expect to see more cautious shopping behaviour this year with some shoppers forgoing more expensive brands for cheaper private label alternatives. This is evidenced in GlobalData’s survey conducted earlier this month, where a quarter of UK consumers said they expect to buy cheaper health & beauty products this year because of rising prices.

“Although Unilever’s portfolio of brands across beauty and personal care, foods and home care are very well known amongst consumers, with 13 of the brands generating sales of over €1bn each annually, they are under huge threat from lower priced items this year. Unilever should focus on communicating the value for money and quality in its products to encourage spend, while ensuring its entry-priced options are an appealing alternative to those wanting to trade down.”