Makers of Dove Soap, Nescafe Are Raising Prices Again -- 3rd Update
19 October 2018 - 5:56AM
Dow Jones News
By Saabira Chaudhuri
Two of the world's largest consumer-goods companies, Unilever
PLC and Nestlé SA, reported stronger sales as a wave of inflation
in many markets emboldened them to raise prices.
The new pricing power gives a boost of confidence to the entire
industry, which has struggled in recent years with fierce
competition and rapidly changing consumer tastes.
Unilever, the maker of Hellmann's mayonnaise and Dove soap, on
Thursday said third-quarter sales climbed 3.8% on an underlying
basis, with prices up 1.4%. Nestlé, which makes Kit Kat chocolate
and Nescafe coffee, reported organic sales up 2.9% for the quarter,
saying prices grew by 0.9%.
Both companies' figures exclude the impact of currency changes
and acquisitions and disposals. Neither reported profits
figures.
The companies said they were raising prices to offset higher
costs, while also trading consumers up to more expensive items.
Unilever said it was charging more for its beauty and
personal-care products because of higher oil and chemical prices.
It also benefited from pricier new items like a Dove-branded hair
mousse. Nestlé said it raised prices for bottled water in the U.S.
to reflect higher packaging and distribution costs. Its prices
overall were also buoyed by new sparkling water products.
Many consumer-goods makers have in recent quarters struggled to
raise prices amid weak inflation, Amazon.com Inc.'s growing prowess
in selling more household staples and a decline in brand loyalty as
consumers use the internet to shop around. A shift to discount
retailers, from dollar stores across the U.S. to European
discounters like Germany's Aldi, has further pushed down
prices.
But inflation is changing the picture.
"The combination of underlying commodity increases but also the
stronger U.S. dollar is really putting a lot of inflation into our
market," said Unilever Chief Financial Officer Graeme Pitkethly. "I
see pricing being a key feature of the entire sector through the
balance of the year and in 2019."
After years of falling or stagnant consumer prices, inflation in
some major markets has moved closer to a sweet spot where companies
can raise prices, without it being so high that interest rates rise
rapidly, hurting consumers.
Annual U.S. inflation is running at 2.3%, after approaching 3%
over the summer, slightly above the 2% rate many central banks
consider optimal. The Federal Reserve has gradually raised interest
rates, bolstering the dollar. Official Chinese data showed annual
inflation at 2.5% last month, a seven-month high, while eurozone
inflation was 2.1% last month.
"There's some inflationary tendencies that will help us" and
last "for 2019 and beyond," Nestlé Chief Executive Mark Schneider
said in an analyst call.
Strong U.S. consumer confidence, rising wages and low
unemployment are also bolstering executives' confidence that
consumers will continue spending despite higher prices.
Procter & Gamble Co. reports fiscal first-quarter results
Friday. It said in July it would start boosting prices on some of
its biggest brands later in the year. That decision marked a
strategic U-turn from a monthslong attempt to combat weak demand
with lower prices on staples like Tide detergent and Gillette
razors.
Kimberly-Clark Corp., which makes Huggies diapers and Kleenex
tissues, in August said it was raising prices in North America to
offset higher commodity costs. It reports third-quarter results
next week.
Average prices in the U.S. for household goods tracked by data
provider Nielsen rose 2.7% in the four weeks ended Sept. 29, while
health and beauty items rose 1.9%.
Unilever and Nestlé both raised prices in the U.S. during the
last quarter, although gains were strongest in emerging markets.
However, both companies cut prices in Western Europe.
In developed markets, Unilever said underlying third-quarter
sales climbed by 1.3%, driven mostly by volume gains.
Emerging-market sales jumped 5.6% as Unilever was able to raise
prices by 2.1%. The results exclude pricing in Argentina, which is
going through a period of hyperinflation. Unilever said it was able
to raise prices in Brazil for the first time in the last three
quarters. Other markets like Mexico and Indonesia also saw price
increases.
Overall, Unilever's third-quarter sales came in at EUR12.5
billion ($14.4 billion).
Finance chief Mr. Pitkethly said investing in brands was key in
an inflationary environment to ensure that volumes continue to grow
even as the company raises prices.
"We got to get the price moving but keep volume first," he said.
"The true test of the strength of a brand is the ability to price
and give a degree of inflation protection."
Switzerland-based Nestlé said third-quarter sales came in at
22.5 billion Swiss francs. Revenues were held back in part by the
strength of the Swiss franc against emerging-market currencies,
which weakened foreign sales when they were translated into
francs.
Jefferies analyst Martin Deboo said Nestlé's third-quarter
pricing was ahead of forecasts and a sharp improvement from the
0.2% growth it reported in the first half, which he said bodes well
for profit margins.
--Brian Blackstone contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 18, 2018 14:41 ET (18:41 GMT)
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