Big Brands Struggle to Raise Prices

By Saabira Chaudhuri and Brian Blackstone 

Unilever PLC and Nestlé SA struggled to raise prices in the first quarter, illustrating how the world's largest consumer goods companies are facing increasingly fierce competition.

The industry has long relied on selling new or improved versions of products at higher prices to boost growth. That's now challenged by weak inflation, Amazon.com Inc. selling more household staples and less brand loyalty as consumers use the internet to shop around.

Unilever, which sells Dove soap and Ben & Jerry's ice cream, said prices rose just 0.1% in the first quarter, while Nestlé reported price growth of 0.2%. The growth rates were the weakest since 2010 and 2000, respectively, according to analysts at Bernstein.

Both companies instead had to rely on selling more products to lift sales.

Unilever reported a 3.4% rise in first quarter underlying sales, which strip out foreign-exchange movements, while Nestlé posted 2.8% growth in organic sales, which exclude currency fluctuations, acquisitions and divestments.

"Pricing is the big theme for this morning," Unilever's finance chief, Graeme Pitkethly, said in an interview. "It looks like we've gone from all price and no volume to all volume and no price."

Prices were held back by a handful of big markets like India, Brazil, Indonesia and the U.K., which together make up 25% of Unilever's sales, Mr. Pitkethly said. He also said it was harder to charge more in the U.S., which accounts for 15% of sales, where there was heavy discounting.

However, Mr. Pitkethly said Unilever was able to raise prices in most other markets and that he expects the company to strike a better balance between volume and price growth in the second half of the year.

Unilever is less exposed to the price wars hitting some of its big U.S.-based rivals because it doesn't sell products like diapers and toilet paper that have been fiercely hit by Amazon and the rise of discounters Aldi and Lidl.

Overall, the company's headline results were hit by foreign-exchange movements in the first quarter, with revenue falling 5.2% to EUR12.6 billion ($15.59 billion) from a year earlier. Currency movements hit sales by 9.8%.

Unilever's underlying sales in emerging markets rose 5.1%, weaker than the 6.1% reported in the year-earlier period, as pricing growth dropped to 0.8% from 5.3%.

The company announced a share-buyback program of up to EUR6 billion starting next month to return cash accrued from the sale of its spreads business. Unilever in December agreed to sell the unit to U.S. private-equity firm KKR for EUR6.83 billion after years of declines.

Nestlé blamed weak price growth on lower levels of inflation in emerging markets, saying prices declined in Brazil as well as Western and Eastern Europe. Prices in North America were slightly positive.

The owner of Purina petfood and Nescafe coffee said total sales for the three months to March 31 were 21.26 billion Swiss francs ($21.97 billion), compared with 21 billion francs a year earlier.

Like other consumer good companies, Nestlé has struggled to keep pace with changing consumer tastes toward locally grown, organic food while at the same time being limited in raising prices amid a weak inflation trend globally.

Faced with pressure from activist investor Daniel Loeb to raise shareholder returns, Nestlé sold its U.S. confectionery business earlier this year, launched a share-buyback program, and has also made a string of acquisitions in high-growth businesses including Blue Bottle Coffee, vitamin maker Atrium Innovations and meal-delivery service Freshly.

On Thursday, Nestlé reported a return to growth in its biggest market, the U.S., with the company citing "an improved performance in petcare, particularly in the natural segment and the e-commerce channel."

Write to Saabira Chaudhuri at [e-mail] and Brian Blackstone at [e-mail]

(END) Dow Jones Newswires

April 19, 2018 05:04 ET (09:04 GMT)

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