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October 21, 2021updated 24 Nov 2021 3:57pm

Unilever alludes to shrinkflation among cost-management tools in play

The company more than doubled average list prices for the group to 4.1% in the third quarter.

Consumer-goods giant Unilever has alluded to shrinkflation as one of the tools in play to counter the effects of industry-wide increases in input costs, although CEO Alan Jope says list price was the first point of call.

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The Hellmann’s mayonnaise owner reported year-to-date results this morning (21 October), revealing it more than doubled average prices to 4.1% for the group in the third quarter from 1.6% in the previous three months. The inflation theme is expected to continue into 2022 with an anticipated peak in the second half of the year, accompanied by further list price increases.

Pressure from input costs was seen in many commodities, with prices “up sharply versus a year ago”, along with petrochemical-derived materials, paper and boards, transport and logistics, and energy, and was “even showing up in labour rates”, Jope informed analysts on a follow-up call.

Jope said Unilever employs five revenue-management tools to “land price”.

“The first is list price increase. The second is pack-price architecture. So the classic example of this is a smaller fill for the same price or a much bigger pack but at a higher price. The third is managing promo levels. The fourth is trade spend, and the fifth is mix, and we’re pulling all those levers,” Jope explained.

“But obviously to go from unchanged to 4.1% we’ve had to rely more on list-price increases than we would in a normal period.”

Jope added: “We really need to use a scalpel rather than a knife on pricing. We use all five levers of net revenue management. It is largely executed locally, and the picture is quite different in different parts of the world.”

Volumes fell 1.5% in the third quarter but the decline was more a consequence of “difficult trading and market conditions in south-east Asia” due to the resurgence of Covid-19 and pandemic-related restrictions. The region contributed almost 1% to the drop in volumes.

Year-to-date volumes were up 2.1%.

“We expect a net benefit to top-line from the pricing actions that we’re taking,” Jope said. “I’m pleased that on a moving annual total basis our key competitiveness measure of business winning share remains at a healthy 54%. We aim to keep this metric consistently above 50% on a 12-month moving annual total basis.”

Unilever maintained its full-year outlook for underlying sales growth (USG) “to be well within our 3-5% multi-year framework, and our full-year operating margin to be around flat”.

USG was 2.5% in the third quarter to deliver a turnover of EUR13.5bn (US$15.7bn), which was up 4%. Over the nine months, USG was 4.4%, with a 1.7% increase in turnover to EUR39.3bn.

For the food and refreshments division, USG was 3% in the quarter with a turnover of EUR5.1bn. Volumes fell 0.8% with underlying price growth (UPG) of 3.8%.

Year-to-date, the segment saw USG of 6.3% and a turnover of EUR15.3bn. Volumes were up 3.5% and pricing 2.7%.

Martin Deboo, an analyst at US-based investment bank Jefferies, wrote in a research note: “Relative to low expectations this feels like a ‘good enough’ quarter to us, with decisive progress on pricing a positive for us in the current climate. But the underlying challenge remains the one of accelerating volume growth from its current c.2% level.”

 

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Free Report
img

Unilever- A Deep-dive into Product Launches and Advertising Strategy

Unilever product advertising is mainly through mainstream TV channels. Out of the products advertised so far at least 50% (over 850) of ads have been run on TV, while print media comes second with 496 ads. Unilever also utilizes social media platforms for advertisement. Unilever products are categorized by innovation ratings and tags in our product launch database. The North American region consists of almost 74 products with innovations related to the formulation of the product. Europe and other regions also have more products categorized under formulation-related innovation, followed by the packaging and positioning of the products. Most Unilever products are tagged with “High Vitamins”, “Recyclable”, and “Natural” tags to understand what the product differentiator is from other products available in the market. The majority of products belong to the personal care industry with a total of 5,788 products to date. This report, through the Unilever Example, illustrates how GlobalData Explorer enables you to:  
  • Track product launches by FMCG companies to get an understanding of the product-level strategies including geographic concentrations, innovation types, product claim, category focus and more
  • Monitoring the advertising strategies of various brands and gain insights into channel focus, regional focus, and more
  • Perform company-level analysis to understand business model, size, and geographic focus
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.

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