Consumer goods giant Unilever (ULVR.L) is planning to hike its product prices as input costs have “further accelerated” through the first three months of the year.
The company, whose brands include Dove soap, PG Tips, Marmite and Ben & Jerry’s ice cream, said it was looking to pass increased costs onto consumers despite having already raised prices by more than 8% year-on-year in the last quarter.
As the conflict in Ukraine continues to drive up raw material inflation, the group now expects costs in the second half of this year to rise by €2.7bn ($2.3bn, $2.8bn).
This is up from a forecast of €1.5bn three months ago, and on top of input cost inflation of around €2.1bn in the first half, as oil, grain, and other agricultural costs continue to bite.
“As far as pricing and volumes, I think we are in uncharted territory,” Alan Jope, chief executive, said on an earnings call on Thursday.
“While we are acutely aware of the pressure on consumers, we believe that increasing prices in response to this extreme commodity cost pressure is the right thing to do.”
First quarter sales adjusted for the impact of exchange rates rose 7.3% to €13.8bn, above expectations, however, this was driven by a 8.3% rise in prices, most notably in Home Care.
Unilever also revealed that sales volumes were down 1%, as consumers tighten their purses amid a sharp cost of living squeeze, and shift to cheaper, own-brand options.
The higher prices meant that customers in Europe and Latin America, in particular, bought less from the company.
On the bloc prices rose by 5.4% over the last three-month period, and as a result consumers bought 4.4% less, while in the Americas prices rose by 10% and the volumes sold only decreased 1%. But in Latin America prices had risen 16%, and demand dropped by 5.7%.
Unilever, which is also behind Lipton, Flora, Hellmann’s, and Vaseline, now expects full-year underlying sales growth to be towards the top end of its 4.5% to 6.5% guidance range.
But full-year underlying operating profit margin could be the bottom end of its 16% to 17% range.
The group spent €750m of the €3bn earmarked for share buybacks and announced a €0.4268 quarterly dividend.
Shares were broadly flat in London after the announcement.
“Unilever's full-year costs are going to quadruple versus a year ago. That's why the pricing needs to be so high, and that's why the price is going to go much higher," Barclays' (BARC.L) Warren Ackerman said. "This is not the peak."
"The worry is what will happen to volumes when pricing goes up more?"
Meanwhile, Laura Hoy, equity analyst at Hargreaves Lansdown, said: “Price hikes on everything from detergent to food is hitting consumers hard and Unilever is expecting things to get worse as the year progresses.
“This is expected to put a damper on margins moving forward as the group tries to find a balance between covering rising input costs and keeping customers from abandoning branded products altogether.
“Consumers are becoming increasingly comfortable with private label brands, and generic replacements are going to start looking a lot more acceptable as the pressure on household budgets continues to build. That’s bad news for companies like Unilever, that rely on familiarity and consumer trust in order to charge a premium for their products.”
Watch: How does inflation affect interest rates?