Unilever is a British multinational consumer goods company. They are the largest producer of soap in the world and have a large portfolio of large corporations such as Dove, Axe, Ben & Jerry’s, and Magnum to name a few. Being a corporation of this size they have to constantly focus on their pricing strategy as the markets and consumer preference shift. Unilever has been increasing the prices of their detergents, soaps, and packaged goods in order to combat a rise in input costs. Their biggest push to increase prices is high inflation rates that have squeezed consumers and corporations dry as stated by Chief Executive Alan Jope “We’re very conscious that the consumer is squeezed, and to remain competitive we want to minimize the amount of pricing. When it comes to coverage of the inflation that we’ve seen, we’re currently only sitting at about 75% of the total cost inflation that needs to go above 100% to repair our gross margins”. They believe that the costs of inflation will not only flow into 2023 but also into 2024 with a forecasted net material inflation of around $1.6 billion. Dealing with Covid supply chain issues, surging costs, and raw material expenses attributed to the Russian invasion, further boosted the prices of energy. Interestingly enough underlying sales rose 9.2% in the fourth quarter after price hikes were announced, this beat the company’s expected estimate of 8.2%.
They are not the only ones increasing prices across the board. The packaged goods industry has hiked up prices due to surging costs. These price hikes are in an effort to lower costs and enable the company to gain back its market share.
To better understand this let’s explore why the packaged goods industry has raised pricing passing them onto consumers. In the US retailers have been struggling to bounce back as they get squeezed by higher costs for fuel, material, and labor. Companies like Unilever have to balance increasing prices to drive more profit while keeping the price low enough to keep the customer. Any significant price increase will push consumers to try alternatives. Within the last year, US consumers have seen food prices jump 10.9% with many more items jumping even higher. Eggs have increased by around 38%, lunchmeat is up 18%, coffee at 20%, and peanut butter up 13%. As inflation continues we can expect to see more increases in the future, however, if inflation is stagnant and we see a decline then we can expect the opposite, lower pieces.
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