Unilever Q2 23: past the point of peak inflation, volume growth now necessary

Unilever, the FMCG giant, believes that the peak of inflation has passed following an extended period of higher input costs and price rises for shoppers; now the company is turning to focus on rebuilding market share.

Why it matters

Unilever was successfully able to raise prices without hitting volume sales – or at least not as hard as analysts had expected. While buyers are paying more, the company has now stated publicly that peak inflation appears to have passed.

This doesn’t mean that prices will drop, rather that they won’t continue rising as fast: a tricky situation when the company continues to face market share troubles and flat margins. Analysts believe the company will need to focus now on continuing to grow volume while stabilising prices.

What’s gone on

In a joint release, the company announced both its Q2 and first half report. Some key highlights (all underlying results refer to effects excluding any variations in business effects as a result of acquisitions or disposals.:

• Q2 underlying sales grew 7.9%
• Q2 underlying prices grew 8.2%
• Q2 underlying volume fell by 0.3%

All were ahead of analyst estimates, while volumes had been expected to fall by 1.2%.

Underlying pricing growth for Q2 stood at 8.2%, a welcome dip from the 11% reported in Q1, and the 13.3% in Q4 22. To support this growth, the company says it had increased brand and marketing investment by €400m over the first half of the year.

Focus on inflation

Investors are growing increasingly worried about continuous FMCG price rises as they risk shedding buyers. Speaking on a call with investors, however, CFO Graeme Pitkethly noted in a call with investors that “we’re past peak inflation now, but there will continue to be a high level of pricing growth within our reported numbers”, largely down to carry forward pricing.

Still, there are some worrying numbers. The percentage of Unilever’s business gaining market share has shrunk to its second-lowest level at 41% - partly as a result of reduced SKUs but also shifts in consumer behaviour likely linked to pricing. The corollary, then, is that around 60% of the time, Unilever is losing share. In a presentation, the company says it is focussed on “building back to 50%+”.

Sourced from Unilever, WARC, Reuters. Image: Unilever