Unilever has warned that inflation could worsen next year as raw material and energy costs push up the prices of its food, toiletries and cleaning products.
The maker of brands such as Marmite, Dove and Domestos said it had increased prices by 4.1% in the three months to September – the biggest jump since early 2012.
Its finance chief, Graeme Pitkethly, said the multinational had “stepped up” its pricing in response to the very high levels of inflation, adding: “We expect inflation could be higher next year.”
There are growing concerns about the cost of living in the UK, although official data published on Wednesday showed inflation eased slightly in September, from 3.2% in August to 3.1%. The Bank of England thinks soaring energy costs will drive inflation above 4% this winter.
Big companies such as Unilever, also the home of Ben & Jerry’s ice-cream, are grappling with higher prices of raw materials such as edible oils and packaging, plus higher transport and energy costs, as economies recover from the Covid pandemic. This week Nestlé said its prices had risen by 2.1%.
It is not straightforward for manufacturers to pass on price rises to shoppers. Unilever famously fell out with Tesco in 2016 when it tried to increase the price of Marmite. What was different this time was that the cost of nearly every raw material Unilever purchases is going up, as well as its transport, energy and labour costs, says Pitkethly.
“We have to be fact-based [in our negotiations with the supermarkets],” he said. “We have to show them exactly what the components are within our product and what the inflation has been.”
The company said it had passed on previous falls in commodity costs to customers by cutting its prices. Retailers could see inflation coming through in their own-brand products, Pitkethly added.
Unilever’s third-quarter figures showed underlying sales growth of 2.5%, which was ahead of analysts’ expectations. In the summer the company said the cost pressures meant its profit margins for the year would be now flat rather than slightly higher.
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The FTSE 100 business benefited from rising demand in markets such the US, India, China and Turkey, with higher prices offsetting a 1.5% decline in volumes. Two-thirds of that fall came from South east Asia, where a rise in coronavirus cases forced governments to implement stringent lockdowns.
The fallout from the pandemic meant Unilever faced a “very tricky path ahead”, said Dan Lane, a senior analyst at Freetrade.
“The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.”