Both Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) today and Unilever PLC (LSE:ULVR) yesterday reported a slump in sales volumes as consumers seemingly reached the limit of how much they are willing to pay for big brands.
These sector-mates, which both have appointed new chief executives this year, have been among the companies accused of profiteering or 'greedflation', contributing to the cost of living crisis.
Reckitt, where prices such as its Finish dishwasher rinse, Dettol antibacterial wipes and Calgon washing machine tablets have reportedly risen over 30% over the past year, said it was cautious about hiking prices any higher.
Inflation has been good to these companies, no matter how much they may protest about rising costs, so this is likely to be a big part of why the shares slid 4% in morning trading, while those of its Anglo-Dutch rival jumped higher on the back of numbers showing prices moderating less slowly.
Volumes down as price rise
Sales volumes at Reckitt fell 4.4% in the first half of the year, while at fellow branded consumer goods giant Unilever they were down 0.2%.
Reckitt had seen 10.4% price/mix growth in the first half, of which the second quarter saw volume down 4.3% and price/mix up 8.4%.
Unilever reported 9.4% price growth for the first half, including 8.2% in the second quarter, down from 13.3% in the fourth quarter of last year.
With Reckitt CEO designate Kris Licht seemingly keeping largely schtum until he fully takes over, interim chief executive Nicandro Durante told reporters that for European markets pricing this year is “extremely cautious” as “consumers are under stress”.
The European region saw the strongest increase in price/mix in the first half as a whole, at 12.6%, though it eased to 10.5% in the second quarter, when it was 7.8% in North America and 6.8% in developed markets.
Durante said Reckitt had not made significant price increases in the first half of the year, with higher prices resulting from “carry over” from the previous year or that they were “innovation-led”.
For the second half, input cost inflation is seen as easing too.
Unilever, price leverer
Unilever’s outlook yesterday was that underlying price growth will continue to moderate through the year, even though prices seemed to be on the rise in Europe.
For the Ben & Jerry's owner, Europe was the region with the highest underlying price growth and it was not falling in the second quarter.
The first half saw 14.2% growth, including a rise to 15.5% in Q2, while easing in the Americas and Asia Pacific.
Price growth was said to be more elevated in Europe given higher exposure there of its nutrition and ice cream categories where there remained "significant cost inflation".
Pressure on the pair’s pricing has not affected guidance for full-year growth, with Reckitt expecting 3-5% and Unilever still guiding to at least 5%.
Unilever is playing catch-up though, as its profit margin is much lower than its rival.
Reckitt boasted an adjusted operating margin of 23.8%, which was down from 25.6% a year earlier, while Unilever's inched up to 17.1% from 17.0%.
Both companies said input costs were still rising, with Reckitt pointing to high single digit inflation and Unilever said net material inflation is likely to fall to €2bn this year, with only €0.4bn in the second half, from €4.3bn in 2022.
Different strokes
While Reckitt has been generating productivity efficiencies and enjoyed foreign exchange benefits, it has been dealing with headwinds from higher fixed costs and employee compensation driven by the inflationary backdrop.
It is also facing tough comparables versus last year when it benefitted from a rival’s baby formula shortage in the US.
As Durante passes over the tiller to Licht, analyst Victoria Scholar at Interactive Investor said the company needed to tread a fine line on pricing.
"Reckitt has been among the businesses accused of ‘profiteering’ from the inflationary environment this year by hiking prices to preserve profit margins at the expense of its customers," she said.
"As a vendor of essential items such as cleaning products, arguably it has the pricing power to charge customers more without denting demand."
The fall in volumes shows that some customers have traded down to cheaper supermarket unbranded alternatives amid the cost-of-living crisis.
"Reckitt needs to strike the balance between generating earnings and dividends to appeal to shareholders, while simultaneously charging fair prices to customers and avoiding criticisms of ‘greedflation’ if profits are too high," she said.
Despite the differences under the bonnet, both companies' shares are almost precisely where they were at the start of the year, with Unilver's rising to recover lost ground, and Reckitt giving up gains built up in April and early May.