Rising prices support some consumer giants in delivering their most substantial growth in years. But look a little farther ahead; this could be as good as it gets them for a while. Inflation in everything from coffee to packaging is accelerating. But, ultimately, it’s shoppers who will have to pay. And when further price increases are passed along to them, there’s a strong chance they will rein in their buys of big brands and flock to value retailers, such as dollar stores in the US and the German discounters Aldi and Lidl in Europe. So, Inflation Hasn’t Still Hurt Consumer Giants Nestle, Unilever.
Large manufacturers such as Nestle SA, Unilever Plc, Procter & Gamble Company, and Danone SA are in a sweet spot. Nestle, for example, lifted its forecast for underlying sales enlargement this year to 6%-7%, its highest annual expansion rate for a decade, as it relished a resurgence in bottled water sales as some people ate out again and sales of Starbucks coffee capsules as others stayed home. Although these giants have formed to raise prices, it hasn’t affected the number of goods they sell. At Unilever, for instance, sales volumes fell by 1.5% in its third quarter; one percentage point of this was from disruption to its businesses in southeast Asia from COVID-19 outbreaks and restrictions.
The trouble is, the pressures on costs show no signs of abating. Manufacturers are already battling supply chain snarl-ups; getting their products on shelves is hard enough given congested ports and labor shortages. The commodities they need to make their products, from palm oil and milk to aluminum, are also becoming more expensive.
Unilever warned that inflation could be higher next year than in 2021, although Chief Executive Officer Alan Jope said it would peak in the first half of 2022. That could prove optimistic. These costs will have to be passed on to retailers and shoppers. This is already happening somewhat, but there will be more to come. In Europe, price negotiations between manufacturers and grocers are underway and will continue into the first quarter of next year. Consumer groups will try to pass on their extra costs and those they expect in 2022.
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