Two leading consumer goods companies, Danone and Nestle, announced on Thursday that they plan to reduce the pace of price increases in 2024. This decision comes after two years of continuous hikes that have led consumers to explore more affordable options for essential products such as yogurt and coffee. The announcement is likely to spark a discussion on whether companies have elevated prices to a level that may deter customers, potentially allowing retailer label brands to gain a larger market share.
In recent months, food and beverage producers have been raising prices across the board, blaming higher input costs triggered by the COVID-19 pandemic and exacerbated by Russia’s war in Ukraine. Everything from sunflower oil to freight has become more expensive, putting pressure on global supply chains. The cost of living crisis has also prompted consumers to trade down, with lower-cost private labels eating into the sales of many major brands.
Packaged goods makers, including Unilever (ULVR.L), brewer Heineken (HEIN.N), and Procter & Gamble (PG.N), the maker of Pampers nappies and Pantene shampoo, have seen sales volumes fall this year as customers reacted to steep price increases. However, yogurt and ice cream sales, which typically have low margins, are starting to rebound as pricing pressure eases.
On Thursday, Activia yogurt maker Danone said that its third-quarter like-for-like sales rose 9.5%, beating expectations. The Swiss company, which also owns Evian and Badoit water and carries the Kit Kat chocolate bar on its shelves, said a slowdown helped sales growth in the impact of price increases and lower raw material costs.
But despite the softening price hikes, Danone warned that inflation would rise again in the coming months, hitting its profitability. It will still raise prices “where input cost inflation justifies it,” the company said.
Unilever, which makes Hellman’s mayonnaise and Knorr stock cubes, raised prices by an average of 13.3% in the final three months of last year, its eighth successive quarter of price increases. This weighed on sales, which fell 1.1%, and may open it up to accusations of pushing prices too high.
Several other consumer goods makers, from pet food maker Mars (MDM.N) to cereals producer Kellogg (KRG.N), have said they will raise prices this year to reflect rising raw material and transport costs. This is likely to put more pressure on global consumer confidence and may test central banks’ resolve.
Consumers have already started readjusting their spending habits, with Germany’s purchasing managers index falling to a four-month low in February, just below the 50 mark that separates growth from contraction. Purchasing activity in the eurozone’s biggest economy was weaker than expected, but manufacturers say they are coping with the rise in costs by reducing their inventory and running efficient factories.
The ECB has said it will take time for the effects of price increases to filter through to shoppers. It has lowered its growth forecast for the eurozone to 0.4% this year from 1.5% and has cut interest rates twice this year to encourage spending.
