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Inflation uncovers differences in the consumer goods sector

Pet and baby food and parapharmacy hold up better than food in general and household

The world’s largest consumer goods companies largely weathered the first-quarter inflation storm. Overall, €371bn Procter & Gamble, €346bn Nestle, €52bn Reckitt and €39bn Danone raised prices without causing customers to buy less of their products. Unilever’s $114bn struggles suggest some product lines may be better bets than others.

Some groups seemed to be doing well due to a temporary post-pandemic surge in their lines of business. The end of the closures stimulated sales of bottled water: Danone’s water volumes were up 11%, even though prices were up 5%. P&G and Reckitt’s healthcare sector also enjoyed higher volumes and prices as loosening restrictions led more people to catch colds and buy drugs. This is especially dire for Unilever boss Alan Jope, who in January was willing to swap his slower-growing grocery lines for GlaxoSmithKline’s drugstore business, but was rebuffed.

Other businesses suffered from reliance on commodities whose prices have risen faster, prompting sellers to raise prices further to cushion the blow to margins. Palm oil grew 32% from January to March, bad news for Unilever, which buys a tenth of the world’s supply of the substance, for products like Knorr lozenges. In addition, the group has posted lower volumes than P&G in the home care sector, partly because its input costs are higher, forcing it to raise prices further.

Mark Schneider, however, is probably quite satisfied. The Nestlé CEO’s coffee business benefited from prices that fell by 6%. And he has a bunch of pet care brands: he managed to sell 6% more Purina wet food and the like, even with prices going up 8%. Pet food, like baby food, appears to be relatively insensitive to rising prices—inelastic, in the parlance of economists—because it is bought for dear but very demanding dependents and does not account for a large proportion of family budgets.

Joppa would like the same thing to happen with beauty. Organic volumes from Unilever and P&G divisions fell while prices rose 7% and 4% respectively. In recent years, Unilever has focused on corporate mergers and acquisitions of fancier beauty products, with underlying sales of these lines growing 14% in the quarter, but volumes in the broader unit fell. Although food is seen as relatively inelastic, customers may also be substituting Nestlé, Unilever and Danone branded products for cheaper alternatives.

The inflationary wave has a long journey. But right now, Schneider and his large-market colleagues in the companion animal and healthcare industries are probably less nervous than Jope.

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