Investors warn big consumer firms over price hikes as competitors gain

Investors warn big consumer firms over price hikes as competitors gain

By Richa Naidu and Jessica DiNapoli

LONDON/NEW YORK (Reuters) – Consumer goods companies like P&G, Unilever and Nestle should start easing price increases as supply chain costs decline, investors told Reuters, worried that further hikes could hit market share and margin growth.

The makers of everything from soap and ice cream to condoms and cleaning products have raised prices relentlessly, saying they needed to keep up with soaring costs. The Ukraine war made energy and other commodities even more expensive than they were during the pandemic, prompting a global cost-of-living crisis.

But raising prices has in some cases come at the cost of big packaged goods companies ceding market share to cheaper brands and retailers’ private label products, and sales volumes declining. It has also soured relationships with supermarkets, leading to products being taken off shelves.

Euro-zone retail sales have been weak all year, underlining tepid consumer demand. Similarly, U.S. retail sales fell more than expected in March as consumers cut back on purchases of big-ticket items, suggesting that the economy was losing steam at the end of the first quarter.

P&G reports quarterly earnings on Friday, while Nestle, Durex-maker Reckitt and Unilever will do so next week.

“What have (price hikes) done to volumes and thus to margins? What has that done to their market share as competitors may be pricing lower and gaining share?” Tineke Frikkee, a fund manager at Unilever and Reckitt investor Waverton Asset Management, said.

“Price rises should gradually decelerate as input costs do the same,” Frikkee said, adding that companies should instead be investing in product innovation.

Gas prices have fallen from their peak last June, and companies, including Unilever admitted in February that the industry was past “peak inflation, but not yet past peak pricing.”

Andrew Choi, a portfolio manager at San Francisco-based Parnassus Investments said he expects P&G will push for further price hikes on its strongest brands, like Tide laundry detergent, but hold back in more commoditized categories like toilet paper and paper towels.

“Staples companies are getting pressure to ease up on price increases because it hurts foot traffic for retailers, and some retailers have a lot of leverage,” Choi said.

A P&G executive said at an investor conference in February that each new pricing decision becomes more difficult as inflation persists.

“I still expect pricing to be the strong driver to the top line growth,” said Gretchen Novak, senior portfolio manager at Charles Schwab. She noted they would be coming up “against increasing prices from a year ago so I think it will moderate from that point.”

“It will be a delicate balance, with consumer disposable income stretched in many key markets for these firms,” Jack Martin, a fund manager at Unilever investor Oberon Investments, said. “Investors will be focused on forward guidance on pricing particularly during these earnings.”

“As with 2022, it is likely to be a challenging year for much of the sector.”

(Reporting by Richa Naidu in London, Jessica DiNapoli in New York and Ananya Mariam Rajesh in Bengaluru. Editing by Matt Scuffham)