Dusseldorf The costs of raw materials such as grain, palm oil and paper have been rising rapidly for months as a result of the corona pandemic, as have those for energy and transport. The large consumer goods groups are also hit by the price explosion. The costs of the French dairy group Danone rose by seven percent in the first half of the year.
“The business with products such as soy milk is suffering from logistics problems, the milk segment from bottlenecks in packaging materials,” reported CFO Jürgen Esser on Tuesday. Danone therefore announced price increases.
Other corporations have already done this. Unilever (Domestos, Magnum) increased its prices in the third quarter by 4.7 percent. Nestlé (Maggi, Nescafé, Kitkat) has also started. “In the third quarter we made responsible price adjustments,” said CEO Mark Schneider on Wednesday.
“The inflation will initially cost the consumer goods giants margin,” says industry expert Christophreiber from the OC&C consultancy. Although understanding is growing in the retail sector, manufacturers are far from being able to pass on additional costs in all product categories.
Savings in the group and on the product can quickly achieve effects. In the medium term, the industry trend is likely to gain momentum towards selling less profitable business areas and investing in new, higher-margin, future-oriented fields.
Mirko Warschun, Head of Consumer Goods and Retail Europe at the Kearney consultancy, sees the development in a similar way: “Retailers will rarely accept an increased price level for the whole of next year.” Because it is unclear how long the tense cost situation will last. In any case, it is becoming more and more difficult for manufacturers to enforce higher prices against the powerful trade. Temporary delisting of well-known brands are the order of the day.
Sales growth of the consumer goods companies slowed down
This is why consumer goods manufacturers are feverishly looking for ways to save. According to Warschun, cost reductions along the entire value chain are being pursued at full speed for both branded products and private labels. Even small levers help: “Forego promotional goods and tweak the package size – there are many tricks to prevent consumers from noticing that they are paying more,” explains industry expert driver. “Very few people notice whether there are 90 or 100 grams in the pack.”
The 50 largest consumer goods manufacturers in the world had already been slowed down considerably by the pandemic. Because in times of home office and gastro lockdown, not all daily necessities were in demand. In 2020, sales growth fell on average from 3.9 in the previous year to 1.1 percent, according to a current study by OC&C.
A clear dichotomy could be observed: Half of the corporations had more sales, while the other half lost sales – including industry leader Nestlé. Business fell by 8.9 percent to the equivalent of 93.6 billion dollars in 2020. In the meantime, Nestlé is catching up again.
Procter & Gamble (Pampers, Ariel) and PepsiCo (drinks and chips) followed by some distance in second and third place. They were able to increase their sales by five percent each to a good 70 billion dollars.
Henkel, the only German group among the top 50 in the industry, held 34th place – but with a drop in sales of one percent to 12.8 billion dollars. During the pandemic, the adhesives division in particular suffered from the weakness of key customers from the automotive industry, for example. But business with hairdressers was also bad because salons were closed.
In the lockdown, decorative cosmetics in particular fell sharply across the industry, as did the catering business, especially with beer and spirits. The result: “Profits that had previously been painstakingly achieved by shifting portfolios – away from less high-growth categories – have been consumed in many cases,” saidreiber. The pandemic squeezed the average sales margin of 18.7 from 18.4 percent.
Food manufacturers in particular are now increasingly trying to reallocate their portfolios into higher-growth and higher-yielding sectors. Because many only have single-digit margins. Health is the market of the future for consumer goods companies, although they often earn their money with unhealthy products.
Vitamins instead of ice and meat
In 2020, Nestlé bought the pharmaceutical company Aimmune. This developed the world’s first remedy for peanut allergies. The Swiss want to create a global market leader in the treatment of food allergies.
The acquisition of The Bountiful Company recently brought the Nestlé Health Science division a solid increase in sales of 28.5 percent. The US manufacturer of dietary supplements was acquired in March for $ 5.75 billion. This made Nestlé the market leader in the high-margin segment.
In contrast, Nestlé had outsourced the sausage division with Herta and the ice cream business to joint ventures. Instead, plant-based meat and fish substitutes are being massively expanded. Vegan alternatives to eggs and crabs were also recently introduced. The Swiss have parted with the relatively low-margin water business in China and North America. The criticism of plastic bottles and the intensive use of sources in Vittel, for example, is growing anyway.
PepsiCo swallowed the hip supplier of energy drinks with vitamins.
(Photo: PepsiCo Deutschland GmbH)
“Declining sectors with a bad image in terms of health or sustainability are being rejected,” also observedreiber. At the end of 2020, Unilever also sold the pasta sauce brand Bertolli in Europe. After The Vegetarian Butcher for plant-based meat substitutes, the Dutch bought Onnit, a nutritional supplement company, in 2021. “Onnit perfectly complements our growing portfolio of innovative wellness,” said Peter ter Kulve, who is responsible for homecare and health at Unilever.
In contrast, Unilever had already sold its margarine division (“Rama”) in 2017. Interesting: Sold divisions often develop better on their own than under the corporate umbrella, observedreiber. “Upfield, for example, is growing faster with Rama than with Unilever, and Froneri ice cream is also developing better than in the Nestlé portfolio thanks to the focus.”
For this reason, corporations are now also giving their acquired start-up brands more independence. “You have learned from past mistakes,” says the OC&C consultant. If possible, customers shouldn’t know that there is a group behind the cool brands. The world’s largest beer company, AB Inbev, is already the largest craft beer brewer in the USA.
PepsiCo acquired Rockstar Energy for $ 3.86 billion in 2020. The energy drinks contain vitamins. PepsiCo sees functional beverages as a future market. “In the long term, we expect to get our fair share of this fast-growing, highly profitable category,” said CEO Ramon Laguarta.
Mergers and acquisitions stalled in the pandemic. The transaction volume in the industry shrank to $ 22 billion. After the pandemic, takeovers should pick up again strongly, expects driver. “Smart portfolio management is more important than ever in the consumer goods industry.”
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