Some of the world’s largest consumer goods producers face a hit to sales in the coming months as shoppers switch to cheaper supermarket own-brands in an effort to mitigate the cost-of-living squeeze caused by skyrocketing inflation.
Multinational manufacturers of food and household products, including Unilever and Danone, are preparing to publish the results of the first half in the coming days. Analysts predict that they will see a drop in sales volumes in the coming months, as sales of so-called private label products have started to grow.
Private-label labels gained market share across Europe over the past four weeks, in contrast to “moderate and steady declines in share” before this year, analysts at Jefferies said.
Households are ditching brand-name yogurt, coffee, ice cream and paper products in favor of store-bought versions, while also switching to cheaper versions of salty snacks and frozen meat and vegetables, according to Jefferies. Private labels gained 1.1 percentage points of market share in Europe in the last four weeks, according to the group, compared with 0.38 percentage points in the last year.
In the US, private-label products have gained market share in the four consecutive months through mid-June, according to analysts at Stifel. They said the increase followed two years of “persistent market share losses” for supermarkets’ own brands.
“The growth of private label has been a persistent threat to large food companies and will likely be a secular theme for the next five to 10 years,” said Christopher Growe, an analyst at Stifel.
Berenberg said sales volumes at big consumer goods companies had been resilient in the first quarter of the year and forecast similar relatively positive numbers for the second quarter, but warned of falling sales in the second half.
His predictions include drops of more than 3 percent for Unilever, which makes Magnum ice cream and Dove soap; french dairy group danone; the JDE Peet’s coffee group; the German group Henkel and the American snack manufacturer Mondelez, owner of Cadbury.
The world’s largest food maker, Nestlé, and cosmetics group L’Oréal were less at risk, Berenberg analysts said.
Unilever “has exposure to many of the categories most at risk from private label brands and/or downside trading, including skin cleansers, household cleaners, cooking ingredients, deodorants, detergents, etc. for clothing and ice cream,” said James Targett, an analyst at Berenberg.
Analysts at Jefferies pointed to Danone’s vulnerability to the downside in its yogurt portfolio. A Berenberg survey of UK consumers found that half of respondents expected to switch from their usual brands, while 58 per cent were considering switching to a private label.
Global brand owners have been raising their prices in the face of sharp increases in the costs of basic products, labor and transport. In the first quarter, consumer multinationals said they raised prices by a typical 5 percent year-on-year.
Upcoming results, including Unilever and Mondelez on July 26, Danone and Reckitt Benckiser on July 27, Nestle on July 28 and Procter & Gamble on July 29, will show whether they were able to pass on more cost increases to households without face a drop in sales.
While commodity prices have receded somewhat from this year’s highs, consumer goods groups still have large additional costs to pass on to customers who also face the possibility of a recession.
PepsiCo raised prices 12 percent year on year in the three months to mid-June, while achieving 1 percent volume growth.
“Europe has the highest penetration of private label, so it will clearly be the most vulnerable market for private label downside trade,” Targett said, adding that US consumers had more options for cheaper branded goods alongside with the own brands of supermarkets.
Private label has gained ground in the US in categories such as bleach, vitamins and bottled water, Jefferies said.
In emerging markets, struggling consumers tended to turn from packaged food to home cooking, Targett said, or to regional players less affected by currency fluctuations and supply chain problems, such as Indonesian group Wings, a rival of Unilever in the country.