- Unilever reported sales growth, excluding spreads, of 2.7% for the first half of 2018, slightly less than estimates of 3%. The maker of Popsicle, Breyers and Hellmann's reported that underlying sales increased nearly 2%, not including the recently divested spreads business.
- In North America, underlying sales, excluding spreads, were up 0.9% amid challenges in ice cream and dressings. Pricing was down 0.2%. According to a transcript of the earnings call, company officials said there was some "dialing back" in pricing following several years where they were strong, as well as increased promotions in dressings, ice cream and deodorant.
- Unilever’s Chief Financial Officer Graeme Pitkethly told The Wall Street Journal that weak inflation, Amazon, discount retailers and declining brand loyalty was particularly noticeable in condiments, where competition between Unilever and Kraft Heinz has led to the lowest average retail price on mayonnaise in North America in seven years. “We’re going toe to toe in a battle to provide consumer value,” he told the paper.
Unilever seems content with the outcome of its report, and industry watchers should expect the manufacturer to continue focusing on innovative foods that appeal to millennials, moving some of those products from the U.S. into Europe and other markets.
More than a year after Unilever fended off a $143 billion takeover offer from Kraft Heinz, the company is focusing on a few key categories — most notably ice cream and condiments. Unilever continues to modernize its food portfolio by focusing on fast-growing segments such as organic, natural, vegan, and health and wellness, the company highlighted in its half-year report. Unilever also intends to continue prioritizing condiments. With its purchase last year of Sir Kensington’s, Unilever gained a brand that almost single-handedly pumped life into that business.
As consumers increasingly demand better-for-you foods, they are reluctant to give up on taste, and are turning to condiments and other flavorings for their favorite foods. But the notoriously competitive food space, already with razor-thin margins, remains competitive in some segments, as Unilever noted with dressings and ice cream.
"We're not surprised to see some dialing back of price in North America after several years of strong pricing and because of the significant changes in the retail landscape there," Pitkethly said in a conference call.
Kraft Heinz is facing the same challenges as Unilever, and neither is going to give up without a fight. Kraft Heinz, the owner of Miracle Whip, stepped up the condiment battle by launching a new brand called Heinz Real Mayo in April that uses simple ingredients and cage-free eggs, and a mayonnaise-ketchup combination called “mayochup.”
It's no secret that traditional CPG companies have felt pressure not only from their peers, but from the growing popularity of discounters, web juggernaut Amazon and private label brands, particularly from the likes of Aldi and Lidl. All these combine to put pricing pressure on food manufacturers, and the impact on Unilever is no exception. Unilever appears to be on the right track with the foods it has targeted for expansion within its portfolio, but at least for now, the market is going to be weighing on its operations in that segment.