Unilever raises ad spend by US$200m, hikes prices by 11.2%

Unilever increased its brand and marketing investment during the first half of the year. CFO Graeme Pitkethly said during the earnings call that its brand and marketing investment in constant currencies was about US$3.7 billion, up by approximately US$202 million versus the previous year.

"We're continuing to invest behind our brands. We think it's extremely important to do that in driving growth and keeping that brand equity high. The reason for being early and pricing proactively is to protect the shape of our P&L in order that we can invest back in our brands," he explained.

The FMCG giant plans to invest competitively in marketing, R&D, and capital expenditure in the second half of the year. Its full year underlying operating margin expectation remains at 16%, which is within Unilever's guided range of 16% to 17%.

"As far as the second half is concerned, we'll continue to invest more in brand and marketing investment. In terms of the basis points, it's hard to say because a lot depends on the pricing and what happens with the top line in terms of what the actual basis point movement will be. But you can expect that we'll continue to invest more behind our brands," Pitkethly said.

Additionally, Unilever also raised its prices by 11.2% in recent months and plans to do so again for the remainder of the year. In the majority of markets in which Unilever operates, market growth was driven by price which had an impact on market volumes. The price increase allowed the FMCG giant to report sales growth of 8.1% in the first half of 2022, compensating for the decreasing volume of goods sold.

It expects net material inflation for 2022 to remain high at around US$4.66 billion with its forecast for the second half largely unchanged at about US$2.63 billion. The medium-term macroeconomic and cost inflation outlooks are uncertain and volatile, but Unilever said that delivering growth remains its first priority. "Against this backdrop, we continue to expect to improve margin in 2023 and 2024, through pricing, mix and savings," the brand said.

Unilever's Home Care segment was particularly exposed to rising input costs and took the highest pricing action, leading to underlying sales growth of 10.7%. Beauty & Personal Care grew 7.5%, driven by price and continued strong growth in Prestige Beauty and Health & Wellbeing, which is Unilever’s vitamins, minerals and supplements business. Foods & Refreshment grew 7.3% with slightly negative volume at (0.9)%, although volumes were flat excluding ekaterra. Ice cream out-of-home and Unilever Food Solutions showed strong double-digit growth in the first half, compensating for lower growth of in-home ice cream.

Unilever is not the only company to have raised its prices this year. Coca-Cola also raised product prices by approximately 5% while PepsiCo also predicts inflation will remain for the rest of 2022. It also remains open to further increasing prices after witnessing limited pushback from consumers thus far.

Overall, its business in Southeast Asia grew 8% in the quarter with only a small decline in volume. Unilever witnessed strong economy and consumer confidence in Vietnam, and it is seeing a continued shift to multichannel shopping and premium propositions such as Pond's Age Miracle.

Like Vietnam, Indonesia's consumer confidence is also growing as people get back to more normal lifestyles. With the high inflation levels, some consumers are trading down to cheaper brands in Home Care, much less so in Beauty & Personal Care or in Foods & Refreshment. Hence, Unilever is taking action to ensure that its brands cover all relevant price points.

From a channel perspective, the mini market proximity store channel continues to grow, as does eCommerce in the major cities, and the company is now seeing smaller independent outlets returning to growth.

"We saw 10% growth in Indonesia in the quarter. It was led by price with volumes down. Indonesia is a market where we continue to work to restore competitiveness," Jope added. According to him, the company is seeing benefits from increased investment in, for example, the configuration and reach of its distribution network from higher levels of marketing support and from some important changes to its pack price architecture, but there is still more to do on competitiveness in Indonesia.

In Thailand, the market remains overall flat with positive price being balanced by negative volumes. The removal of government support packages put in place during the pandemic is having some impact on consumption, and associated with this, Unilever sees a shift towards modern trade from smaller traditional outlets. "The country desperately needs the economic boost of a return to full tourism levels," CEO Alan Jope said.

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