Consumer groups face sales hit as cash-strapped shoppers trade down

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 soaring inflation.

Multinational makers of food and household products, including Unilever and Danone, are preparing to publish first-half results in the coming days. Analysts predict they will log falling sales volumes in the coming months, as sales of so-called private label goods have begun to grow.

Own-brand labels gained in market share across Europe over the past four weeks, in contrast with “consistent modest share declines” before this year, analysts at Jefferies said.

Households are abandoning branded yoghurt, coffee, ice cream and paper products in favour of stores’ own versions, while also trading down 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 past four weeks, according to the group, compared with 0.38 percentage points in the past year.

In the US, private label products have gained market share in the four consecutive months to mid-June, according to analysts at Stifel. They said the rise followed two years of “persistent market share losses” for supermarket own-brands.

“Private label growth has been a persistent threat to large food companies and will likely represent a secular theme over the next five to 10 years,” said Christopher Growe, analyst at Stifel.

Berenberg said sales volumes at large consumer goods companies had been resilient in the first quarter of the year and forecast similar relatively positive figures for the second quarter, but warned of sales declines in the second half.

Their predictions include falls of more than 3 per cent for Unilever, which makes Magnum ice creams and Dove soap; French dairy group Danone; coffee group JDE Peet’s; German group Henkel and US snacks maker Mondelez, owner of Cadbury.

The world’s largest foodmaker Nestlé and cosmetics group L’Oréal were less at risk, said the Berenberg analysts.

Unilever “has exposure to many of the categories most at risk from private labels and/or down-trading, including skin cleaners, household cleaners, cooking ingredients, deodorants, laundry detergent and ice cream,” said Berenberg analyst James Targett.

Jefferies analysts noted Danone’s vulnerability to down-trading in its yoghurt portfolio. A Berenberg survey of UK consumers found half of respondents expected to switch from their usual brands, while 58 per cent were considering switching to private label.

Owners of global brands have been increasing their prices in the face of steep cost rises for commodities, labour and transport. In the first quarter, consumer multinationals said they raised prices by a typical 5 per cent year-on-year.

Upcoming results — including Unilever and Mondelez on July 26, Danone and Reckitt Benckiser on July 27, Nestlé on July 28 and Procter & Gamble on July 29 — will show whether they were able to pass on further cost increases to households without facing a drop in sales.

While commodity prices have retreated somewhat from this year’s highs, consumer goods groups still have large extra costs to pass on to customers who are also facing the possibility of a recession.

PepsiCo pushed up prices by 12 per cent year-on-year in the three months to mid-June, while still achieving volume growth of 1 per cent.

“Europe has the highest penetration of private label, so it will clearly be the most vulnerable market for private-label down-trading,” said Targett, adding that US consumers had more options for cheaper branded goods along with supermarket own-brands.

Private label has been gaining in the US in categories such as bleach, vitamins and bottled water, Jefferies said.

In emerging markets, hard-pressed consumers tended to switch from packaged food to home cooking, Targett said, or to regional players less buffeted by foreign exchange swings and supply chain problems, such as Indonesian group Wings, a rival to Unilever in the country.