Greedflation in action? Well, Unilever and its ilk certainly make more plausible corporate culprits than the supermarkets.
Last week the Competitions and Markets Authority (CMA) reported on the state of grocery retailing in inflationary times: in short, competition is alive and flourishing, even if the shopkeepers should make their price labels clearer. Average profits in the sector were down 40% in 2022-23 compared with the previous year and average operating margins fell from 3.2% to 1.8%.
Over at Unilever, life is nothing like that. Tuesday’s half-year figures showed underlying operating profits at the Dove, Hellmann’s and Marmite titan up 3% to €5.2bn (£4.5bn). And forget any notion of rubbing along on low single-digit margins: at the same operating level, the figure was a plump 17.1%.
The Unilever numbers, note, are global, and margins in Europe, which has seen more trading down by consumers, will be slightly lower than elsewhere. But the contrast with supermarket-land is still stark. All the 9.1% growth in sales at Unilever was accounted for by higher prices. The actual volume of stuff sold fell 0.2% in the period.
It is at this point that Unilever types make a couple of points. The first is undoubtedly correct: supermarkets and branded consumer goods companies are different types of business with different financial profiles. Shopkeepers are a form of distributor, while Nestlé, Procter & Gamble, PepsiCo et al run factories, develop new product lines and employ marketing folk with big budgets who drone on about “brand equity”.
Graeme Pitkethly, Unilever’s chief financial officer, is overdoing it when he says “it’s like comparing a chicken and a rhinoceros”. But a structural gulf in margins has always existed. Even in the easy years for the big UK grocers 20 years ago (before Aldi and Lidl got into their stride), the market leader Tesco struggled to sustain a 5% margin, whereas 20% has long been an informal upper target for the multinational suppliers.
Yet it is hard to swallow Unilever’s other argument that it is “sharing the pain” with consumers in a “balanced” and “responsible” way. The gist of that defence is that the company hasn’t passed on all the increases in its input costs (just most of them) and that margins, looked at in the round since the start of 2022, are still down by more than two percentage points.
That all feels disingenuous. What Unilever et al are really doing is managing the fine trade-off between price increases and the volume of products to ensure a 17% margin doesn’t become 15%. “Sharing the pain” is gloss. This is a straightforward commercial exercise in passing on, or “recovering” in the jargon, as much of the input inflation as consumers will bear. The shareholders would expect nothing else.
In some cases, the task will be relatively easy (Ben & Jerry’s and Magnum fans have apparently stayed loyal) and in other cases less so (Carte D’Or and Wall’s tubs are more vulnerable to supermarket own brands). But a 17.1% global margin, which was better than the City had expected and up a smidgeon on a year ago, suggests Unilever’s pricing power is still strong.
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Unfairly strong? Or so strong that it equates to profiteering? That’s harder to say because nobody is obliged to consume Ben & Jerry’s or use Domestos bleach instead of a cheaper own-label alternative. But the CMA, which is now turning its attention to other parts of the grocery supply chain, is finally looking in the right place. Look under the bonnet of the people making 17% – and more in the case of some of Unilever’s rivals – rather than the sector making 1.8%. The CMA may find nothing troubling. But it should have started there.
