Unilever warns of further price hikes

Unilever, the company behind brands such as Marmite, Dove, and Hellmann’s, has alerted consumers to anticipate additional price increases in the near future. The Anglo-Dutch firm stated that while the rate of price hikes moderated in the second quarter, this was due to temporary factors like World Cup-related discounts and competitive pricing in Brazil. These factors are not expected to provide lasting relief to consumers.

Accelerating Price Growth Expected

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The company informed shareholders on Tuesday that it anticipates an acceleration in underlying price growth during the second half of the year. This is attributed to ongoing increases in commodity prices impacting the market. Unilever's underlying sales saw a rise of 5.8% in the second quarter, contributing to a turnover of €13bn (£11.1bn), an increase of 3.8%. Despite cost of living pressures, consumers have continued to purchase branded products rather than switching to cheaper alternatives, demonstrating strong brand loyalty, according to Victoria Scholar, head of investment at Interactive Investor.

Rising Costs and Market Pressures

Companies like Unilever have been contending with increased expenses for ingredients and services, partly due to higher oil prices since March. Although oil prices have fluctuated, manufacturers have not yet seen a sustained reduction, leading them to seek passing on these higher costs to customers. This situation arises even as UK inflation decreased to 2.6% in June. However, economists have cautioned that the Bank of England might need to revise its economic forecasts and consider interest rate hikes if oil prices climb back above $100 a barrel. Professor Mohamed El-Erian suggested that oil prices remaining above $90 a barrel could exert significant upward pressure on headline inflation, potentially leading to rising food prices due to increased diesel transportation costs and broader long-term effects.

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Investment Strategy and Performance

Unilever indicated that its investment in marketing has yielded positive results, with sales growth exceeding expectations. The chief financial officer, Srinivas Phatak, told investors that the era of underinvestment in the business is over. Diana Radu, an equity analyst at Morningstar, commented that Unilever’s turnaround strategy appears to be effective, with strong volume growth and market share gains suggesting that increased brand investment is driving consumer demand. The company has also raised its outlook for 2026, now expecting underlying sales growth of between 4% and 5% in the second half of the year, primarily driven by pricing strategies, signalling further price increases.

Market Reaction

Unilever's shares experienced a rise of more than 8% on Tuesday. Chris Beckett, a consumer staples analyst at Quilter Cheviot, noted that the markets responded positively to the company's recent results. He highlighted that sales growth comfortably surpassed expectations, with volumes increasing by 5.5%, nearly double the anticipated rate. While earnings were only slightly ahead of forecasts, the strong sales performance was the main focus. Pricing remained relatively subdued during the quarter, but a greater contribution is anticipated in the latter half of the year. The personal care division, particularly beauty and wellbeing brands like Dove, Vaseline, and Sunsilk, was identified as a key driver of this growth.