Unilever has had a disappointing summer after ice-cream sales were hit by competition from a new low-calorie brand, poor weather in Europe and hurricanes in the Americas.
The consumer goods group, the biggest ice-cream maker in the world and the producer of Magnum, Ben & Jerry’s and Wall’s, reported double-digit sales declines in Europe between July and September. The company blamed bad weather against a strong quarter last year.
In the US, the Anglo-Dutch company has been losing ground to Halo Top, a new “healthy ice-cream” brand that bills itself as “low-calorie, high-protein and low-sugar”. Its tubs display the number of calories per pint prominently. In response, Unilever launched seven low-calorie, high-protein ice cream variants under the name Breyers delights in North America in July.
Unilever, whose other brands include Dove and Marmite, said overall underlying sales rose 2.6% in the third quarter, less than the 3.9% growth analysts expected and the 3% rise in the first half of the year. The company’s shares fell more than 5% on Thursday; they had risen by about a third since Kraft’s unsuccessful $143bn (£110bn) takeover bid in February.
Unilever’s finance chief, Graeme Pitkethly, admitted that “competitiveness has dropped off a little”. There are concerns that reduced spending on marketing is hurting sales after Unilever raised its profitability target in July.
Big consumer groups have come under pressure from smaller health food brands, which are popular with millennials. Big brands still dominate, accounting for 80% of food sales, but smaller brands have gained market share in 62% of the top 50 packaged food categories, according to a recent study from Condé Nast and Goldman Sachs. It said advertising and distributing products had become much easier.
Independent health brands such as Kind, Clif, Kashi and Quest energy bars, Bear Naked cereal and snacks, Siggi’s Icelandic-style yogurt and the organic vegetarian food range Amy’s Kitchen have proliferated, with entrepreneurs tapping into changing consumer tastes toward fresh, healthy and local food.
Unilever is trying to fight back with a series of acquisitions. In recent months it has snapped up Pukka Herbs tea in the UK, Mãe Terra organic food in Brazil, the family-owned ice-cream maker Weis in Australia and the fast-growing skincare brand Carver in South Korea.
Charlie Huggins, a fund manager at Hargreaves Lansdown Select, which holds Unilever shares, said: “Life is becoming more difficult for the consumer goods giants, as competition from smaller, nimbler players intensifies and consumer preferences shift towards niche and alternative brands.
“Unilever has responded by cutting costs and raising prices – however, these are short-term fixes. To succeed in the long term, Unilever will need to adapt its business model, becoming more agile and responsive to changing trends.”
Aside from price rises, big food makers have also angered consumers by shrinking products while keeping prices the same, in a move nicknamed shrinkflation.
Russ Mould, an investment director at the stockbroker AJ Bell, said: “Unilever sought to compensate for negligible volume growth by squeezing prices higher.
“However, prices rose at the slowest rate for seven quarters as perhaps even Unilever found that loyal customers can only afford so much and are becoming ever-more price sensitive – a trend to which Reckitt Benckiser hinted when it flagged increased competition, especially in areas such as home care and laundry.”
Reckitt Benckiser, the Slough-based maker of Dettol, Durex and Nurofen, issued its second sales warning of the year this week. Like-for-like revenues will be flat in 2017, the first time this has happened since the company was launched in its current form after a 1999 merger. It is restructuring after the $18bn purchase of Mead Johnson’s baby milk unit.
Nestlé, the world’s biggest packaged food and drinks company, is also under pressure. It said on Thursday that sales growth would weaken to 2.6% this year from a historical low of 3.2% in 2016.
The Swiss company, whose brands include Nescafé, KitKat and Perrier, is stepping up a restructuring programme and measures to increase profitability. It is selling its US confectionery business and last month took a 68% stake in the hipster California-based Blue Bottle coffee chain – one of a series of deals designed to counter a shift in consumer sentiment against big brands.
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