Cheery news from Unilever today: after a year in which volumes have been down across the board, the consumer goods giant has finally has managed to increase sales again, with underlying growth of 4.1% last quarter. The likes of PG Tips and Magnum ice creams have been flying off the shelves, partly because Unilever’s been spending a lot more money on marketing. With Premier Foods also reporting a sales hike today, it’s tempting to conclude that customers are reverting to tried and trusted brands. But Procter & Gamble may beg to differ, judging by its latest results…
P&G, which makes everything from Pampers nappies to Duracell batteries to Gillette razors, saw profits drop below $2.5bn in the three months to June, with sales down 11% across the board (the grooming division was the worst affected, with sales plummeting 17%). P&G is supposed to be one of those firms whose brands are so well-established that people will keep buying them even in a recession – but on the basis of these figures, it looks like people are trading down to cheaper alternatives. The fact that P&G actually hiked its prices to reflect the higher dollar didn’t help either. It’s now promised to focus on selling online and pushing cheaper products.
But it was a much happier story from Unilever, which has turned things around after a disappointing start to the year. New boss Paul Polman boosted marketing spend quite heavily, and it seems to have had the desired effect: home care products were up a sparkling 9.2%, while personal care products were up 5.4% and ice cream/ drinks up 4.9% (both of which presumably have something to do with the early summer hot weather). So although profits actually slipped 12% during the quarter (thanks to the costs of its current restructuring), investors appear to think Unilever’s sitting pretty for the rest of 2009.
Premier Foods also saw some of its big brands benefit from extra advertising – notably Hovis bread, whose market share has now jumped to a remarkable 26% on the back of its latest ad campaign. Branston Pickle did even better, jumping 41%. CEO Robert Schofield thinks customers are for looking for trusted brands – and it’s also true that advertising goes a lot further at a time when rivals are cutting their spend. Then again, this wasn’t enough to stop Premier slipping to a £30m loss (or to stop its pension deficit ballooning to £300m, which leaves it in a different kind of pickle).
Perhaps the simple conclusion is that customers are sticking with trusted brands, but they’re also more conscious of value – so they won’t be prepared to pay extra for the privilege of shaving with Gillette...
In today's bulletin:
Bank of England shocks by pumping in an extra £50bn
ITV slumps again - and takes £145m hit on Friends Reunited
Unilever's brands are back - but not P&G's
Carpetright turns it around as bed gamble pays off
Decisions: Marcia Kilgore of Soap & Glory and FitFlop