There are different ways consumer-facing firms can react to inflation. They can look to put up prices to protect their margins as their own input costs rise or they can surrender a bit of profitability if they think it will protect the volume of sales.
What’s really notable in today’s update from Reckitt Benckiser is it has increased prices significantly less than Unilever in the first quarter of the year – 5.3% against 8%. This is a long way behind the increase in input costs.
“Yet unlike its counterpart it has seen volumes up slightly rather than falling over the same period,” said AJ Bell’s Russ Mould.
“The two companies sell branded goods in different areas – health, hygiene and nutrition for Reckitt and Unilever much more focused on branded food items. However, both are reliant on the strength of their brands as they look to contend with squeezed household budgets.
“The big risk facing both businesses is shoppers trade down to supermarket own-brand or other cheaper rival products and the next 12 months will be a real test of just how durable Reckitt’s brands are.
“It could also give chief executive Laxman Narasimhan some clues on which of its ranges warrant further investment and which could potentially be ditched as they don’t resonate strongly enough with the public.”