Unilever announced on Thursday it will implement price increases to mitigate the impact of higher-than-anticipated costs, largely driven by the Iran War, even as the consumer goods giant reported first-quarter underlying sales growth that surpassed analysts' expectations. The London-listed company, known for brands such as Dove soap and Axe deodorant, maintained its 2026 sales and profit margin forecasts, signaling confidence in its ability to navigate current economic uncertainties.
Cost Pressures from Global Conflicts
The global consumer goods sector is grappling with one of the most challenging cost environments in recent memory. Surging commodity prices and persistent supply chain disruptions, exacerbated by the U.S.-Israeli war with Iran, are making everyday products more expensive for households worldwide. Unilever anticipates full-year total cost inflation to range from $876 million to $1.05 billion, driven by rising logistics and factory expenses.
"That will be about 350 to 500 million euros higher than our prior expectations when we began the year," finance chief Srinivas Phatak stated. He indicated that while "there will be frequent price increases but in small doses," the company could raise prices by 2%-3% at the higher end if inflationary pressures persist. The last time Unilever implemented a 3% price hike was in the final quarter of 2024, as it was still recovering from the economic fallout of the COVID-19 pandemic and Russia's invasion of Ukraine.
Targeted Price Adjustments
These upcoming increases will be targeted at specific markets and product categories, particularly crude-oil-exposed home care items, and are primarily expected to take effect in the second half of the year. Phatak noted that regions such as Asia, Africa, and Latin America, where inflation has been most pronounced, will experience the highest price adjustments, rather than North America, where Unilever's home care business is smaller. He assured that "It will be calibrated and it will be done in a competitive manner."
Chris Beckett, a consumer staples analyst at Unilever investor Quilter Cheviot, emphasized the delicate balance Unilever must strike. "They're constrained in a number of markets, particularly developed markets in Europe," Beckett said, adding, "There are limits to what they can do - it's not easy to take pricing."
Industry-Wide Impact
A Reuters review of over 200 company statements since the war's onset reveals that 36 companies have already signaled price hikes due to the conflict. Unilever's rivals, including Nestle and Procter & Gamble, have also warned of increased costs from the Iran War, with Reckitt flagging margin pressure, though French competitor L'Oreal managed to exceed expectations by selling more premium products.
Companies are also contending with the potential for softening consumer demand, as household budgets could face further strain if oil prices remain elevated and the conflict continues. Following the pandemic and Russia's invasion of Ukraine, Unilever's sharp price increases led many consumers to switch to cheaper private-label brands. The company has only recently begun to win back shoppers by moderating the pace of price hikes and investing in marketing and innovation.
Volume-Led Growth Strategy
Unilever's first-quarter sales growth was notably driven by stronger-than-expected volumes, particularly within its beauty and home divisions, even as pricing was softer than forecast. This marks a strategic shift back to volume-driven growth after years of relying on price increases. "We have started the year well with volume-led growth driven by our Power Brands and a positive performance across all Business Groups," CEO Fernando Fernandez said, referring to key brands like Dove, Axe, and Dermalogica.
Fernandez, who was promoted to CEO last year from finance chief, is spearheading a multi-year restructuring effort. He is reshaping Unilever to focus on personal care and beauty, having spun off its ice cream business last year and announcing last month plans to divest its food division and merge it with spice maker McCormick. Unilever reported underlying sales growth of 3.8% for the three months ending in March, surpassing the 3.6% growth anticipated by analysts in a company-compiled consensus.
