Do not expect brand manufacturers to agree to price cuts now, Unilever‘s Tom Smidts says. Commodity prices remain volatile, and healthy and sustainable food comes with a price. Moreover, “We want to continue to invest in our brands for innovation and value creation.”
Margins under pressure
How will food prices continue to evolve in the coming months and years? Retailers and politicians are pushing for price reductions, but Smidts thinks that is not very realistic. The Head of Country for Unilever Belgium sees that “Above all, there is a lot of variability: it could be that one ingredient goes down in price, but another goes up again. In the food chain, we have always had to deal with variable input costs. That was abundantly clear during the Covid pandemic and the energy crisis, but in food you also have the impact of drought, temperature fluctuations and other weather phenomena… All of that has an impact on prices.”
Even prices that may now be stabilising, are still significantly higher than a year ago. In Belgium, there is a lasagne of taxes on top of an automatic wage indexation. “Moreover, due to the strong competition on the Belgian market, we are still unable to safeguard our margins today. And these are necessary to continue investing in our brands, and in innovating and running a healthy FMCG & retail business in Belgium.”
Shared responsibility
The message comes from a leading voice: as one of the largest companies in the world and the third largest FMCG player in Belgium, Unilever wants to make sustainable living an everyday thing. “We want to contribute to the transition of the food chain, with as much local relevance as possible. But if, as a brand builder, we want to offer healthy food grown responsibly, that comes with a price. For this to succeed, we need to rethink the ecosystem according to criteria such as healthy and better for the planet. Compare it to the fast-fashion model in fashion, which also needs rethinking.”
In food, Unilever’s focus includes plant-based nutrition, preventing food waste, limiting calories, sugar, salt and saturated fats, and regenerative agriculture. But sustainability is a shared responsibility, Smidts emphasises: “It is our responsibility to offer consumers the opportunity to buy healthy and ecological products, but we cannot force anyone to eat more plant-based food or consume less sugar. We can only guide and direct. Consumers have a responsibility, as do governments and retailers.”
Brand power
When household budgets are under pressure, consumers revert to staples and private label. Can brands win back share from private label as household spending power improves again? That depends on the category and the strength of the brand, Smidts thinks. “A situation like today is very challenging and at the same time, very interesting for a marketer. The brands that persevere and endure are often those that have invested in a consistent way and have high brand power. If you have that brand power, then you will survive.”
This is true, for example, of Axe in Personal Care or Magnum and Ben & Jerry’s in Ice Cream. “Our ice creams are pure indulgence products. When the weather is nice, people become less price sensitive and want to enjoy real Magnum or Ben & Jerry’s.”
