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Consumer goods firms are facing sky-rocketing input costs for raw materials, energy and transportation, and while many consumers so far seem to accept the ensuing price increases, delays in implementing them are squeezing companies’ margins.

Peers Reckitt Benckiser, Unilever and Danone raised their full-year revenue forecasts this week after steep price hikes helped them beat second-quarter sales expectations.

At Nestle, the world’s biggest food group, net profit hit by one-off items including higher impairments and taxes fell 11.7% to 5.2 billion Swiss francs, the maker of KitKat chocolate bars and Maggi soups said in a statement, missing an average 5.815 billion Swiss francs in a company-compiled consensus.

The underlying trading operating profit margin declined to 16.9% in the first half of 2022, from 17.4% in the year-ago period, slightly higher than the expected 16.7%.

In the second quarter, underlying or ‘organic’ sales growth accelerated to 8.7%, from 7.6% in the first three months of the year, thanks notably to price increases of 7.7%, Nestle said.

First-half organic growth reached 8.1%, beating a forecast for 7.4% in the poll.

The company based in Vevey on Lake Geneva said it now expects organic sales growth of 7-8%, versus around 5% previously, and an underlying trading operating profit margin of around 17.0%, versus previous guidance for a margin between 17.0% and 17.5% this year.

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RAC fuel spokesman Simon Williams said: “Inexplicably, fuel prices rose yet again yesterday with petrol hitting a new all-time high of 191.24p per litre and diesel just short of another record at 199.01p.

“We can see absolutely no rhyme or reason why average forecourt prices are still going up, given that the wholesale price of both fuels has been falling for weeks.

“Drivers up and down the country have a right to know why they’re having to pay what they are for fuel when the costs to retailers right now are so much less they were a few weeks ago. Next Thursday’s announcement by the CMA following its review will no doubt be watched very closely.

 “Suggestions that the Government might be about to announce more support for hard-pressed drivers are welcome. A cut to the price of forecourt fuel really can’t come soon enough.

“If it’s a further fuel duty cut that the Chancellor decides on, it’s absolutely vital that this is passed on in full immediately by retailers to give drivers some respite from these historic high prices. It’s also vital the Government monitors the wholesale market and closely scrutinises retailer margins.”

On Monday the RAC had expressed hopes that pump prices had peaked for the time being as petrol crept only very slightly higher than the day before at a new record average price of 191.1p.

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She says labour is a challenge across sectors and right across Europe and has been the subject of government and Retail Forum meetings.

“Right around the country, it’s very challenging filling rosters. Owners are probably working more in the stores themselves and it’s just a very challenging time at the moment,” she says.

“It’s one of the big issues on everybody’s mind. The owners themselves are extremely busy because not only are they working and running the stores during the day but they are then doing all the administration and the HR and everything else, so it’s long days and stressful work.”

Cost of doing business

Another key issue is the cost of doing business, including food price inflation and other rising costs across the board, she says.

“There’s extra stress at the moment for our members that only have one store because there’s nowhere to spread the cost across. They still have all the issues to do with regulation and all of the things that they have to comply with. Having one store with very tight margins in a very competitive marketplace is extremely challenging and then there’s the added stress of lack of staff or inability to fill rosters.

“Then the third area is there are a number of issues that are alive at the moment, things like government plans around wage costs, government plans around sick pay and government plans around pensions. That’s causing a bit of stress around adding to the cost of employment at a time when what people want is more money in their pocket. It’s very challenging for business owners because trying to ensure the shop is run efficiently is the big issue for them.”

Supertax proposal

RGDATA has just written to Minister of Finance Paschal Donohue calling for a supertax on insurers who fail to pay savings on reduced personal injury costs on to their customers.

“We’re now preparing plans with the Alliance for Insurance Reform for a national insurance day to highlight that although there have been a large number of reforms and some of them are starting to show impact in terms of the reform of the personal injuries pay-outs, the problem is we’re not seeing the impact on premiums,” Ms Buckley said.

“For our members, their insurance renewal is coming up and on average we’re still seeing increases in employer liability going up around 16%, so that’s really disappointing.

“We’ve written again to the finance minister Paschal Donohue. He has started talking about a super tax on energy companies’ profits to try and give money back to consumers for rising energy costs.

Soaring premiums

“We’ve asked him before, and we’re asking him again to consider a super tax on insurance company profits because if they don’t bring down the price of premiums… in terms of the system for reviewing personal injuries, things would have been changed and have brought the cost down in those areas, but we’re not seeing them being passed on to the actual policy holders.

“So if they’re going to go into the insurance company profits, the minister needs to come up with some kind of super tax on their profits and make sure that the policyholders see an impact from all of these changes.

“If they want to change the practices of these companies, they may have to make a dramatic move and we think that move could be around a super tax on their profits.”

Working groups

RGDATA is currently participating in a series of Retail Forum working groups including those looking at the Town Centre First Policy and transition to a green economy.

“In terms of the transition to the green economy, we will be promoting policies that are bringing consumers along the journey and ensuring that they use the carrot rather than the stick approach to try and get people to be more active in terms of reuse, recycling and using less single use plastic,” she said.

“Our members want to play their part but it’s extremely difficult in the current environment to start stripping out things like plastic packaging when your customers want it. I think the pandemic has changed consumer expectation of how they will purchase things like fresh confectionery products or breads or vegetables or fruit.

“We’re finding that people are opting for the packaging, not the single loose product, so work has to be done with consumers to get them on board about the reasons why we all need to do this and also about the health implications to do with this so that they feel comfortable moving and changing their practices and their habits.

“We think there’s a fair bit of work to be done to bring consumers along with the whole circular economy and reducing the carbon impact and reducing our use of single use plastics, rather than just always putting on levies. We know that that changes behaviour but at the same time we need to do something that encourages people to try and change their behaviour and also that they understand why they’re being asked to change their behaviour.”

Deposit return scheme

A lot of work is going on behind the scenes on the deposit return scheme, she said.

“A board has been established, a new company is being put in place and now we’re working through who the service provider will be and the service level agreement, and there’s an awful lot of detail that will have to be worked out over the next 12 months.

“But the first instance, there’s a licence application that has to be made so that’s where the focus is on now.

From our perspective, our two key pillars are that it is a cost neutral exercise for our members and that every member of ours, big, small medium sized, gets an opportunity to participate, that there’s an option for them in terms of reverse spending machines and the system will be run so that it’s fit for purpose for big, small and medium sized shops.

“Town Centre First of course is a big focus for us – we’ve been participating in the working group on town centres, and we have been making representations in terms of the actions promised in the Town Centre First policy that was published and trying to ensure that those actions are progressed and implemented.”

To read the full article in the March/April edition of IFCR, click HERE.

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