The impact of Middle East conflicts is extending from oil prices to supermarket shelves. On April 30, global consumer goods giant Unilever announced that due to the Iran war driving up commodity prices and supply chain costs, the company will increase prices on some products. The price hikes will focus on home and hygiene categories and are primarily scheduled to take effect in the second half of the year.
Unilever's Chief Financial Officer, Srinivas Phatak, stated during an analyst call that the company will implement "multiple price increases, but each of a smaller magnitude." He added to reporters that if inflationary pressures persist, the increases could reach the higher end of a 2% to 3% range.
Simultaneously, Unilever reported a 3.8% growth in underlying sales for the first quarter, exceeding analyst expectations of 3.6%. The company maintained its full-year sales and profit margin targets.
The pricing strategy involves specific focus on particular markets and product categories. The price increases will be concentrated in specific markets and categories, especially home and hygiene products with greater exposure to crude oil prices, and will be implemented mainly in the second half of the year. Geographically, the most significant increases are expected in Asia, Africa, and Latin America—markets facing the strongest inflationary pressures. The impact on the North American market is expected to be relatively limited due to Unilever's smaller home and hygiene business presence there.
Phatak emphasized that the "price increases will be targeted and rolled out in a competitive manner." This statement is informed by practical considerations. Following significant price hikes during the COVID-19 pandemic and the Russia-Ukraine conflict, where Unilever passed cost pressures onto consumers, the company saw many shoppers switch to cheaper private-label brands. It subsequently spent years slowing price increases and boosting marketing investment to gradually win back consumers.
Chris Beckett, a consumer staples analyst at Unilever investor Quilter Cheviot, noted, "They are constrained in many markets, particularly the developed markets of Europe. There is a limit to what they can do—raising prices is not easy."
Cost pressures have exceeded initial forecasts. Unilever anticipates total cost inflation for the full year to reach between €750 million and €900 million (approximately $876 million to $1.05 billion), which includes higher logistics and factory operating costs. Phatak stated, "This will be about €350 million to €500 million higher than our expectations at the start of the year."
This gap is attributed to the ongoing impact of the Iran war on oil supply chains. Home and hygiene products like laundry detergent and cleaning supplies heavily use petrochemical raw materials derived from crude oil. Disruptions to shipping routes through the Strait of Hormuz have directly increased the cost of these materials. Phatak explained that the "Middle East crisis has created uncertainty, making the outlook more challenging. For us, inflation is not a single number. While everyone watches crude oil, it's actually more complex because there are many derivatives linked to it." According to a Fortune report, Unilever's cost projections are based on an assumption of crude oil prices remaining around €100 (approximately $115) per barrel.
Despite rising cost pressures, Unilever's first-quarter performance surpassed expectations. The company's 3.8% underlying sales growth was primarily driven by volume—with strong performance especially in Beauty & Wellbeing and Home Care—rather than relying on price increases. This marks a return to a volume-led growth model after years of price-driven growth. CEO Fernando Fernandez said in a statement, "We have had a positive start to the year with volume-led growth, active core brands, and positive growth across all business groups." Core brands include Dove, Axe, and Dermalogica.
However, as price increase plans are implemented in the second half of the year, whether sales volumes can remain resilient will be a key focus for the market. A Reuters review of over 200 corporate statements indicates that since the outbreak of the Iran war, 36 companies have signaled price increases. Unilever's competitors, including Nestlé and Procter & Gamble, have also warned of rising costs, while Reckitt has highlighted margin pressures.
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