High interest rates affect Unilever’s costs, pricing, and consumer behaviour. Central banks raised interest rates to fight inflation, increasing business borrowing costs (Prosci, 2024; Woods, 2023). This makes financing for Unilever’s new investments or refinanced debt more expensive. Higher interest rates limit Unilever’s capital expenditure plans or reduce the demand for acquisitions and expansion projects. Furthermore, an increase in interest rates reduces consumer spending power. Many households face higher mortgage and credit payments, which reduces their disposable income for everyday Unilever goods. This affects sales volumes of branded products (Sillars, 2023). Key organisational priorities for Unilever are to maintain affordability and value for money. The company achieves this through increased promotions and smaller pack sizes at lower prices. Another critical priority is financial management. Unilever’s finance team manage currency and interest-rate risks. They prioritise paying down variable-rate debt and securing fixed rates to protect the cost base.
Inflation increases Unilever’s input costs and pricing strategy. For example, global inflation, caused by supply chain disruptions and commodity price surges, raised costs for raw materials (oils, dairy, packaging plastics) and manufacturing energy (Sillars, 2023; Woods, 2023). Unilever experienced much higher production costs after the Ukraine war increased energy prices and commodity costs (Sillars, 2023). To manage this, Unilever decided to increase product prices, influencing customer inflation. In 2022-2023, price increases led to sales growth despite lower sales volumes (Sillars, 2023). Regulating pricing is now a key organisational priority. Unilever must protect profit margins from inflationary pressure without losing customers. Therefore, the company prioritises large cost-saving programmes and hedging contracts to control volatile raw material costs (Fitch Ratings, 2023). Unilever must explain price rises to retailers and consumers to maintain trust. Despite easing inflation, Unilever focuses on value creation through innovation and supporting consumers via promotions.
Global supply chain disruption is an external factor impacting Unilever. For example, COVID-19 and the Russia-Ukraine war strained raw materials and logistics networks (Adams, 2022). Unilever faced ingredient shortages, delays, and much higher shipping costs (Adams, 2022; Sillars, 2023). For example, the Ukraine war disrupted sunflower oil supplies and caused commodity price increases. Port congestions and container shortages also increased delivery times. These issues risk product stock-outs or force rapid sourcing changes. Unilever’s organisational priority is to enhance supply chain resilience. The company invests in diversifying its supplier base and building stocks of critical items (Woods, 2023).
References
Prosci (2024). Applying the Kubler-Ross change curve to change management. [online] Prosci.com. Available at: https://www.prosci.com/blog/kubler-ross-model-change-management. Sillars, J. (2023). Cost of living: Consumer goods giant Unilever expects price growth throughout 2023. [online] Sky News. Available at: https://news.sky.com/story/cost-of-living-consumer-goods-giant-unilever-expects-price-growth-throughout-2023-12806567. Woods, S. (2023). CIPD Wellbeing at work 2023 report summary. [online] Altruist Enterprises. Available at: https://altruistuk.com/blog/2023/cipd-wellbeing-at-work-2023-report-summary.
