The GfK consumer confidence index fell nine points from minus 21 to minus 30 in October amid a slowing jobs market and the uncertainty engendered by the Middle East conflict which have dampened the Christmas spending outlook.

This consumer squeeze was in evidence in the quarterly volume declines reported by FTSE 100 consumer goods giants Unilever (ULVR) and Reckitt Benckiser (RKT).

Unilever delivered a mixed third quarter performance (26 October) as new CEO Hein Schumacher announced a new action plan designed to ‘drive growth’ and ‘unlock potential’.

Underlying sales growth in the quarter to 30 September was 5.2%, yet the bulk of the increase came from price rises while volumes slipped by 0.6% as cash-strapped shoppers continue to switch into cheaper unbranded alternatives; ice cream volumes for instance were down 10.1%, reflecting consumer downtrading to value formats, as well as unhelpful weather.

Commenting on the newly unveiled strategy, Berenberg analyst Fulvio Cazzol says: ‘We believe that, in order to improve shareholder returns, management must focus on improving organic sales growth, narrow the gross margin gap to peers and return more cash to shareholders.

‘We were pleased to hear management’s plan to address each of these, including driving higher volume growth, restoring gross margins to the pre-pandemic level and committing to a dividend payout ratio of above 60%, with surplus capital returned via share buybacks.

‘That said, management did not commit to quickly divest or sell brands outside the top 30, which we estimate declined by 0.2% in Q3. However, we believe brand disposals remain an option if the performance of some of these smaller brands does not improve.’

New Reckitt CEO Kris Licht also faces challenges, with third quarter like-for-like sales growth (25 October) disappointing and the health and hygiene branded goods giant’s price increases resulting in a 4.1% group volume decline. This exacerbated fears consumers are switching out of its Cillit Bang cleaning products, Nurofen painkillers and Finish dishwasher tablets and into cheaper own-brand alternatives.

One clear winner from the downtrading trend is private label cleaning products maker McBride (MCB), a trusted supplier to Europe’s leading grocery retailers whose shares have more than doubled year-to-date.

On 19 October, McBride delivered another earnings upgrade as the cost-of-living crisis continues to drive demand for its budget laundry detergents, dishwasher liquids and surface cleaners ‘across all markets’.

Brand owners are responding to the risks from the private label shift. Broker Shore Capital senses that ‘proprietary brand owners in particular are now alive to the material shift in the UK market to private label through the recent cost of living challenges, so are adjusting price and promotion strategies’. 

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