A funny thing happened in the world of consumer goods last quarter: companies were able to raise prices without buyers deserting en masse.

For the last few years, the global fast-moving consumer goods (FMCG) companies have struggled to entice consumers to pay up for flagship brands due to the explosion in competition from own-label products which most consumers seem to find do the job just as well.

In an environment of low growth and low to no wage growth, who pays up for Kellogg’s Corn Flakes when Tesco’s (TSCO) own-brand flakes are half the price? Who uses Reckitt Benckiser’s (RB.) Finish dishwasher tablets when Aldi’s Magnum tablets are half the price?

That has been the story for the last couple of years, but in the first quarter of this year the big brands seem to have fought back. They have raised prices while at the same time increasing volumes, which is almost unheard of.

Kellogg and Reckitt have yet to report but Swiss coffee-to-confectionary giant Nestle delivered like-for-like sales growth of 2.2% in the first quarter with 1.2% of that growth coming from pricing. Similarly, US chocolate- and snack-maker Mondelez grew organic sales by 3.7% in the first quarter with 2% coming from pricing. 

Anglo-Dutch consumer-goods colossus Unilever (ULVR) revealed first quarter organic sales growth of 3.1% with 1.9% due to pricing.

Even Procter & Gamble, the US maker of Gillette razors and household cleaners which has struggled for years with tepid growth, showed its strongest top line growth for eight years last quarter as organic sales rose 5% thanks to a 2% increase in prices.

It’s extremely hard to get the balance right and not every big consumer firm is there yet: Danone and Kimberly-Clark both raised prices and saw volumes fall.

However when companies can find that sweet spot of higher prices and higher volumes it results in a big boost to operating margins which is great news for investors.

Q1 EARNINGS SEASON – HALF-TIME REPORT

In the US there have been some positive surprises in terms of earnings as the first quarter earnings season reaches the halfway stage – notably from Twitter and JP Morgan – as well as sizeable disappointments from Alphabet (Google’s parent) and scotch tape maker 3M.

In Europe data from investment bank Morgan Stanley suggests that as at 29 April, 50% of companies had beat earnings expectations and 22% missed – which if maintained would be the best showing since the first quarter of 2017.

However, in both Europe and the US, the story seems to be one of companies outdoing very gloomy expectations rather than kicking into gear, with Morgan Stanley suggesting European earnings are actually tracking down 5% year-on-year.

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