Colgate-Palmolive finance head: ‘We haven’t seen this level of commodity and logistics inflation in a very long time’

At the end of October, Colgate-Palmolive reported a 6.5% increase in net sales worldwide for its third quarter (Q3) of 2021. But whilst sales continued to grow – thanks to its pivot towards design-led innovation​, premiumisation and expansion into fast-growth channels and segments – the personal care major continued to face significant hurdles with cost inflation across commodities and logistics worldwide.

Speaking to attendees at the Morgan Stanley Global Consumer & Retail Conference at the beginning of this month, Stanley Sutula, chief financial officer at Colgate-Palmolive, said the extent of these cost pressures were significant but the company had clear plans to tackle them.

Raw material cost pressure to ‘remain elevated’ in 2022​

“We haven’t seen this level of commodity and logistics inflation in a very long time,”​ Sutula said. “And the raw materials, we think, are going to remain elevated into 2022 and that’s going to be a bit of a headwind.”​

“…Now, we don’t have a magic bar here to look into the future around commodities and logistics, but we see those as a headwind, particularly in our first half and first quarter as we lap those compares. And depending on what happens on the cost inflation here, the second half, I think, [is] still a bit of an open switch,” ​he told investors during the event.

Colgate-Palmolive had already started to address these cost pressures, he said, with pricing plans worldwide across the breadth of its product portfolio – a strategy it had opted for as opposed to hedging.

“…We think price is the ultimate hedge and it is the more proactive approach to it. Hedging – hedging if you will, simply pushes the problem out, it doesn’t solve it. We think price and productivity are the much better way to approach this.”​

And he said Colgate-Palmolive had a “very robust”​ supply chain and procurement organisation which helped in managing price increases and costs across the global business that, in time, would help restore lost margin.

Sutula said the personal care major would also continue to invest in innovations at formulation and ingredient level to counter supply difficulties.

Consumer buying power to help in Western Europe and US​

Asked if retailers and consumers had received the price hikes well and how Colgate-Palmolive’s pricing strategy fitted in alongside the competition in developed Western Europe and US markets, Sutula said: “We’re clearly going to see some impact.” ​

However, he added it was hard to say what that impact might look like longer-term. “We’ve been aggressive on pricing. We’ll see how all the competitors line up and our people.”​

For developed markets like Western Europe and the US, he said the buying power consumers had should help, but it was an aspect Colgate-Palmolive was monitoring very closely. Advertising would play an important role in consumer engagement, he said, but it would be important to maintain a “balance”.​

Cost inflation woes in beauty and personal care​

Supply chain disruptions and cost inflation had been highlighted a significant challenge for all beauty and personal care businesses in 2021, with UK-based suppliers citing Brexit as another hurdle adding to this​.

And as far as big beauty players go, Colgate-Palmolive was not alone in global price hikes, with Unilever and P&G also taking this approach to tackle cost inflation woes in the space.

Unilever CEO Alan Jope said its global business continued to face “strongly elevated levels”​ of cost inflation​ during its Q3 results in October, this year, and noted it was taking “appropriate pricing action and implementing a range of productivity measures to offset increased costs”.​

P&G’s chairman, president and CEO also described a “challenging cost and operating environment”​​ in October, noting the company was also rolling out pricing action in the US market and some other international markets on a case-by-case basis.