Consumer-goods companies such as Unilever, Nestle and P&G have struggled to boost sales in Western Europe's flat market. Supermarkets in the region have been cutting prices, forcing producersto hold back on raising theirs in response to rising input and commodity costs.
Unilever's third quarter results seem to indicate the company is maintaining a holding position in the region, while management figures out what to do.
The results also continue to indicate that future growth in its home markets, at least in the medium term, lies in Eastern and Central European countries.
In Europe underlying sales for the company's food and personal care products fell by two percent in the quarter. Operating margins were 17 per cent, 2.5 percentage points lower than last year. Themargin fall reflected higher advertising and promotional spend and a higher level of net restructuring costs.
For the first nine months of the year operating margin for the whole of Europe was 17.1 per cent, compared with 16.9 per cent in the same period last year.
Company spokesperson Tim Johns told FoodProductionDaily.com that the company does not break down the figures to sub-regional level or to differentiate the results between the food and non-fooddivisions. The non-food divisions includes personal care and home care.
In the rest of Europe, Poland and Russia are the two main growth areas for the company, he said.
"We have our ups and downs in Western Europe," he said. "It's a diverse region. Each country is different. It's all about price, innovation and market and customermanagement."
Earlier this year company chief executive Patrick Cescau said the company's results were hit hard particularly in the UK, France and the Netherlands, mainly in home and personal care products andin its frozen foods division. Ice cream sales have also suffered in the third quarter, but still showed overall growth for the summer season.
The company is still undertaking a strategic review of its frozen food division, including the possibility of a sale, Johns said. He characterised the division as one that had been"extremely" profitable for shareholders in the past but which had been undergoing difficulties over the past two years.
Johns said cost saving programmes and an improved mix more than compensated for higher input costs, allowing the company to keep its prices down and maintain competitive.
"We have managed to absorb costs," he said. "We have not been passing on packaging or raw material costs. We have been able to increase prices in areas where we have marketstrength."
In the food division, sales growth occurred in savoury and dressings products. Unilever is also targeting what it calls the growing market for "vitality" products, ones that appeal tohealth-conscious consumers.
"We are putting more emphasis on vitality products," Johns said. "It's a growing consumer trend."
Such products include "shots", mainly drinkable items in small sizes that give consumers a dose of vitamins or other ingredients that claim to have health benefits. For example thecompany has had success with two dairy shot products, one that claims to help lower cholesterol, the other blood pressure.
Another success story is a shot that delivers 60 per cent of the daily recommended nutrients one normally gets from eating fruit and vegetables. It's a product that appeals to mothers and theirchildren, Johns said.
Recent launches have included Knorr Vie shots, new products in the pro-activ heart health range, soups fortified with vitamins and low fat soups.
In the Americas the company said it had good growth across most categories and countries. Underlying sales increased by five per cent, coming entirely from additional volumes.
"North American foods sales were well up, boosted by growth ahead of the market in ice creams and continued good results from the extesion of the Country Crock and Bertolli brands into newcategories," Unilever stated in a press release. "Foods in Latin America had a slower quarter."
The company also had good sales growth in its vitality products with its Promise brand. This is a spread that claims benefits for the heart. The Ragu organic brand and promotion of the anti-oxidantproperties of Lipton teas were also sales boosters.
The company's AdeS brand continues to build in Latin America. The product touts the nutrition benefits of soy with fruit.
Unilever said its overall results resulted in a fourth successive quarter of improved sales and stable market share.
Underlying sales grew by 3.5 per cent entirely from volume. Sales by volume increased by 3.6 per cent compared to the previous year, the company said. Turnover from continuing operations grew byfour percent, or by two per cent at constant rates.
Operating profit fell by four per cent during the third quarter, or by six per cent at constant rates. Operating margin was 15.6 per cent, 1.4 percentage points below the same period last year.
For the first nine months operating profit fell by six per cent at both current rates and at constant rates. Operating margin was 14.4 per cent, 1.3 percentage points below the same nine monthperiod last year.
The company's net profit from continuing operations fell by 11 per cent for the quarter and by eight per cent for the first nine months.
Before taxes, net profit fell by four per cent for the third quarter, or by five per cent at constant rates. For the first nine months pre tax profit fell by seven per cent as expressed in bothconstant and current rates .
The food sector accounts for 49 per cent of the Anglo-Dutch group's sales, drinks eight per cent and home and personal care for the rest. As the largest consumers products group in the world thecompany had a turnover of €39.1bn in 2004. Europe accounts for 43 per cent of sales and the US 32 per cent. Asia and Africa accounts for 25 per cent of turnover.
The company five year programme to cut about 1,200 under performing brands did not work to generate the six per cent sales growth it had forecast in 2004, when sales grew by 0.9 per cent. Sales ofits SlimFast diet products fell dramatically as consumers turned from meal-replacement products in favour of other weight- loss methods such as the Atkins high-protein diet.