(Bloomberg Gadfly) -- Just when shoppers are putting more jars of coffee and bottles of shampoo into their baskets, there's another worry for the big consumer goods groups: they don't want to pay more for them.
On Thursday both Nestle SA and Unilever NV announced a return to volume growth in the first quarter of their financial years -- and pricing that was stubbornly weak. That's a concern, given that both have plans to widen their margins in the face of persistent subdued sales growth.
The difficulty is more acute for Unilever. It was the subject of a hostile takeover approach last year, so it can't afford any more pressure on its performance or share price.
The situation reflects the low inflation environment in many developed markets and intense competition among retailers in the U.S. and France. The expansion of the German discounters, Aldi and Lidl, makes it hard for rival supermarkets to raise prices.
That would not be a problem if the commodity environment were to remain benign. Nestle, for one, has been enjoying lower coffee, cocoa and milk costs.
But the outlook for this to persist isn't good. Costs -- particularly for petrochemical products -- look set to pick up.
Unless consumers are prepared to swallow price increases, that would mean a squeeze on profits is on its way. That would be unhelpful to both Unilever and Nestle's goals of expanding their operating margins.
The strain would need to be offset by cost savings, which both companies are already targeting. There's another way that they can tackle the difficult environment: by introducing new products. These, such as Nestle's new Ruby KitKat, a pink chocolate bar, usually command higher prices.
The gloomier margin prospects come at a delicate time for Unilever. The shares have fallen about 15 percent since it reported poor third-quarter sales in October. They should be higher. For one, the company announced a fresh 6 billion euro ($7.4 billion) share buyback on Thursday, on top of 5 billion euros last year. And Chief Executive Officer Paul Polman has laid out a strategy to fend off a tilt from the likes of Kraft Heinz Co.
There's discontent among the shareholder ranks. Some U.K. investors have turned plans to move its corporate headquarters to Rotterdam into a flashpoint for their grievances, as the relocation jeopardizes the company's inclusion in the FTSE 100 index. If unease over the pricing environment gets layered on top of these shareholders' concerns -- alongside disquiet over Polman's pay -- then Unilever could find itself with a broader rebellion on its hands.
The buyback offers a mechanism for those unhappy shareholders to sell. But this might not go far enough to appease affected investors.
In fact, Unilever seems remarkably relaxed about the whole issue. But these things can snowball. It would be wise to tackle this row now, before it gains any more traction.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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