The dangers of cut-price soap

THE consumer-goods sector has done surprisingly well since the financial crisis. Faced with stagnating markets at home, the makers of washing powder and the like aggressively expanded in emerging markets. They have been rewarded handsomely. Sales at Unilever, for instance, have grown by more than 25% since 2009.

But now Unilever—along with rivals Procter & Gamble (P&G), Henkel and RB—are falling to earth with a bump. On January 27th, P&G announced its sales had fallen by 4% in the quarter ending 31st December, with profits down 31%. Last week, Unilever revealed that its sales last year fell by 2.7%; its worst performance for over a decade. Analysts expect that Henkel and RB will also reveal a similar picture next month.

Although the stronger dollar has not helped their earnings, executives say their sales are being squeezed in both rich and poor countries. In emerging markets—where P&G makes 40% of its sales and Unilever nearly 60%—slowing economic growth has dampened demand for their wares. Consumers in rich countries, meanwhile, are still chary after the last recession.

There are some grounds for optimism,...Continue reading