Key Points

• Historically consumer staple companies have out-performed the market during times of high inflation.
• Unilever shares are falling despite rising sales across all divisions.
• Slow adoption of e-commerce revenue channels could pose a major threat in the long run.

The Unilever (LSE:ULVR) share price hasn’t been the best performer over the last 12 months, falling by around 13%. But is record-high inflation about to change that? According to the Office for National Statistics, inflation in the United Kingdom has hit a 40 year high, reaching 9%! While that is undoubtedly bad news for consumers, can Unilever shares provide a safe haven for investors throughout 2022 and beyond?

How Consumer Staples Perform in Times of High Inflation

Unilever is one of the biggest consumer staple companies in the UK. While no sector is an absolute inflation-proof, this industry has historically performed well during times of high inflation and even full-blown recessions. Why? It’s simple. People still need food and water regardless of price.

The group tends to offer more premium branded staple products. And these do tend to be replaced with cheaper store-brand alternatives when the economic situation gets dire. However, these brands also generate a lot of loyalty. So while sales volumes may fall, upward adjustments in product prices typically compensate for this decline. With that in mind, how has the Unilever share price performed recently?

Unilever Share Price Performance

Year to date, the Unilever share price is down around 6%. And as previously stated, the last 12 months haven’t been much kinder, with the stock falling just under 13%. Yet despite what the shares are doing, Unilever has actually been delivering admirable performance.

Sales in the first quarter of 2022 grew by 7.3%, boosting the total turnover by 11.8%. As expected, this upward trajectory is primarily being driven through product price increases which consumers are seemingly happy to pay despite spending pressures. In other words, the firm is successfully exercising its pricing power.

Chief Executive Officer Alan Jope commented, “Our priority is sustained, competitive growth, delivered through strong brands and our continued drive for operational excellence across the value chain”. That, to me, certainly sounds encouraging. And given the Unilever share price is currently heading in the wrong direction, a buying opportunity for my portfolio may have emerged. But I have some reservations.

I’m Still Cautious About Unilever Shares

Since the start of the covid pandemic, e-commerce sales for most companies have accelerated. That notwithstanding, Unilever’s online sales represent only 14% of the total turnover. And while this is slowly climbing, the transition is taking longer than I’d expect.

E-commerce stocks are becoming increasingly popular as consumer spending habits shift online. And if the company is unable to adapt to this transition before its competitors, there could be a lot of catch-ups needed in the future.

Apart from that, Unilever products are primarily sold in supermarkets. That makes the company dependent on a middleman. While it’s highly unlikely, if relationships break down between the retail companies and Unilever, it could have dire consequences on its revenue stream.

Can the Unilever Share Price Beat Inflation?

As I have noted above, consumer staples tend to perform better in a high-inflationary environment. Even though the Unilever share price isn’t currently rising, the latest results provide substantial evidence that the group is managing to stay ahead of the consumer spending crunch.

That’s encouraging news for income investors. And over the long term, I believe the Unilever shares can deliver solid returns and substantial dividends. Having said that, I’m not too tempted to add this business to my portfolio today. Why? Because I believe there are more promising buying opportunities elsewhere, even with inflation wreaking havoc.

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.