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By Richa Naidu and Chandini Monnappa
(Reuters) -Consumer products giants including Unilever, Coca-Cola and Reckitt have shown they can raise prices to cope with higher costs, but investors told Reuters they want to see more innovation to drive dwindling sales volumes.
Major consumer goods companies - from Nestle to P&G - have managed sharp rises in input costs that began with the COVID-19 pandemic and worsened after Russia's invasion of Ukraine by passing them on to retailers and shoppers.
But the rise in prices over the last two years risks alienating consumers struggling with higher living costs, some of whom have already started buying private label alternatives over more expensive branded products.
Demand for everyday essentials remains resilient but has weakened in some consumer categories. Appliance makers Electrolux and Whirlpool are among companies which have been hit as people choose cheaper products.
Dove soap maker Unilever, Lysol disinfectant owner Reckitt and French dairy group Danone nevertheless hiked prices in the second quarter even as sales volumes suffered.
"We're still seeing these companies maintaining pretty strong pricing," said Richard Saldanha, a portfolio manager at Aviva, which holds shares in all three.
"There has been some moderation, as we expected, but so far companies are showing their resilience."
Soda giants Coca-Cola and PepsiCo both boosted revenue forecasts for the rest of 2023 on resilient demand. Coca-Cola's average selling prices rose 10% for the second quarter, while Pepsi's rose 15%.
Reckitt and Danone shares fell 1% and 1.5% respectively on Wednesday, off earlier lows. The wider Stoxx Europe 600 Consumer Products and Services Index lost 2.3%.
Coca-Cola shares rose 1% in U.S. trading.
Top U.S. and European investors have been flagging their concerns to consumer goods companies that high prices will damage customer loyalty and hit future sales.
Some lawmakers and regulators in the United States and Europe have accused manufacturers and retailers of price gouging and "greedflation", or padding revenues by charging more than they need to recoup high input costs.
In the United States, wholesale costs have been falling more swiftly than consumer prices, meaning companies have room to cut.
"I don’t think companies are going to need to try to maintain price hikes to keep margins attractive," said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors. "They're not going to cut prices but they’re going to level off those price increases."