Megabrands like Coca-Cola are fighting back - so what's going on?

It is increasingly fashionable, in financial markets, to talk about fast-moving consumer goods (FMCG) as being under pressure.

Millennial consumers in particular, it is said, prefer local or artisanal food and drink products, with an identifiable provenance, to the well-established global megabrands bought by their parents and grandparents.

It's a challenge with which, for example, the global brewers have been grappling for some time as younger drinkers increasingly experiment with craft beer.

Another challenge has been the rise of new brands that sell direct to their consumers without the need to go via a middleman in the form of a supermarket.

And, at the same time, the established megabrands also face growing competition from cut-price supermarket own label products.

A good example here would be a company like Kellogg's .

Pressure not to raise prices has also been exerted by the supermarket multiples, particularly in the United States, in response to the fiercer competition they face from the likes of Amazon.

Concerns about the resilience of some of these companies intensified when, in February, Kraft Heinz, one of the biggest beasts in the FMCG jungle, issued a profits warning that shocked Wall Street and wrote down by $15bn the value at which its brands were valued in its books.

However, trading updates during the last week suggest the pessimism may have been overdone, suggesting the owners of the global megabrands are coping with the new circumstances better than expected.

On Thursday last week, Unilever, the Anglo-Dutch owner of brands including Dove soap, Magnum ice cream and PG Tips tea, reported that its sales during the first three months of the year were up 3.1% on the same period last year on an underlying basis.

The same day saw Nestle, the world's biggest food company and the owner of brands such as Perrier water and KitKat chocolate bars, report sales growth of 3.4% for the same period.

On Monday, Kimberly-Clark, the US owner of brands including Kleenex tissues and Huggies nappies, reported 3% underlying sales growth for the period, beating Wall Street's expectations.

Two more global FMCG players continued the trend today.

Procter and Gamble, the company behind brands including Gillette razors, Head & Shoulders shampoo and Ariel washing powder, reported underlying sales growth of 5% for the first three months of 2019.

It was the strongest quarterly sales growth reported by the company for eight years.

And Coca-Cola reported a 6% rise in underlying sales for the quarter.

So what's going on?

There are a few common themes.

In the case of both Nestle and Unilever, for example, sales growth was partly driven by a recovery in key emerging markets, like Brazil, whose economies had previously been struggling.

They have also shifted resources and marketing budgets into products and ranges that reflect a growing trend for healthier eating.

Nestle, for instance, is seeking to launch a meat-free range of plant-based burgers targeted at vegan customers.

Unilever has also been making a greater push towards vegetarian products.

Yet another factor also appears to be at play - persuading consumers to accept higher prices.

It was certainly a factor behind Kimberly-Clark's better-than-expected sales performance this quarter and Procter and Gamble said today that, of the 5% growth it reported for the quarter, 2% had come from raising prices.

Coca-Cola, meanwhile, also managed to raise prices in the crucial US market, which accounts for a third of group sales, while it also benefited from solid growth in products like sports drinks and bottled water.

Another big FMCG player, the toothpaste-to-soap combine Colgate-Palmolive, is yet to update investors on its most recent sales but it too has also been raising prices lately.

This represents quite a turnaround in the fortunes of the big FMCG players.

For some years now, as wage growth has been becalmed in mature economies like the US and Europe, it has been difficult for them to persuade customers to pay more for their favourite brands.

That had meant either accepting an erosion of their profit margins, at a time when commodity price inflation was pushing up their input costs, or protecting those margins by slashing away at other costs.

That latter course of action has proved to be risky for the likes of Kraft Heinz.

Many in the FMCG industry thought it cut back on its advertising and marketing expenditure too aggressively at a time when, as the owner of food brands perceived by many younger consumers to be overly processed and stuffed with artificial preservatives, it ought to have been spending more.

Nor has Kraft Heinz invested in innovation or in "brand extensions" in the same way that Procter and Gamble, Unilever, Nestle and Coca-Cola appear to have.

James Quincey, Coca-Cola's British-born president and chief executive, noted today how changes to pack sizes had been a key way in which the company had grown sales in recent months.

That approach looks set to characterise Coca-Cola's ownership of Costa Coffee, for which it paid Whitbread $5.1bn in January this year, with a roll-out of "ready to drink" Costa-branded products due in both vending machines and stores across Europe and Asia expected this year.

The big question is whether the big companies can continue to push through price increases.

Wages are now rising more strongly than inflation in big established economies like the US, Germany and the UK, reflecting the tightness of the labour market in all three.

That makes it easier for companies of established brands to pass on inflation, in the form of higher pricing, where they are able to convince consumers of the value of their brands.

But that is an ongoing process and requires constant nurturing of such brands via both innovation and original marketing ideas at a time when consumers are more sceptical than ever.

The woes at Kraft Heinz show what can happen when executives get that wrong.