Pricing fatigue

Europe’s consumer slowdown is deepening as pricing fatigue spreads across sectors once deemed resilient, says GAM Investments’ European Equities team.

11 August 2025

The summer reporting season for many of Europe's largest consumer companies has been tough, with companies reporting slowing growth and margin pressure experiencing negative share-price moves.

The main culprit has been weaker consumer spending in the face of elevated pricing following the post-Covid inflationary spike. This has led to multi-year, pronounced category-specific slowdowns in areas such as food, spirits, beauty, pet food and luxury goods. During conference calls, companies have provided low visibility on when growth will recover. We think that the consumer is likely to remain squeezed in many areas, and without a reacceleration in the macroeconomic outlook, consumer companies are likely to have to raise their sales, marketing and promotional spend to reignite growth, which will lower their profit margins. Year-to-date, the Eurostoxx Personal & Household Goods and Food & Beverage sectors have underperformed the wider European market by 13% and 11% respectively and fell 5%-7% in the month of July alone.¹ There have been pockets of consumer resilience, notably for airlines, as European consumers have prioritised travel over other forms of spending and in sectors such as Tobacco (primarily nicotine pouches) and areas of food (notably Danone's protein yoghurt business). Following a summer to forget for many of Europe's largest consumer companies, many stocks trade on multi-year valuation lows, but could face a longer period of anaemic growth.

We are starting to see signs of pricing fatigue in other sectors. These, perhaps surprisingly, include business-to-business sectors such as information services and insurance. Much like consumer staples companies, these have traditionally been regarded as 'defensive' business models. However, after strong pricing benefits in recent years, companies in these sectors reported slowing pricing contribution in their interim results. Overall, we maintain a preference towards companies in Europe where supply/demand dynamics are favourable and enable strong pricing power without sacrificing demand. This includes areas such as civil aerospace and electrical equipment.

Consumer staples companies priced too much post-Covid.

Most consumer staples companies continued to post uninspiring organic volume growth in Q2 2025. Nestlé, Europe's largest staples company by market capitalisation, reported a continued slowdown in 'Real Internal Growth' (a measure of volume and mix contribution) in Q2 2025, which declined 0.4% vs last year, driven by slowing growth in categories like premium pet food and confectionary. We believe this reflects continued fatigue from consumers to the high price increases that took place from 2021-2023 during the post-Covid spike in global inflation. From 2015-2019, Nestlé averaged 3.3% organic growth, comprised of 0.9% pricing, and 2.4% volumes. From 2020-2023, Nestlé's revenue growth accelerated to 6.8%, comprised of 4.8% pricing and circa 2% volumes as it managed offsetting cost-inflation. Subsequently, in 2024-25, Nestlé's organic sales growth has slowed to 2.4%, comprising of 0.5% volume growth and 1.9% pricing.² As the graph below shows, it appears Nestlé's volume growth has deteriorated, at the expense of higher prices. Consumers have reacted to higher prices for staples goods by moving to cheaper channels and private label brands. For Nestlé to reaccelerate volumes, it is likely to have to reduce prices through higher promotional spending or raise spending on sales and marketing and innovation.

Chart 1: Nestlé Organic growth – real internal growth (RIG) vs pricing

Elsewhere in the consumer staples sector, areas such as beauty and household goods have also slowed. Beiersdorf, which owns the Nivea brand, lowered its organic growth guidance for 2025, reflecting weaker volumes. Its response so far, is to reassure that growth can accelerate through new product launches. This is an implicit acknowledgement of the need to enhance its proposition to customers.

Private label brands have continued to take share

In many categories, consumers are able to purchase private label alternatives to branded goods, generally at lower prices. This competitive dynamic has historically tended to keep pricing of branded goods in check. However, we can see signs that price gaps between branded goods and private label goods are at elevated levels compared to pre-Covid, while private label products continue to gain market share. We keep a close eye on the quarterly updates from US-listed TreeHouse Foods, a private label manufacturer across the snacking, beverage and grocery categories. Their latest charts provide important context, which suggests we are likely to see continued pressure on the growth algorithms of many consumer companies. They will need to work hard to reinvigorate growth through a combination of price, promotional spend and innovation in new products:

The price gap between private label and branded goods remains elevated at over 25%, while promotional spend remains below pre-Covid levels

Chart 2: Private brands fundamentals remain constructive

Back home in Europe, we can see that discount retailer Action, which generates circa 85% of its sales from private label products has increased its higher growth gap to the traditional branded staples companies since Covid.

Is pricing fatigue emerging in other areas of the market?

So far, pricing fatigue has been predominantly confined to consumer end markets. However, we think we are starting to see signs of price fatigue in business-to-business (B2B) areas such as information services and insurance. Information services companies such as FactSet, London Stock Exchange Group (LSEG) and MSCI and reported an acceleration in growth from 2021 to 2024, supported by higher price increases pushed onto more accommodative customers. However, based on their Q2 earnings releases, pricing appears to be starting to slow. This may reflect price resistance from customers, or disruption from competitively priced AI upstarts. This resulted in the significant share-price underperformance of companies like FactSet, LSEG and MSCI in July. In Q2, FactSet, a US market data company, reported that annual price increases are flattening, with lower realisations in new business and renewals. LSEG, at its Q2 results, acknowledged that price growth has been slowing with competitors being more aggressive on pricing. MSCI has also stated it has been moderating price increases.

In the insurance sector, property and casualty insurance saw circa 10% annual premium growth from 2021 to 2023. More recently, companies have reported that pricing, especially for large and catastrophe-exposed property placements, has started to decelerate, although multi-line insurers remain very profitable at these levels. Munich Re, the world's largest reinsurer, has started to see a decrease in prices, confirmed in its Q2 report where it highlighted 2.5% price declines. In Q1 2025, Swiss Re observed property pricing falling 9% year-over-year (YoY), the first decline since 2018.

Chart 3: Global insurance composite renewal rate

Who has pricing power in the European market?

We continue to see strong pricing dynamics in sectors with attractive supply/demand dynamics, supporting growth expectations. In civil aerospace, engine suppliers continue to benefit from above inflation pricing for spare parts and spare engines due to the slow ramp up of new aircraft due to supply constraints, which is likely to persist for several more years. Aerospace components are also an oligopolistic market structure with very high barriers to entry due to stringent safety regulations. In industrials, electrification equipment, particularly areas such as gas turbines and high voltage electrification equipment, where backlogs are elevated, are likely to benefit from a multi-year above inflation pricing cycle. This reflects the continued build out of energy infrastructure to support data centre demand growth, and grid modernisation being driven by utilities companies across Europe (eg, E.ON, National Grid, SSE) and the US.

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team and the strategies they are responsible for here.

As at 31 July 2025, SSE is held within the strategies managed by the team.