Nestlé increased prices for its products 6.5 per cent in the first half of the year, as the world’s largest food company became the latest group to pass rising costs on to consumers.
The rising price tags for food and drinks brands including KitKats, Nescafé, Maggi noodles and Purina pet food did not deter people from buying Nestlé products, enabling the group to increase sales volumes by 1.7 per cent.
This brought like-for-like net sales growth to 8.1 per cent and prompted Nestlé to raise its sales outlook for the year.
The company follows peers including Kraft Heinz, Danone, Unilever and Mondelez, which have all reported steep price increases for their products and raised forecasts for the year. Consumers appear to have largely absorbed higher prices for staple supermarket products while cutting spending in other areas such as clothing.
But the Vevey-based company said its margins had been dented by rapid increases in input costs such as commodities, energy and freight. Its underlying trading operating profit margin fell half a percentage point to 16.9 per cent, “reflecting time delays between cost inflation and pricing actions”.
It said margins for the full year would come in at 17 per cent, the lower end of a previously forecast range of 17 to 17.5 per cent, though sales are expected to be higher. Nestlé said it expected like-for-like net sales growth of 7 to 8 per cent for the year, up from a previously indicated rate of 5 per cent.
“Pricing is taking over this year, with inflation being so strong,” chief executive Mark Schneider told reporters. “Of course we are doing everything we can to protect consumers from rising prices but we have to protect our company too.”
Schneider said there was only “very limited” evidence of households trading down to cheaper products, though that did not mean it could not happen in future.
Sales were especially strong for Nestlé’s Purina pet foods and for confectionery, which had suffered during the initial phase of the pandemic as shoppers bought fewer chocolate bars “on the go”, but had “double-digit” sales growth during the first six months. Coffee sales were also strong, partly thanks to people returning to cafés and restaurants.
Jean-Philippe Bertschy, analyst at Vontobel, said changes made under Schneider in the past five years, including moving a fifth of the portfolio into faster-growing categories, “will help Nestlé navigate the current, challenging environment”.
Shares in the company fell 1.98 per cent in morning trading to SFr115.14.
Source: Economy - ft.com
