The two largest makers of consumer goods have been hit by shoppers around the world tightening their budgets and turning to supermarkets’ own-brand products, with Nestlé warning that prices would have to rise further.
Sales volumes at Switzerland’s Nestlé and US-based Procter & Gamble fell in the third quarter as inflation continued to surge and consumers’ tolerance for steep price increases began to crack.
Mark Schneider, chief executive of Nestlé, warned of further price increases ahead as energy and labour costs mount over the next few months. “Obviously some of the pricing will have to continue [rising] . . . our pricing is still catching up with the hit we have taken from inflation,” he said.
P&G, which generates more than half of its revenue outside the US, is also suffering from a strong dollar. Andre Schulten, its chief financial officer, said on Wednesday: “We fully expect more volatility in costs, currencies and consumer dynamics as we move through the fiscal year.”
Price rises led by food are straining consumer budgets globally: Europe especially has been affected by the war in Ukraine and the resulting energy crisis. Eurozone inflation topped 10 per cent in the year to September, while UK inflation is also in double digits.
Schulten said: “We see high pressure on the European consumer, with high inflation and, certainly . . . energy costs will hit the consumer over the winter period.”
Makers of global brands have so far fared better than expected as inflation has soared, but the squeeze has begun pushing more consumers towards cheaper products and own-brands. Companies’ margins are also coming under pressure as they race to push through higher costs.
P&G raised prices by 9 per cent year-on-year across its product lines in the quarter to September, while Nestlé pushed through a 7.5 per cent year-on-year rise in the first nine months of 2022, its biggest in decades.
But P&G’s sales volumes still declined 3 per cent in the quarter, while Nestle’s real internal growth — a measure of sales volumes and consumers’ product choices — slid 0.2 per cent in the third quarter, according to analysis of its nine-month figures. That figure was lower than analysts expected. Supply chain problems also played a part, the company said.
Nestlé’s like-for-like net sales growth reached 8.5 per cent in the first nine months, its highest rate in 14 years, propelled by the price increases. The maker of Maggi noodles, Kit Kats and Nespresso coffee capsules said it expected full-year sales growth of 8 per cent, the higher end of the range it had previously signalled.
P&G, which makes Tide detergent and Tampax tampons, expects its sales volumes to fall 1 to 3 per cent in its fiscal year, down from its previous forecast for flat to 2 per cent growth.
P&G also forecast a $1.3bn hit from the strong dollar this fiscal year, or a 6 per cent knock to its sales growth, $400mn more than originally anticipated.
The US-based group declined to say whether it would raise prices further, but acknowledged limits to its pricing power, particularly in Europe.
James Edwardes Jones, an analyst at RBC Capital Markets, said Nestlé was “coping admirably” but noted that sales of its bottled water, prepared foods and confectionery had slowed in the third quarter. “Even Nestlé, it could be argued, is starting to show early signs of tougher conditions,” he added.
Schneider said pressure on consumer wallets was coinciding with a return to more normal shopping patterns following the acute phase of the pandemic. “You see a bit of trading down” but some of the shifts were down to “post-Covid normalisation”, he added.
Shares in Nestlé fell 1.28 per cent on Wednesday to SFr106.40, while shares in P&G rose 1.8 per cent to $130.79 after its results surpassed analysts’ expectations.
Source: Economy - ft.com
