The world’s biggest food group Nestle will raise prices further this year, Chief Executive Mark Schneider said on Thursday, after more expensive ingredients contributed to full-year net profit missing analyst expectations.
He declined to comment on the planned level of price increases, which he said were necessary to offset the damage caused by commodity price rises.
For consumers, whose spending power has already been cut by inflation at multi-decade highs, they are likely to add to concerns about strained household budgets and weakened economies.
The maker of Nescafe instant coffee and KitKat chocolate bars raised prices by 8.2% last year, but that did not fully offset the impact of increased costs for ingredients on margins.
“Our gross margin is down about 260 basis points – that is massive. That is after all the pricing we have done in 2022,” Schneider told reporters.
“We have some markets, like the U.S. and U.K., where we see strong continued inflation, and other markets like China and like here in Europe… where inflation is more muted,” Schneider said.
The rest of the packaged goods industry has also increased prices to cope with surging costs for almost all raw materials after Russia’s invasion of Ukraine compounded the impact of pandemic-related supply chain logjams.
‘MIXED EMOTIONS’ AFTER RARE MISS
Real internal growth – a company indicator for sales volumes – rose only 0.1% for the year, weighed down by North America and the Nespresso business.
Barclays analyst Warren Ackerman said he expected “almost all” of the lower-than-estimated volumes would be the result of Nestle rethinking the variety of products it makes and supply chain constraints.
The question will be how much of the volume weakness persists from these factors into the first half of the year, Ackerman added.
Schneider said that in most cases, the impact to volumes did not signal consumers trading down to cheaper private label products.
Shareholders’ net profit fell to 9.27 billion Swiss francs, missing expectations for 11.58 billion francs, although the consensus forecast did not account for the impairment at Nestle’s Aimmune subsidiary last year, analysts said.
“Nestle’s fourth-quarter and second-half results will cause some mixed emotions,” Bernstein analyst Bruno Monteyne said, adding that Nestle’s water, confectionary and health science businesses contributed.
“Nestle rarely misses and that was a miss,” he said.
Shares in Nestle were marginally down on Thursday.
Nestle said it targeted organic sales growth – which cuts out the impact of currency moves and acquisitions – in a range of 6-8% in 2023.
During 2022 the company’s reported sales increased 8.4% to 94.4 billion Swiss francs ($102.31 billion).
