Nestlé customers swallow ‘responsible’ double-digit price rises

Nestlé raised prices at close to the fastest pace in more than three decades in the last quarter but sacrificed only a modest slice of its sales volume, as consumers proved willing to pay more for its packaged food and drinks.

Results on Tuesday from the world’s biggest food company, whose products include Aero chocolate bars, Perrier sparkling water and Nespresso coffee, showed that it pushed prices up by an average of almost 10 per cent in the first three months of the year.

Historic increases in the cost of raw materials have left consumer goods companies with a dilemma over how much of that financial pain to pass on to retailers and shoppers. Nestlé shares have declined almost 8 per cent over the past year.

In a boost for the Swiss-based group, its so-called real internal growth – a proxy for sales volumes – dipped only 0.5 per cent in the first quarter, a notable improvement from a 2.6 per cent decline in the previous quarter, when results disappointed investors.

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[ Nestlé says less than half its mainstream food and drinks are considered healthy ]

Chief executive Mark Schneider said Nestlé had “worked diligently to protect volume”. He said that Nestlé's price rises were “responsible” and had helped the company deal with “ongoing pressures from two years of cost inflation”.

The quarterly volume improvement was led by infant nutrition products and confectionery, especially KitKat bars. By geography, the recovery was strongest in North America.

Jean-Philippe Bertschy, analyst at Vontobel, said the “much stronger than expected” real internal growth would “definitely please investors” as this had been “one of the main concerns” with the previous set of results.

A batch of financial updates this week from consumer packaged goods companies in the US and Europe are being scrutinised for insights into how much longer shoppers are prepared to stomach double-digit percentage increases in the price of popular products.

Nestlé's increases were greatest in its milk products, ice cream and petcare divisions, at about 12 per cent. The overall 9.8 per cent price rise in the quarter followed a 10.1 per cent jump in the final three months of last year. Price increases of a similar magnitude were last seen in 1990.

Bruno Monteyne, analyst at Bernstein, said Nestlé’s figures showed that “any central bank looking for a slowdown in pricing [of consumer goods] will be disappointed”.

Pricing helped Nestlé offset unfavourable foreign exchange to boost sales 5.6 per cent to 23.5 billion Swiss francs, and the better than forecast figures sent shares in Nestlé up 1.5 per cent in early trading in Zurich.

The company left its forecasts for annual organic sales, profit margins and earnings per share unchanged. – Copyright The Financial Times Limited 2023