Nestle plans further price hikes on surging costs

The Swiss group, which also makes Nescafe and KitKats, raised prices by 8.2% last year. Pic: Stefan Wermuth/Bloomberg

Nespresso maker Nestle said will raise prices further this year to offset higher commodity costs, said the company’s chief executive Mark Schneider.

He did not comment on the planned level of the increases at the world's biggest food group.

It will likely add more concerns to consumers, with spending power already hit by high inflation.

The Swiss group, which also makes Nescafe and KitKats, raised prices by 8.2% last year.

But that was not enough to offset the impact of higher costs for ingredients.

Real internal growth, which is a company indicator for sales volume, rose only 0.1% for the year.

Nestle blamed its performance in North America and the Nespresso business. It comes after full-year net profit missed analyst expectations.

It fell to $10bn (€9.3bn), compared to expert predictions of $12.5bn (€11.6bn).

Price hikes

The company sold fewer of its products in the fourth quarter as price hikes turned consumers off branded items, a signal the world’s biggest food company is reaching the limits of its pricing power.

Volume dropped 2.6%, declining for a second consecutive quarter, the company said he last time Nestle’s volume was negative before that was in the first quarter of 1999. The stock fell as much as 1%.

Consumer goods companies face the challenge of raising prices without driving shoppers away. While Nestle’s volumes only started to fall in the second half, rival Unilever has had drops throughout the entire year. Nestle drove through a 10% increase in pricing in the fourth quarter.

Not all of the volume decline was a response to higher prices. Nestle had supply constraints on items including Perrier water, and the company also decided to scrap underperforming variations of products. For some categories, the prior year’s numbers were difficult to match, because they were boosted by the pandemic.

Nestle also said it aims for better profitability in 2023 after higher raw material and shipping costs led to the weakest margins in four years. 

The underlying operating margin should be in a range of 17% to 17.5% this year, the Cheerios maker forecast. That compares to 17.1% in 2022.

"Nestle must invest in new product initiatives and marketing to restore volume-mix growth in 2023, which may not be easy given that prices need to rise again on continued input-cost pressure as favorable hedges end," said Duncan Fox, Bloomberg Intelligence consumer-products analyst.

Reuters and Bloomberg