Nestlé limits its price increases to keep its customers

No more than trees can prices rise to the sky. After almost two years of soaring food prices, global consumption is under more pressure than ever. World food leader, Nestlé (Kit Kat, Nescafé, Maggi, Purina, Nespresso, etc.) seems to have experienced the limits of consumers' ability to accept price increases.

The Swiss giant's turnover increased by 7.8% in the first nine months of 2023, to 68.8 billion Swiss francs (65.2 billion euros). Growth driven by price increases (8.4%) over the period to pass on increases in its costs. But in the third quarter, this “price effect” is only 6.3%, whereas until then it had fluctuated between 9% and 10% for three quarters.

Until then, Nestlé had relied on the strength of its brands to pass on a large part of its additional costs in its prices. This allowed it to preserve its recurring operating margin, which remained above 17.1%, and expected between 17% and 17.5% for the current financial year. But the fall in its volumes since the end of 2022 (-0.8% over the first nine months of 2023) has encouraged it to take its foot off the price accelerator. Particularly in North America, where these increases were limited to 4.7% in the third quarter, i.e. a pace 2.5 times slower than that applied in the first half.

“This is certainly due to a base effect because we had already significantly increased our prices at this same time a year ago,” underlines François-Xavier Roger, financial director of Nestlé. But it is also due to the slowdown in our rate increases, a slowdown that is expected to continue.”

“Now is not the time for significant and overall price reductions,” warns the financial director. But we are moving from a situation of tensions on our production capacities to a context where we must support demand. While consumers are increasingly favoring cheaper products, the group hopes to contain its decline in sales volumes.

This moderation bore fruit, making it possible to limit this slide in volumes to 0.3% over the three months of summer (compared to 0.8% in the first half). “Our overall volumes will become positive again in the fourth quarter,” assures Mark Schneider, the managing director of the Swiss giant. Evidence of the impact of inflation on sales: in Europe, where its prices rose 10.7% in the third quarter, Nestlé's sales fell by 2%.

The limits of the Swiss giant's "pricing power" (ability to pass price increases) worried the markets, with Nestlé's stock ending its session on the Zurich Stock Exchange with a marked decline of 3.43%, to 98.75. Swiss francs.

To try to protect both its customers and its margins, the group now intends to focus on “more selective price increases depending on the countries, products, and brands,” explains François-Xavier Roger. For example, on products rich in cocoa, robusta or sugar, whose world prices continue to increase.

The Swiss giant should also continue to rely on the strength of some of its brands in categories such as animal food or coffee to push its prices a little further. For example on its pillar Purina Petcare (Purina, Friskies, Felix, etc.), whose sales in value have jumped by more than 13% since January. Or even Nespresso, whose volumes remain up year-on-year, despite prices inflated by 3.5%.

Conversely, in dairy categories, the group believes that it will be able to reduce pressure on labels. At the same time, it will increase its marketing investments and increase promotions. A movement which could become widespread among the heavyweights of mass consumption.