world’s largest food group shelter It will increase prices again this year, Chief Executive Officer Mark Schneider said on Thursday, after more expensive ingredients contributed to making its 2022 profit miss market forecast.
Rivals have said they anticipate a more positive pricing outlook for buyers in 2023. But Schneider said further increases were necessary to offset the impact of increased commodity prices. This is bad news for consumers whose spending power has already been hit inflation at the highest level in several decades.
The maker of Nescafe instant coffee and KitKat chocolate bars raised prices by 8.2 per cent last year, but this did not fully offset the impact of higher ingredient costs on margins.
“Our gross margin is down about 260 basis points — that’s massive. That’s after the pricing we’ve done in 2022,” Schneider told reporters.
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Producers of consumer goods raised prices for almost all raw materials to deal with rising costs after Russia’s invasion of Ukraine, which compounded supply chain logjams related to the pandemic.
But they face the challenge of how far they can raise prices before even affluent buyers decide enough is enough.
Unilever said last week it would continue to raise prices of its detergents, soaps and packaged food to offset rising costs, but would reduce those increases in the second half of 2023.
Snack and soda maker PepsiCo said last week it would stop raising prices after several increases last year that helped it beat analyst estimates for profit and sales.
‘Mixed feelings’ after rare miss
He said on Thursday that Barclays analyst Warren Ackerman expects “almost all” of the lower-than-anticipated volumes to be the result of Nestle renegotiating the diversity of its products and supply chain constraints.
The question will be to what degree of weakness from these factors persists in the first half of the year, he said.
Schneider said that, in most cases, the volume effect didn’t prompt consumers to trade up for cheaper private label products.
Analysts said net profit fell to 9.3 billion Swiss francs, missing expectations for 11.6 billion francs, although consensus estimates at Nestle’s Aimmune subsidiary last year were missed.
Bernstein analyst Bruno Montaigne said, “Nestle rarely misses and that was a miss.”
Nestle shares were down 2.8 per cent in afternoon trade.
Nestle said it targeted organic sales growth – which nets out the effects of currency movements and acquisitions – in the range of 6-8% in 2023.
The company’s sales are expected to increase by 8.4% to 94.4 billion Swiss francs ($102.31 billion) during 2022.
($1 = 0.9227 Swiss Franc)
(Reporting by John Revill. Additional reporting by Richa Naidu)