Nestlé, the world’s largest food company, raised prices at close to the fastest pace in more than 30 years in the last quarter. However, despite the increase in prices, the company only experienced a modest reduction in its sales volume, indicating that consumers were willing to pay more for Nestlé’s packaged food and drinks. The company’s first-quarter results showed that it raised prices by almost 10% on average in the first three months of the year. This is in response to the historic increases in the cost of raw materials, which have left consumer goods companies in a dilemma over how much financial pain to pass on to retailers and shoppers.
In the face of this dilemma, Nestlé’s results revealed that its so-called “real internal growth” (a proxy for sales volumes) dipped only 0.5% in the first quarter, a significant improvement from a 2.6% decline in the previous quarter, when results disappointed investors. The boost for the Swiss-based group is led by infant nutrition products and confectionery, especially KitKat bars, and is 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. The company’s price increases were greatest in its milk products, ice cream, and pet care divisions, at about 12%. The overall 9.8% price rise in the quarter followed a 10.1% jump in the final three months of last year. Price increases of a similar magnitude were last seen in 1990.
Nestlé CEO, Mark Schneider, stated that the company’s price rises were “responsible” and had helped the company deal with “ongoing pressures from two years of cost inflation”. The company left its forecasts for annual organic sales, profit margins, and earnings per share unchanged. The results from Nestlé and other consumer packaged goods companies in the US and Europe are being scrutinized this week for insights into how much longer shoppers are willing to tolerate double-digit percentage increases in the price of popular products. Nestlé’s figures show that any central bank looking for a slowdown in pricing of consumer goods will be disappointed.
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