Nestlé Cuts Sales Growth As Consumers Become Increasingly Cost Conscious

By Reuters
Nestlé Cuts Sales Growth As Consumers Become Increasingly Cost Conscious

Nestlé lowered its sales outlook on Thursday, noting that it had to slow the pace of price hikes earlier than it would have liked, due to increasingly cost-conscious consumers.

The Swiss brand has been in the spotlight as it balances high cocoa costs with inflation-weary customers, as Reuters reported yesterday.

Shares for the world’s biggest packaged-food company fell by 4.3% in early trade.

The company now expects full-year organic sales to climb by at least 3% – down from about 4% previously.

First-half sales also came in slightly under analysts’ expectations, increasing by 2.1%, compared to an average estimate of 2.5% growth in a company-provided consensus.

ADVERTISEMENT

The chief executive of Nestlé, Mark Schneider, said in a media call, “There is value-seeking behaviour among consumers.”

Schneider named North America, Europe and China as places where Nestlé and some other consumer goods companies are observing this trend.

Price Hikes

The Swiss company increased its prices by 2% – less than the 3% expected by analysts and marking a continued slowdown in price hikes.

Price hikes across the sector have moderated after years of spiking prices, to preserve profits and absorb higher material costs, as companies prioritise regaining sales volumes lost to cheaper brands.

The pricing miss is likely to cause investors worry about the 2025 profit margins.

ADVERTISEMENT

It will also raise questions about “brand strength” for Nestlé and the broader sector, according to Jefferies analyst David Hayes.

The maker of Kit Kat bars and Nespresso coffee managed to increase its volumes by 0.1% in the first half, with real internal growth (RIG) – a sales volume metric.

This beat a consensus that expected it to shrink by 0.5%.

Bernstein analyst Bruno Monteyne wrote in a note, ‘Across the spectrum of Nestlé’s categories, in terms of quality of category, pricing looks bad.

‘RIG matters, but at what cost?’

ADVERTISEMENT

Monteyne added that the weakest price hikes were seen in coffee and pet food, which are typically Nestlé’s strongest sellers, while commoditised categories, such as milk products and prepared dishes, saw prices decline in the second quarter.

Nestlé’s underlying trading operating profit was 7.8 billion Swiss francs, in line with a company-provided consensus.

Read More: Unilever Delivers Profit Despite Disappointing Sales

Stay Connected With Our Weekly Newsletter

Processing your request...

Thanks! please check your email to confirm your subscription.