Nestlé price rises push sales growth to highest level in 14 years

Nestlé increased its prices by 7.5 per cent in the first nine months of this year, the biggest amount in decades, enabling the world’s largest food manufacturer to raise its forecasts for the year.

The maker of Maggi noodles, Kit Kats and Nespresso capsules said it expected full-year sales growth of 8 per cent, the higher end of the range it had previously signalled.

The Nestlé price rises are the latest sign of intense pressure on food costs. Official UK data published on Wednesday reported that food prices rose 14.6 per cent in the year to September.

Nestlé’s like-for-like net sales growth reached 8.5 per cent in the first nine months, its highest rate in 14 years. Real internal growth — a measure of sales volumes and the types of products consumers choose — was 1 per cent. Total sales for the period were SFr69.1bn ($68.8bn).

The price increases were the largest in “several decades” for the Swiss group, said Bernstein analyst Bruno Monteyne.

But Nestlé chief executive Mark Schneider warned of further rises to come. “Our pricing is still catching up with the hit we have taken from inflation,” he said.

While inflation in agricultural commodity prices had eased somewhat, it still remained far higher than last year and energy and labour costs were likely to increase throughout the winter, he added.

“Many countries operate on annual [labour] contract negotiations, so I would expect to see those negotiations in the winter and first part of 2023 to reflect the inflation that every household has felt,” he said.

Sales growth was propelled by pet food, with households buying Nestlé’s Purina brand for their dogs and cats despite the squeeze on their budgets.

However, increases in sales volumes stalled in the third quarter, with analysts estimating that real internal growth had fallen 0.2 per cent during the quarter. Sales of Nespresso capsules declined as people drank less coffee at home with the lifting of coronavirus restrictions.

Schneider said pressure on consumer wallets was coinciding with a return to more normal shopping patterns.

“It’s important not to over-interpret the current situation as a reaction to pricing alone — some of it is post-Covid normalisation,” he added.

James Edwardes Jones, an analyst at RBC Capital Markets, said: “If, as we expect, there is a consumer recession to come, Nestlé is coping admirably.”

But he noted that sales of water, prepared foods and confectionery had also slowed in the third quarter. “Even Nestlé, it could be argued, is starting to show early signs of tougher conditions,” he added.

As national regulators warn about the possibility of winter blackouts, Schneider said Nestlé would cut the company’s use of Christmas lights as part of an energy-saving drive. The company would issue guidelines to its sites on “lighting, heating and holiday decorations”, he added.

Shares in Nestlé were down almost 1 per cent on Wednesday afternoon.

The group also announced that it would buy the Seattle’s Best Coffee brand in the US from Starbucks for an undisclosed price.