Nestlé sells fewer products after increasing prices

Nestlé took a hit to sales volumes in the final quarter of last year as its steepest price rises in decades prompted households to curb their spending on products from the maker of Nespresso pods, KitKat chocolate bars and Maggi noodles.

Real internal growth, a measure of sales volumes and consumers’ product choices, declined 2.6 per cent, as the world’s largest foodmaker pushed up prices by 10.1 per cent in the quarter.

Mark Schneider, chief executive, said that Nestlé still faced steep cost rises this year. “There are a few cost items that have started, on a spot basis, to ease since the autumn — arabica coffee, dairy, some of the energy items — but on a full-year basis we’re still looking at a very bleak picture.”

He added: “We still have some repairing to do [on margins] — we are hit pretty hard by inflation.”

Nestlé is the latest multinational food manufacturer to report a hit to sales volumes from increasing prices, after Unilever last week said consumers had bought fewer of its products in 2022 on record price rises. Households in Europe and the US especially have been switching to cheaper options such as supermarket own-brand products.

Schneider said the consumer was “holding up probably better than we expected last fall . . . [but] we also have seen some limited signs now of trading down. That’s unavoidable because you are seeing the effects of economic uncertainty and then inflation at the same time.”

Nestlé increased prices for its products by an average 8.2 per cent across 2022. It said overall like-for-like sales growth was 8.3 per cent during the year, lower than analysts had expected.

Sales growth was mainly driven by price rises, while real internal growth was up slightly at 0.1 per cent for the full year. Schneider added that 2022 was also a year of “post-Covid normalisation” in many of Nestlé’s markets.

Price rises by the Swiss group were highest in North and Latin America, at 11.6 per cent. The increases cut into North American sales volumes, which declined 1.7 per cent on a like-for-like measure as inflation prompted households to curb their spending and Nestlé cut down on unpopular product lines.

It also recorded a SFr1.6bn impairment on the purchase of peanut allergy medication Palforzia, adding to an earlier SFr0.3bn charge on its foray into healthcare.

That means it has now written off $2bn of the $2.6bn it paid for the business in 2020, after admitting the allergy treatment it produces had not caught on as expected. Schneider said Nestlé’s health science business would in future focus on its existing areas, vitamins and supplements and specialist nutrition for people with health conditions.

The Swiss group is carrying out a big programme of cutting less popular product lines and even entire brands, a drive that began during supply chain disruption last year but has extended to a broader streamlining effort.

The company this year announced plans to stop selling frozen foods in Canada, a business that had brought in about SFr150m, and has scrapped some dairy lines in Brazil, the Middle East and north Africa as it sacrifices some sales to focus on the most successful products, Schneider said.

It forecast a recovery in profitability in 2023, with underlying operating margin set to come within a range of 17 per cent to 17.5 per cent, after falling to 17.1 per cent in 2022.