Nestlé Woke Up And Smelled The Coffee

Nestlé Woke Up And Smelled The Coffee

10 months ago2 mins

Nestlé reported results on Thursday, showing that trouble’s been brewing for the firm.

What does this mean?

Nestlé tried to shore up profit with its boldest price hikes in years last quarter – but with cost-conscious buyers ditching name-brand products for cheaper alternatives, that didn’t have its Nescafé coffee and Maggi noodles selling like hotcakes. In fact, the world’s biggest food group saw the volume of goods it sold drop for the second-straight quarter. And looking at the whole year, things weren’t much better either: the volume of goods sold grew just 0.1% while organic sales grew 8.3% – meaning it was the firm’s 8.2% price hikes that did most of the money-making legwork. But even those higher prices weren’t enough to offset Nestlé’s increased ingredient and shipping costs, which cut profit margins to their skinniest levels in four years and left annual profit well below expectations.

Nestle sales growth
Source: Nestlé

Why should I care?

Zooming in: Slipping staples.

Nestlé isn't the only consumer staples giant experiencing the crunch of lower sales volumes – PepsiCo, Unilever, and more are all in the same boat. But Nestlé's especially sour second half of 2022, with its first drop in volumes since 1999, drives home that even the strength of trusty old consumer staples is being pushed to the limit right now. If that trend continues, companies that raise prices even higher – as Nestlé plans to – might just push shoppers away and really torpedo their sales volumes.

The bigger picture: Waitrose Wait-lowered.

Nestlé’s results serve as a troubling reminder that price hikes aren't going to disappear just because the West seems to have passed peak inflation. But there was one ray of hope this week: British supermarket chain Waitrose announced that it’s slashing the price of its own-brand products by a record amount, in a brazen attempt to fend off discount rivals like Aldi and Lidl.

English breakfast prices
Source: Bloomberg


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