Nestle Sells Fewer Products as Consumers Shun Higher Prices

Nestle SA sold fewer of its products in the fourth quarter as price hikes turned consumers off branded items, a signal the world’s biggest food company is reaching the limits of its pricing power.

(Bloomberg) — Nestle SA sold fewer of its products in the fourth quarter as price hikes turned consumers off branded items, a signal the world’s biggest food company is reaching the limits of its pricing power.

Volume dropped 2.6%, declining for a second consecutive quarter, the maker of Nescafe coffee said Thursday. The last time Nestle’s volume was negative before that was in the first quarter of 1999. The stock fell as much as 1%.

Consumer-goods companies face the challenge of raising prices without driving shoppers away. While Nestle’s volumes only started to fall in the second half, rival Unilever Plc has had drops throughout the entire year. Nestle drove through a 10% increase in pricing in the fourth quarter.

Not all of the volume decline was a response to higher prices, however, Chief Executive Officer Mark Schneider, said on a call with reporters. Nestle had supply constraints on items including Perrier water, and the company also decided to scrap underperforming variations of products. For some categories, the prior year’s numbers were difficult to match, because they were boosted by the pandemic.

The biggest decline was in North America, where fourth-quarter volume retreated 4.9% as Nestle pruned its portfolio and as demand from restaurants moderated.

Nestle also said it aims for better profitability in 2023 after higher raw material and shipping costs led to the weakest margins in four years. The underlying operating margin should be in a range of 17% to 17.5% this year, the KitKat maker forecast. That compares to 17.1% in 2022.

What Bloomberg Intelligence Says:

Nestle must invest in new product initiatives and marketing to restore volume-mix growth in 2023, which may not be easy given that prices need to rise again on continued input-cost pressure as favorable hedges end. This could skew growth to 2H, though Nestle’s brand pricing power enabled it to maintain 2023 organic sales growth targets of 6-8% and flat operating margins of 17-17.5%.