Nestle set to increase price to offset impact of operational cost
By Felicia Nwosu
Mark Schneider, Chief Executive of the world’s biggest food group Nestle, said that the ripple effect of high cost of production propelled by global inflation is responsible for the rise in prices within the year. The Nestle boss revealed this has eaten deep into the company’s profit margin causing its 2022 profit to miss market forecasts.
Rivals have said they anticipate a more positive pricing outlook for shoppers in 2023. But Schneider said further rises were necessary to offset the impact of increased commodity prices. That is bad news for consumers, whose spending power has already been hit by inflation at multi-decade highs.
According to him, despite the fact that the company experienced some price changes by raising prices by 8.2% last year, that did not fully offset the impact of increased costs for ingredients on margins.
“Our gross margin is down about 260 basis points – that is massive. That is after all the pricing we have done in 2022,” Schneider told reporters. Consumer goods producers increased prices to cope with surging costs for almost all raw materials after Russia’s invasion of Ukraine compounded pandemic-related supply chain logjams. But they face a challenge in how much they can increase prices before even affluent shoppers decide enough is enough.
Schneider said that, in most cases, the impact to volumes did not signal consumers trading down to cheaper private label products.
While a business analyst pointed out that net profit fell to 9.3 billion Swiss francs, missing expectations for 11.6 billion francs, although the consensus forecast did not account for the impairment at Nestle’s Aimmune subsidiary last year, analysts said.
Meanwhile, Unilever on its part has also disclosed its plan to increase prices for its detergents, soaps and packaged food to offset rising input costs, but would ease those hikes in the second half of 2023.
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