Nestlé cuts sales targets after backlash against price rises

Nestlé is counting the cost of having pushed up prices of bestselling brands beyond the reach of its increasingly squeezed customers.
The world’s largest foodmaker, whose 31 “mega-brands” include KitKat, Nescafé and Purina pet food, cut its guidance again on Thursday after a weaker-than-expected 2 per cent rise in underlying sales in the first nine months of the year.
It now expects sales to rise by about 2 per cent over the full year, below previous guidance for at least 3 per cent, and the lowest rate since the turn of the century. The company had also trimmed its sales outlook in July, from an earlier estimate of about 4 per cent growth.
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Jean-Philippe Bertschy, an analyst with Vontobel, said: “For a supertanker like Nestlé, the miss in just a few months is enormous.” He added that returning Nestlé to its roots would be a huge task that would take time.
The sluggish sales came despite the giant Swiss consumer goods group slowing price rises after signs that high prices have sent consumers looking for cheaper, non-branded alternatives.
Laurent Freixe, the new chief executive, said: “Consumer demand has weakened in recent months, and we expect the demand environment to remain soft.”
The group also trimmed the forecast for its operating profit margin to about 17 per cent in 2024, against previous guidance for a slight improvement on last year’s 17.3 per cent. Nestlé is still increasing prices, but at a slower pace of 1.6 per cent on average globally, down from 2 per cent in the first half, following “unprecedented increases in the prior two years”.
The group also put the sales pressure down to “consumer hesitancy towards global brands, linked to geopolitical tension” in some markets. It has previously warned of some “consumer hesitancy” in the Middle East and Asia amid the “tragic events” of the Israel-Hamas conflict.
Freixe, 62, is a company veteran who took the top role in September when Mark Schneider abruptly quit after several quarters of weak trading. Alongside the results, Freixe announced a sweeping restructuring of the leadership team and structure.
Changes include plans to cut the size of Nestlé’s executive board, merge its Latin America and North America units, and combine its Greater China and Asia, Oceania and Africa businesses.
Chris Beckett, head of equity research at Quilter Cheviot, said: “Nestlé remains a good company but it is going through a challenging period. It had perhaps got a little too inward-looking and thus a reset is a good strategy to undertake.”
Analysts have blamed the soft sales on Nestlé’s decision not to ease up quickly enough on price increases as inflation has cooled, as many of its competitors did.
Most consumer goods groups have suffered during a period of high inflation and depressed demand, but Nestlé has lagged rivals such as Danone and Unilever. Analysts expect Unilever to report a 1 per cent increase in third-quarter underlying prices and 3.2 per cent underlying sales volume growth when it reports next week,
Nestlé has also made some operational missteps. The 2020 acquisition of Palforzia, a peanut allergy drug, led to a $2.1 billion impairment and was sold off last year. Investors were also spooked by a failed integration of an IT system and a water purification scandal in France, which caused a supply shortage that lasted several months.
Shares in Nestlé, which have fallen 13 per cent this year, endured a choppy day of trading before closing up SwFr2.1, or 2.5 per cent, at SwFr86.