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Nestlé may raise prices after growth forecast cut

Matt Atherton

By Matt Atherton+

21-Oct-2016
Last updated on 21-Oct-2016 at 14:10 GMT2016-10-21T14:10:05Z

Nestlé may raise the price of its products
Nestlé may raise the price of its products

Nestlé may raise its product prices after cutting its annual growth forecast from 4.3% to 3.5%, due to deflation and a “softer” market.

The maker of Nescafé and KitKat said it was considering all options – including efficiency savings and price hikes – as a response to rising costs and the weak value of sterling.

The company also warned it might reconsider its UK investment plans owing to the Brexit vote. But a decision wouldn’t be made until after the Brexit deal became clearer.

“Let’s first let the dust settle [before making a decision],Nestlé ceo Paul Bulcke told a press conference on October 20. He added that any price raises would be done “responsibly”.

Nestlé reported 3.3% growth in the first nine months of its financial year. It expected organic growth of 3.5% across the entire year – downgraded by 0.8% since its half-year trading update.

Sales of £54bn

The manufacturer reported total sales of £54bn (CHF 65.5bn) in its trading update, up 1% from last year. In August, Nestlé was 3.5% up on the previous year.

Bulcke said: “In an environment marked by deflation and low raw material prices, we continued to [experience] volume growth, resulting in real internal growth at the higher end of the industry in both emerging and developed markets. Pricing remained soft but increasing.

“For the full year 2016, considering the current softer environment, we expect growth of around 3.5%, improvements in margins and underlying earnings per share in constant currencies and increased capital efficiency.”

Nestlé reported its biggest growth (4.5%) in North and South America, driven by its Coffee Mate and Lean Cuisine brands.

Nestlé’s worst performing operating segment

The lowest growth was recorded in its European, Middle East and North African markets, with organic growth of 2.2%. The company said western Europe delivered positive results despite the deflationary environment, and it’s Nescafé and Dolce Gusto brands were best performing.

“Our growth was broad-based across categories, allowing us to gain or maintain market share in most of our businesses,” said Bulcke. “We are making progress in addressing our challenges and driving our different initiatives amidst a generally softer trading environment.

Meanwhile, manufacturer Unilever raised the prices on its products on October 13. The decision reportedly caused a row with Tesco after the supermarket refused the price hikes and subsequently removed Unilever products from its online store.

 

Nestlé third-quarter trading update – at a glance
  • £54bn (CHF 65.5bn) in sales, up 1%
  • 3.3% organic growth
  • Projected growth lowered 0.8% from August outlook

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