Nestle CEO says price increase inevitable as ingredient costs rise

VEVEY, Switzerland: Nestle company has said it will increase prices again this year as the higher cost of ingredients has made it miss its 2022 profit forecasts, according to Chief Executive Mark Schneider.

Further price increases were necessary to offset the impact of increased commodity prices, he added.

The news comes as consumer spending power is being further eroded by the current multi-decade high inflation.

In 2022, Nestle, the world’s largest food group and producer of Nescafe instant coffee and KitKat chocolate bars, raised prices by 8.2 percent, but this move has not offset the repercussions of higher costs of ingredients on the company’s profit 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.

To offset rising costs for raw materials caused by Russia’s invasion of Ukraine and COVID-19 pandemic-related supply chain logjams, consumer goods producers have been increasing their prices.

However, deciding how much they can increase prices before even wealthy shoppers can no longer buy their their products is another challenge.

Meanwhile, Barclays analyst Warren Ackerman said he expects "almost all" of the lower-than-estimated volumes would be the result of Nestle rethinking the variety of products it makes and supply chain constraints, as reported by Reuters.

In most cases, the impact to volumes did not signal consumers trading down to cheaper private label products, Schneider said.

Nestle’s net profit fell to 9.3 billion Swiss francs, failing to reach predictions of 11.6 billion francs.

"Nestle rarely misses and that was a miss," noted Bernstein analyst Bruno Monteyne, as quoted by Reuters.