Inflation is eating into Nestlé’s profits

Nestlé saw its gross margin fall “massively” last year, even after an 8.2 % price increase. Prices will continue to rise this year, the Nescafé producer warns.

Supply problems

Although sales rose by 8.3 % last year, Nestlé’s net profits fell from 16.9 to 9.3 billion Swiss francs (9.4 billion euros), well below analysts’ expectations.

Margins fell during the year due to high inflation and raw material prices, while the food producer also experienced supply problems due to the war in Ukraine. Oil and grain supplies were particularly affected in the first months of the war, followed by more expensive logistics, Arabica coffee and dairy products.

Already better in Europe

The fact that turnover reached 94.4 billion Swiss francs (95 billion euros), just below expectations, is entirely due to price increases. Although these could not fully offset the rise in ingredient costs, CEO Mark Schneider told Reuters, “our gross margin is down about 260 basis points – that is massive.”

In 2023, Nestlé expects further price increases, although these will vary from market to market. Indeed, in some markets (such as the United Kingdom and the United States) inflation persists strongly, while inflation is already more muted in China and Europe, Schneider observes. Nonetheless, Nestlé is counting on robust organic growth, with 6 to 8 % more sales. It seems that Ahold Delhaize boss Frans Muller’s call for price drops will not be heard for the time being.