Swiss food company Nestlé has continued to grow in the past six months, but it is taking more and more effort. “The organic growth was modest”, admitted Belgian CEO Paul Bulcke. “A consequence of lower pricing, because we had to adjust for lower costs for raw materials, as the consumer is becoming more price conscious.”
Only 4.1% organic growth
Nestlé had sales of 45.2 billion Swiss francs, about 36.75 billion euro, in the first half of 2013. That is 5.3% more than in the same period a year before. That number gets overshadowed by the organic growth of only 4.1%, which is the lowest since 2009 and half a percent lower than the 4.6% predicted by analysts. On a side note: the organic growth of the first quarter was 4.3%.
Company profit came to 6.8 billion francs (about 5.5 billion euro), a rise by 6.8%. Net profits grew by 3.7% to 5.1 billion francs (about 4.1 billion euro). Much lower costs for raw materials were countered by higher marketing costs and price cuts, because the consumers is becoming “more price conscious”, so they say in Swiss Vevey.
Europe problem zone
Especially Europe worries Nestlé: organic growth dropped to no more than half a percent and profit margins dropped to 14.9%. “In Europe consumers are extremely sensitive to price and we have been responsive”, says Paul Bulcke. “We also increased the investment behind our brands, supporting innovation which enabled us to gain market share.”
That Europe is a problem zone, show the results of the other regions. In the growth countries in Asia, Oceania and Africa organic sales growth was 5% and the profit margin rose 20 base points to 19.1%. In both Americas the organic growth was 5% and profit margins went up by no less than 30 base points, to 17.8%.
5% sales growth for entire 2013
It is remarkable that Nestlé nowhere reaches its long term goal of “about 10%” growth, not even in the so-called growth countries. Therefore Nestlé slightly adjusts its growth prediction for the entire year. They now hope to achieve a sales growth of about 5% for 2013, where the company earlier was hoping for a number between five and six percent.
The food giant is still investing heavily: a new factory for animal food is to open in Poland, new coffee-roasting factories in China, Vietnam, Spain and Germany, dairy factories in China and the Dominican Republic, a beverage factory in Malaysia and a bottling plant for water in the United Kingdom.