Did Nestlé take price hikes too far?

As Nestlé saw its sales (in volume) drop 2.4 % in Europe last year, the multinational stayed below forecasts and is counting on less growth than expected this year as well. Has the Nescafé producer burnt itself on price hikes?

Volume paramount

The Swiss group saw its sales fall 1.5 % to 93 billion Swiss francs (97 billion euros) last year, which was slightly less than analysts had expected. Net profit did rise sharply to 11.2 billion francs (12 billion euros, + 20 %). Margins also continued to rise.

Especially striking is that all growth came from price increases (+ 7.5 %), while volumes fell 0.3 %. European volumes sold were even down 2.4 %, which meant turnover was slightly lower as price increases of more than 10 % could not sufficiently compensate the volume drop. In the fourth quarter, however, volumes recovered again (+ 0.4 %.)

For this year, Nestlé expects an organic sales growth of around 4 % and a moderate increase in the underlying operating profit margin. However, that is less than analysts expected on average. Among others, Barclays analysts fear that some consumers may well stick to private brands or other cheaper alternatives. Nestlé CEO Mark Schneider promises to prioritise “volume- and mix-driven growth with more brand support” in 2024, while prices will calm down.