Nestlé raised its prices by 7.5 percent in the first nine months of this year, the largest amount in decades, allowing the world’s largest food producer to raise its forecasts for the year.
The maker of Maggi noodles, Kit Kats and Nespresso capsules said it expected full-year sales growth of 8 percent, the higher end of its range it had previously signaled.
Nestlé’s price increases are the latest sign of intense pressure on food costs. Official UK data published on Wednesday said food prices rose by 14.6 percent in the year to September.
Nestlé’s like-for-like net sales growth reached 8.5 percent in the first nine months, the highest rate in 14 years. Real organic growth – a measure of sales volumes and the types of products consumers choose – was 1 percent. Total revenue for the period was SFr 69.1 billion ($68.8 billion).
The price increases were the largest in “several decades” for the Swiss group, Bernstein analyst Bruno Monteyne said.
But Nestlé chief executive Mark Schneider warned of further increases. “Our prices are still catching up to the blow of inflation,” he said.
While inflation in agricultural commodity prices had eased somewhat, it still remained much higher than last year, and energy and labor costs are likely to rise over the winter, he added.
“Many countries operate on annual [labour] contract negotiations, so I would expect those negotiations in the winter and early part of 2023 to reflect the inflation that every household has felt,” he said.
Sales growth was driven by pet food, with households purchasing Nestlé’s Purina brand for their dogs and cats, despite budget constraints.
However, the increase in sales volumes stalled in the third quarter, with analysts estimating that real organic growth fell 0.2 percent during the quarter. Sales of Nespresso capsules fell as people drank less coffee at home with the lifting of coronavirus restrictions.
Schneider said the pressure on consumers’ wallets coincided with a return to more normal shopping patterns.
“It’s important not to interpret the current situation too much as a response to pricing alone – part of it is post-Covid normalization,” he added.
James Edwardes Jones, analyst at RBC Capital Markets, said: “If, as we expect, a consumer recession is on the way, Nestlé will solve it perfectly.”
But he noted that sales of water, convenience foods and confectionery also slowed in the third quarter. “Even Nestlé, one could argue, is showing early signs of more difficult conditions,” he added.
While national regulators warn of the possibility of winter outages, Schneider said Nestlé would stop the company’s use of Christmas lights as part of an energy-saving action. The company would provide guidelines to its sites on “lighting, heating and holiday decorations,” he added.
Nestlé shares lost nearly 1 percent on Wednesday afternoon.
The group also announced that it would purchase Seattle’s Best Coffee brand in the US from Starbucks for an undisclosed price.