Following A Price Hike, Nestlé Ditches Some Unpopular Products

A drop in sales volumes was reported by Nestlé SA for the fourth quarter as the maker of Nescafé coffee and Purina pet food raised prices to offset soaring costs, as well as halting sales of some of the less popular products.

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In its latest quarterly report, the Swiss packaged food giant said that sales volumes fell 2.6% in the last three months of 2022, while prices rose by an average of 10.1% over the same period. The organic growth rate for the quarter was 7.5%, which was lower than the analysts' expectations.

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The consumer products industry is struggling to determine how much it can raise prices to offset higher energy, raw material, and transportation costs without causing consumers to cut back.

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Along with weaker shopper demand amid higher prices, Nestlé's sales volumes were also affected by its initiative to cut less lucrative products.

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To cope with supply-chain constraints, Nestlé halted sales of some slower-growing products during the pandemic. In the fourth quarter, Nestlé increased resources allocated to in-demand products. Recent decisions included pulling out of frozen foods in Canada and some dairy lines in Brazil.

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Additionally, the company said temporary capacity constraints at its water business in North America and weaker out-of-home sales in China hurt quarterly sales volumes.

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Nestlé's full-year revenue increased from 87.09 billion Swiss francs in 2021 to 94.42 billion Swiss francs for the full year. Pet care and coffee products drove the company's growth. 

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Despite the sale of some L'Oréal SA shares, Nestlé's net profit dropped to 9.3 billion francs from 16.9 billion francs in the previous year.

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The steeper selling prices failed to fully compensate for higher costs, which impacted annual profits.

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“We have been affected by inflation, just like every consumer around the world, and we are working to repair the damage,” Nestlé CEO Mark Schneider said.

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Taking account of rising costs, Mr. Schneider said Nestlé would have to "stay flexible" on how it adjusts its pricing, and that it had engaged in "intense negotiations" with retailers.

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Labor costs will likely be a concern in the coming year, he said. “Inflation, which was largely driven by commodities and energy, is now becoming wage-driven, Mr. Schneider explained.

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Nestlé forecast organic sales growth of 6% to 8% in 2023, which it said would likely result from higher prices.

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