Nestlé is in trouble as it pushes prices up
Nestlé has pushed up prices for customers and now it's suffering the consequences, leaving a spotlight on its performance and shares


Food giant Nestlé has been left “counting the cost” of pushing up prices of its most popular brands beyond the reach of “increasingly squeezed customers”, says Sian Bradley in The Times. It has been forced to cut its sales guidance again.
Underlying sales increased by an unexpectedly weak 2% in the first nine months of this year, which means that it now expects sales to rise by only 2% over the full year, “the lowest rate since the turn of the century”. Experts have blamed the malaise on Nestlé’s decision “not to ease up quickly enough on price increases” as inflation has cooled, as many of its competitors did.
Nestlé’s poor numbers explain why former CEO Mark Schneider was ousted in August, says Aimee Donnellan for Breakingviews. It’s not just the poor sales figures. The company’s profitability “is also under pressure”, with margins weakening. While this could be fixed by a “hefty spend on sales and marketing”, possibly funded by selling some of its 20% stake in the beauty giant L’Oréal, the company also faces the medium- and long-term challenge that its portfolio “is full of foods that may go out of fashion” amid growing concern over rising rates of obesity.
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How are Nestlé shares performing?
The “tumbling targets” follow trouble with IT last year and an “uncomfortable regulatory investigation” in France over allegations related to the purification of bottled mineral water, says Miles Costello in The Telegraph. As a result, Nestlé’s shares are down 14% in a year and close to their cheapest valuation in 10 years, at 18.4 times forward earnings.
But the group still has some “distinct competitive advantages”, including the “distribution clout created by its scale”, buying power with suppliers, and “diverse household-name brands that underpin pricing power”. Even concerns about health need to be seen in the context of the firm’s “increasing emphasis on health and nutrition”. The “ingredients exist for success”.
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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