Nestlé is in trouble as it pushes prices up

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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