Nestlé, the world's largest packaged food company, is preparing to raise prices on its products again. This is due to record increases in the prices of coffee and cocoa. The company has made it clear that KitKat chocolates and Nespresso coffee pods may become more expensive in the coming months.
Nestlé CEO, Laurent Freixe, reported that prices had already been increased significantly in the first half of 2024, but the company may need to implement another round of price hikes in the second half of the year.
Coffee and Cocoa Break Record Boundaries
Since the beginning of 2023, the prices of Arabica coffee have doubled, while cocoa prices have tripled. These are both key raw materials for Nestlé, used extensively in chocolate and coffee products.
Furthermore, the strengthening of the Swiss franc against the US dollar has also impacted the company's earnings, as Nestlé's headquarters are in Switzerland.
New US Tariffs Increase Problems
Nestlé may face another setback from new US tariff policies. The company believes that their impact is currently small, but could become more significant in the second half of 2024. US tariffs could increase the cost of Nestlé's exported products, potentially leading to a further decline in profits.
Major Change in Company Strategy: Fewer, Bigger, Better
Nestlé is now changing the direction of its entire product portfolio. The company is now focusing on "fewer, bigger, better" products. CEO Freixe said that they will now focus on products that are profitable and have sustained global demand.
Nestlé has identified six major priority categories in which the company will now invest more:
- Infant Formula
- Nescafé Espresso Concentrate
- Maggi Air Fryer Range
- Chocobakery
- Purina Gourmet (Cat Food)
- Nescafé Dolce Gusto Neo
The company plans to expand these products globally.
Weaker Brands Will Be Eliminated
Nestlé is also preparing to cut back in its health supplement sector. The company is conducting a strategic review of its two large but weaker brands – Nature’s Bounty and Osteo Bi-Flex –. If everything goes according to plan, these brands could be sold off in the coming months.
This move by Nestlé signals that the company wants to simplify, streamline, and focus its business to achieve stable and b growth in the future.
Decline in Sales and Profit Figures
Recently released quarterly figures are also increasing Nestlé's concerns.
- Organic sales growth was 2.9 percent (compared to an estimated 2.8 percent)
- Price increases were 2.7 percent (estimated 2.5 percent)
- Total sales decreased by 1.8 percent, to 44.2 billion Swiss francs
- Profit margin decreased by 0.9 percent, now at 16.5 percent
These figures clearly show that Nestlé is facing economic pressure due to raw material prices, global tariffs, and currency fluctuations.
Consumers May Have to Endure Inflation
Due to these circumstances, consumers must now prepare for more expensive KitKats, coffee pods, chocolates, and other food products. Nestlé says it cannot fully absorb the impact of costs, so a portion of it will be transferred to customers.
Nestlé has already indicated that prices for its packaged food products may rise once again.
Focus Will Also Be on the Premium Segment
Nestlé is now also focused on strengthening its premium products segment. The company is strategizing to advance products like the new 'Chocobakery' line of chocolates, specialty coffee ranges, and the cat food brand 'Purina Gourmet'.
These products have higher profit margins and greater customer loyalty. The company is working to increase profits by promoting such products in high-income markets.
