The head of Nestlé warns buyers to expect further price increases

Nestlé Chief Executive Ulf Mark Schneider said inflation will remain an issue in 2023 even after the world’s biggest food maker posts its biggest price hike in decades this year.

“This is a situation no one wanted,” Mr. Schneider said in an interview.

“We’re seeing a lot of pressure on energy, some agricultural commodities, as well as transportation costs.”

Volume of goods sold fell 0.2% in the third quarter as Nestlé raised prices by 9.5%.

So far, consumers have been willing to shoulder higher costs despite the surge inflation which squeezed household budgets and raised producer prices for raw materials.

Nestlé hasn’t passed on all the rising production costs to consumers, the CEO said.

The impact of rising energy prices in Europe also risks stifling demand Nestlé as cash-strapped consumers switch to cheaper products. Wages will add to cost pressures next year as talks in most countries take place before the first quarter, Mr. Schneider said.

The maker of Nespresso coffee capsules and Purina pet food said it expects full-year revenue to grow about 8% in 2022, the upper end of its previous forecast.

The group reaffirmed its operating margin target of 17% for the year, which would be the second consecutive annual decline.

There is growing concern that manufacturers of branded packaged goods may begin to lose market share to private label manufacturers.

Inflation is rising rapidly, last month the inflation rate in the Eurozone reached a record 10%.

In the UK, food and soft drink prices rose by 14.6% in the year to September.

The quarterly drop in volumes suggests that the strategy of increasing prices may face a limit, but analysts were not too alarmed.

In a research note, Bruno Montaigne, an analyst at Bernstein, said there are “no signs of an imminent consumer demise yet,” adding:

The company continues to do what it always does: strong growth, diversified strength and no surprises.

While Purina and Nescafé led growth, demand for dairy products, ice cream, ready meals and cooking aids showed signs of decline.

Nespresso saw volumes decline and sales in Europe fall after a strong 2021 with double-digit growth.

Meanwhile, grocery giant Procter & Gamble beat estimates for quarterly sales and profit as higher prices on everything from Head & Shoulders shampoo to detergent helped offset the effects of higher raw material costs and a stronger dollar.

Shares of P&G rose 3% as it also maintained its full-year organic sales forecast, even as inflation cuts into consumer spending.

Demand for consumer staples has so far declined more slowly than for discretionary goods such as clothing and electronics as consumers prioritize spending on essentials.

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