Nestlé, the world’s largest food group, says the price of staple items will rise further this year, adding to a string of warnings from consumer giants of more pain to come for stretched households.
The maker of Nescafé coffee and KitKat chocolate bars increased prices by 8.2% in 2022, but said this was not enough to offset a rise in its own costs, which had dented its profits.
“We are still in a situation where we’re repairing our gross margin and, like all the consumers around the world, we’ve been hit by inflation and now we’re trying to repair the damage that has been done,” Nestlé CEO Mark Schneider said on a call with reporters Thursday.
Price increases will be “very targeted” and only implemented where “input cost inflation justifies that,” Schneider added, although he declined to say which of the company’s 2,000 brands, which span frozen food, confectionery and baby formula, would be affected.
Unilever (UL), Coca-Cola (KO), brewer Heineken (HEINY), Colgate (CL)-Palmolive and Procter & Gamble (PG), which makes Pampers nappies and Pantene shampoo, have all flagged further increases in the prices of their goods this year, as they grapple with elevated commodity, energy and labor costs.
The costs of raw materials such as energy, dairy products and grains remain high, even though they have receded from their peaks. Labor and logistics costs have also climbed. That means prices for goods in stores are unlikely to fall any time soon.
“We’re probably past peak inflation, but we’re not yet at peak prices,” Unilever’s chief financial officer Graeme Pitkethly told journalists on a call last week.
Food, including ice cream, will see significant price increases in 2023, CEO Alan Jope said on the same call.
UK-based Unilever, which makes Hellman’s mayonnaise, Knorr stock cubes and Ben & Jerry’s ice cream, raised prices by 13.3% in the final three months of 2022, its eighth successive quarter of price increases.
Consumer goods companies have a tricky balance to strike. While increasing costs are squeezing their profit margins, raising prices too aggressively risks driving shoppers away.
Unilever said price increases caused sales volumes to decline by 2.1% in 2022. Likewise, Nestlé reported a drop in sales volumes in the second half of last year and said it was partly driven by pricing.
Heineken, meanwhile, said it expected to sell less beer in Europe this year because of “steep” price increases related to energy costs.
As shoppers try to keep grocery bills down, retailers’ own brands may be the winners. Walmart (WMT), for example, has seen strong growth in its private label sales, and that trend is extending to retailers in Europe.
Jope said Unilever had “recently seen share gains by private label in Europe in most categories as the economic situation weighs on shoppers.”
As well as driving shoppers to private-label products, steep price hikes have led to some tense negotiations between consumer goods companies and their retailer customers. Jope said Unilever had “robust” conversations with retailers, who “demand evidence of the costs we are facing before they will tolerate increases.”
On Thursday, Nestlé’s Schneider would not be drawn into specifics on the company’s talks with retailers but acknowledged that “intense negotiations are taking place.”
“Everyone has the same goal and that is to shield the consumer from excessive inflation,” he said.
As a result of disputes over pricing in the past year, some branded products have been removed from shelves for short periods.
During price negotiations last summer, Kraft Heinz (KHC) stopped supplying some products, including tomato ketchup and baked beans, to the biggest UK grocery retailer Tesco (TSCDF). At the time, Tesco (TSCDF) described the company’s price increases as “unjustifiable.” Once the products were restored, prices were unchanged on Heinz’s most popular lines.
Tesco has also “fallen out with other suppliers” over price increases, its chairman John Allen recently told the BBC.
Supermarket executives may see such tussles as part of their job description. On Tuesday, Alexandre Bompard, the CEO of France’s biggest grocery retailer Carrefour (CRERF), said its role was to negotiate with suppliers and “make sure we limit the increase as much as we can to protect customer purchasing power.”
Bompard added that the company would “significantly increase” the share of its private labels to reach 40% of sales over the next three years.
“Trading down,” where shoppers buy cheaper versions of the same product, accelerated during 2022 in all of Carrefour’s markets, which include Spain, Italy, Brazil, Argentina and Taiwan, he noted.