Nestle, the world’s largest food seller, has experienced a decline in sales due to customer resistance against higher prices. The company reported a 0.3% drop in its closely-watched real internal growth (RIG) metric, which measures the volumes of products it sells. This decline can be attributed to cost-conscious customers who were reluctant to purchase Nestle products following the company’s decision to implement price hikes.
Nestle’s CEO, Mark Schneider, acknowledged that the last two years have seen unprecedented inflation, which has put pressure on consumers and affected the demand for food and beverage products. In response to rising costs of ingredients, including cocoa, Nestle increased its prices by 7.5% throughout 2023 in an attempt to boost its profit margins. However, this strategy seems to have backfired as customers opted for alternative options instead.
The decline in sales has had a negative impact on Nestle’s stock performance. Its Switzerland-listed shares fell by 4% on Thursday and had already dropped by 13% over the previous 12 months. The company failed to meet analysts’ expectations as its real internal growth fell short of forecasts that predicted a 0.1% increase. Nestle’s reported sales also decreased by 1.5% to 93 billion Swiss francs ($106 billion). Despite this decline, the company managed to increase its gross profit margins to 45.9%, up from 45.2% in the previous year.
Foreign exchange rates further contributed to the decline in Nestle’s sales. The surge in the value of the Swiss franc had a negative impact of 7.5% on the company’s overall sales. Despite these challenges, Nestle remains optimistic about its future prospects. The company aims to focus on increasing its volumes and has predicted organic sales growth of 4% throughout 2024. It also plans to make moderate increases to its profit margins.
Nestle’s CEO emphasized the company’s commitment to enhancing value for consumers through active innovation and renovation, premiumization, affordability, and offering more nutritious options. These strategies align with Nestle’s long-term goal of achieving gross margins of 50%.
In conclusion, Nestle’s decline in sales can be attributed to customer resistance against higher prices. The company’s decision to implement price hikes has driven customers away from its products, resulting in a drop in real internal growth. Nestle’s stock performance has also been affected, with a decline in share prices. Despite these challenges, the company remains focused on increasing volumes and achieving organic sales growth. Nestle aims to prioritize innovation and provide consumers with more nutritious options in order to enhance value and regain customer trust.
