Nestlé’s sales hit by price hikes; denies drug impact

London — Nestle posted lower-than-expected nine-month sales growth on Thursday as higher product prices made shoppers balk and hurt volumes, and said it had not seen any impact from weight loss drugs on its sales.

The packaged goods industry has for over two years hit shoppers with higher prices, citing higher input costs that started with the Covid-19 pandemic and were worsened by Russia’s invasion of Ukraine. Everything from sunflower oil to freight has become more expensive, taking a toll on global supply chains.

Nestle’s 8.4% price increase was below the average analyst estimate of 8.6%. Real internal growth (RIG) — or a measure of sales volumes — fell 0.6%, meeting expectations. In the third quarter, RIG improved to a decline of 0.3%, Nestle said.

The company’s CEO, Mark Schneider, said he had “confidence that real internal growth, the sum of volume and mix, will turn positive in the second half of the year and again become the main driver of growth going forward”.

Investors and analysts have raised concerns that companies are pushing price rises too far and recommended that they focus more on marketing and innovation, amid a cost-of-living crisis that is seeing retailers’ private label brands stealing market share.

Organic sales, which exclude the impact of currency movement and acquisitions, rose 7.8% in the nine months ended September, the maker of Maggi stock cubes and Nescafe coffee said.

Analysts had on average expected organic sales growth of 8.1%.

Total reported sales decreased by 0.4% to 68.8-billion Swiss francs ($76.54bn).

Executives have in recent quarters flagged that costs are rising at a slower pace, but also warned that shoppers would continue to pay more for products like soap, toilet paper and coffee, because companies still have not recouped years of damage from higher expenses.

Weight loss drugs

A Nestle spokesperson said the firm had “not seen any impact from [weight loss drugs] on our sales”, referring to the potential threat posed to the packaged food industry by Novo Nordisk’s blockbuster weight-loss drug Wegovy.

The drug’s popularity has prompted concerns in the consumer and retail industry over whether food sales will be affected. Nestle shares fell this month after Walmart, the world’s biggest retailer, said that it saw a slight pullback in food consumption with people taking appetite-suppressing drugs like Wegovy.

Wegovy, shown to help patients reduce body weight by about 15% when used along with exercise and lifestyle changes, is so far available in the US, Norway, Denmark and, as of late July, Germany.

Referring to estimates that Wegovy and other drugs will generate returns of more than $12bn in coming years, Novo Holdings CEO Kasim Kutay has said: “If these forecasts are correct, that’s a hell of a lot of money coming our way over the next decade and hopefully more.”

Nestle confirmed its full-year outlook of organic sales growth between 7% and 8% and underlying trading operating profit margin between 17.0% and 17.5%.

Reuters