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Nestle, Absolut owner to hike prices again amid high costs

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Inflation cut profit margins of Nestle, which makes KitKats and many other food products./AFP
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Feb 17, 2023 - 07:30 AM

ZURICH, SWITZERLAND — Swiss food giant Nestle and liquor group Pernod Ricard, owner of Absolut vodka and Jameson whiskey, announced fresh price hikes on Thursday due to inflation even as consumers across the world face a cost-of-living crunch.

Nestle, which makes Nespresso capsules, Maggi bouillons, KitKat chocolate bars and Purina pet food, said sales rose by 8.4 percent to 94.4 billion Swiss francs (95.5 billion euros, $102.3 billion) in 2022.

But its real internal growth — a measure of sales volumes — was up just 0.1 percent year-on-year, much lower than in 2021, suggesting that consumers were buying fewer of its products.

“Last year brought many challenges and tough choices for families, communities and businesses,” Nestle chief executive Mark Schneider said.

“Inflation surged to unprecedented levels, cost-of-living pressures intensified and the effects of geopolitical tensions were felt around the world,” he added, referring to the fallout from Russia’s invasion of Ukraine.

The company raised its prices by 8.2 percent on average last year as the cost of milk, grains and energy rose.

“Continued pricing action is needed to repair some of the damages we’ve taken from inflation,” Schneider said in a conference call.

Last week, British consumer group Unilever, which makes Magnum ice cream, Cif surface cleaner and Dove soap, also reported rising sales in 2022 after raising its prices by 11.3 percent on average.

But the group said its sales volume fell 2.1 percent and warned that it would continue to face higher costs.

Nestle’s underlying profit margin fell slightly to 17.1 percent.

Net profits fell by 45 percent to 9.3 billion francs in 2022 but the comparison with 2021 is deceptive since the disposal of shares Nestle held in L’Oreal boosted 2021 earnings.

Nestle’s board proposed a dividend of 2.95 francs per share, a 0.15-franc increase.

For 2023, the company expects sales growth of between six and eight percent when excluding exceptional changes, down from the 8.3 percent registered on this basis in 2022.

It hopes to hold, if not improve, its underlying trading operating profit margin, setting a target range of between 17.0 and 17.5 percent.

Pricier liquor 

French spirits giant Pernod Ricard, whose other brands include Beefeater gin, Martell cognac and Havana Club rum, posted a net profit of 1.8 billion euros ($1.9 billion) for the six months to December, up 29 percent from the same period in 2021.

Sales were up 19 percent to 7.1 billion euros in the same span thanks to a 10-percent price hike, with more increases looming.

“Costs were very high in this first half,” chief financial officer Helene de Tissot told AFP, adding that glass, logistics and ingredients such as grains and rectified spirit are more expensive.

Shipping bottles to Asia and the United States is one of the group’s biggest expenses.

“To protect our margins… we raised our prices significantly,” De Tissot said, adding that prices would have to go up as production costs remain high.

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