Big Consumers Win as Shoppers Swallow Price Increases

ZURICH/LONDON—Nestlé and Procter & Gamble (the world’s two largest consumer goods companies) have said shoppers will pay more for products such as Nescafé coffee and Gillette razors despite record inflation. As a result, it reported better-than-expected sales on Wednesday.

Nestlé, which also makes Cheerios cereal and KitKat chocolate bars, reports better-than-expected sales results, passing on higher costs to shoppers amid soaring food prices around the world, sparking record inflation I succeeded.

Similarly, Tide detergent maker P&G saw its quarterly sales and earnings rise, helped by higher prices on everything from Head and Shoulder Shampoos to Gillette Razors, despite a strong dollar weighing on earnings from overseas markets. Earnings exceeded expectations.

Many consumer goods companies thrived during COVID-19 as people stockpiled products, but emerged as winners again in times of global crisis, forcing people to pay more for everyday products. and maintain double-digit profit margins.

Also, the cost of living crisis has made people less willing to go to restaurants and more people are eating at home. So far, demand for food and consumer goods has fallen at a slower pace than discretionary items such as apparel and electronics, as consumers prioritize spending on essentials.

“We are also seeing consumers shift to two different price points,” said André Schulten, P&G’s chief financial officer.

“Consumer groups are looking for value by swapping to larger transaction sizes to lower cost per use or lower cost per unit. Some consumers are very focused.”

While the sector has faced lower margins over the past 18 months due to rising costs, Nestlé has reiterated its operating margin target of around 17%.

The UK consumer price index rose 10.1% in September. This was fueled by his biggest food price hike since 1980. Meanwhile, in the United States, prices rose his 8.2%, widening the pockets of consumers who already spend a lot of money on fuel and mortgage payments.

Nestlé posted its strongest nine-month sales growth in 14 years and raised its full-year guidance. Organic sales, which exclude the impact of currency movements and acquisitions, increased by 8.5% in his nine months to the end of September. This was his highest rise in nine months since 2008 and was due to higher prices to offset rising costs.

“We delivered strong organic growth as we continued to responsibly adjust our pricing to reflect inflation,” said Marc Schneider, CEO of the company.

According to P&G, average prices for the product line increased 9% in the first quarter ended September 30, while volume declined 3%.

“Last year we set prices for all 10 product categories,” says CFO Schulten.

Nestlé shares were up 0.2%, while P&G was up 2%.

Their results bode well for rival food giant Unilever and dettle maker Reckitt, both of which will report results next week.

But despite strong sales, some analysts say rising prices will quickly overwhelm consumers, and some products will likely fall amid a cost-of-living crisis that has seen industry-wide sales decline. I am concerned that the price of the may become unaffordable.

“I worry about the pricing power of each category, especially when it comes to discretionary foods,” said Chris Beckett, head of equity research at Quilter Cheviot. rice field.

“So far, sales volumes have been doing well, but we are far from peaking in cost of living pressure.”

Nestlé’s Schneider expressed concern over the “challenging” economic environment, which he said was hurting the purchasing power of many customers.

($1 = 0.9953 Swiss Francs)

Richa Naidu, Jessica DiNapoli, John Reville