Nestlé says prices are going even higher

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Nestlé, which sells everything from ice cream to coffee and grains, said Thursday it would respond to rising input costs by raising prices in the second half of the year.

“Inflation was virtually absent for a number of years and then rose sharply. It hit us directly,” CEO Mark Schneider told reporters on a conference call.

Schneider said he believed inflation was transient. But the owner of brands such as Nescafé, Gerber and Cheerios said he would need to increase prices by around 2% to offset cost increases of 4%. Nestlé increased its prices by 1.3% in the first half of 2021.

The company can guard against certain cost increases, such as rising coffee prices, Schneider said. But he cannot avoid the rising costs of things like transportation, which puts pressure on the company’s margins.

Nestle (NSRGF) said he expects a profit margin this year of 17.5%, a slight drop that partly reflects “the lags between inflation in input costs and prices.” Despite this, the company raised its sales growth outlook for 2021 to between 5% and 6%.
Pallets of Nestlé Nescafé instant coffee in the bonded warehouse prior to shipment to a factory in Switzerland.
Companies General Electric (TO GIVE) To Anheuser-Busch InBev (BUD) and Unilever (the) have warned in recent weeks of rising input costs as the global economy recovers from the coronavirus pandemic. Demand for some products has increased sharply as people resume their trips and return to the office, and global supply chains remain strained.

Some companies are able to hedge against rising prices, for example by purchasing commodity futures, or choose to absorb higher costs. But others pass the cost increases on to consumers, pushing up prices in supermarkets, restaurants and goods retailers.

Nestlé rival Unilever said last week it was raising prices in several markets and product categories in response to rising input costs. The owner of brands including Ben & Jerry’s cited the example of soybean oil prices, which rose 20% in the last quarter and are now up 80% from the previous year. Palm oil prices are 70% higher than their long-term average.

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“Inflation affects us across the spectrum of input costs in materials, packaging and especially transportation and distribution costs,” Unilever CFO Graeme Pitkethly told investors on July 22. . “We have been and will continue to pull all the levers of pricing and economy.”

The big question is whether shortages and price hikes are temporary byproducts of the pandemic, or whether the global economy is changing in a way that could permanently raise the cost of doing business and usher in a new era. inflation that could undermine the purchasing power of consumers.

Central banks, including the US Federal Reserve, are wondering how to react. Many economists believe the price hikes will be fleeting, but if they are wrong, central banks could be forced to abruptly withdraw support for the economy later this year in order to keep inflation under control.

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