In a major price hike this year, the world’s largest food and drink company, Nestle, raised prices of its products by more than 5 percent in the first quarter of this year, in an effort to pass rising manufacturing costs to its customers.
In its first-quarter earnings report, the company stated that North America was the hardest hit by the price hike, with an average 8.5 percent price hike across the board. Latin America saw the next highest price increase of 7.7 percent across Nestle products.
Nestle CEO Mark Schneider indicated that more price increases are imminent. In a statement, he said that Nestle has stepped up pricing in a responsible manner, and witnessed sustained consumer demand. He also said that cost inflation continued to rise sharply, which would require additional pricing and mitigation actions during 2022.
Currently inflation across the globe is soaring. In the United States, consumer price inflation touched 8.5 percent in March – the highest in 40 years. The consumer price inflation in Europe is at 7.5 percent, its highest in the last 25 years since data has been collected. In the biggest increase in 73 years, food prices leaving German factories have risen by 30 percent.
Nestle financial projections on track
The biggest driver behind inflation is Energy, but worldwide, food prices have also been soaring. The company reported a 5.4 percent increase in sales in the first quarter of this year, and is projecting sales to grow by 5 percent over the full year. The biggest contributors to its first quarter growth were brands like Purina Petcare, Nescafe and KitKat.
But higher costs could drag on profits. The company forecasts its underlying profit margin this year to be between 17% and 17.5%, compared to 17.4% in 2021.
A combination of poor weather, the pandemic and skewed agriculture has threatened food security for millions of people. Russia’s war on Ukraine has made a bad situation even worse, by forcing an increase in prices of staple goods like wheat and vegetable oil.
The President of The World Bank, David Malpass has warned of a human catastrophe that will be caused by skyrocketing prices, while also saying that prices could rise by as much as 37 percent, as a direct consequence of the war in Ukraine..
The Swiss food giant pulled some of its best known brands, including KitKat and Nesquik, from Russia following Russia’s invasion of Ukraine in February, but continues to supply essential food products on humanitarian grounds.