World’s Largest Food Company Hikes Prices Nearly 10% In Just Three Months Due To Inflation Pressures

Original article here.

Nestlé, the largest food and drink company in the world, raised prices by a collective 9.8% in the first three months of the year as inflationary pressures increased input costs for the business.

The Swiss conglomerate, which owns a variety of food brands such as Purina, Gerber, Nescafe, and KitKat, said in an earnings report that the price increases in several markets across the world came as a result of “significant cost inflation.” The firm’s Latin American and North American markets saw 13.4% and 12.4% price hikes respectively, while the European market saw a 10.7% price increase and the Chinese market saw a 3.9% price increase.

“Nestlé delivered strong organic growth in the first quarter, as our teams worked diligently to protect volume and ensure resilient mix,” Nestlé CEO Mark Schneider said in the earnings report. “Portfolio optimization efforts and responsible pricing helped to offset the ongoing pressures from two years of cost inflation.”

The company meanwhile reported 5.6% worldwide sales growth and a 0.5% decrease in real internal growth, a metric which the company says represents the impact on sales of volume increases or decreases, weighted by the relative value of each unit sold.

Inflation in the United States rose 5.0% between March 2022 and March 2023, marking a reprieve from the 9.1% inflation rate charted last summer. Food inflation nevertheless continues to trend well above other categories: the cost of food at home rose 8.4% year-over-year as of last month, according to data from the Bureau of Labor Statistics.

Other companies in the food sector have noted that rising price levels in the category are likely to persist for the foreseeable future. Walmart U.S. CEO John Furner confirmed in an earnings call two months ago that food inflation “has been the most stubborn” driver of elevated price levels and noted that only “a little bit” has declined in the past several months.

Walmart CEO Doug McMillon previously said that households that had once shopped at more expensive grocery stores were shifting their business to the grocery behemoth to contend with rising prices. McDonald’s CFO Ian Borden likewise announced that the fast food restaurant chain’s relatively less expensive offerings had drawn new business.

“We can actually look at what is our share amongst low-income consumers; we’re gaining share right now among low-income consumers. And that goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability,” Borden said during an earnings call. “To the degree that we end up in a more challenging economic environment in 2023, that’s going to be helpful to our business trends.”

The recent decreases in headline inflation come as policymakers at the Federal Reserve increase target federal funds rates, which mitigates price level increases but inhibits economic activity due to the increased cost of borrowing capital for consumers and businesses. Officials had previously established near-zero interest rates to stimulate the economy during the lockdown-induced recession.

President Joe Biden has repeatedly asserted that his administration is responsible for the cooling price level increases in some product categories, even as inflation rates remain between three times and four times higher than those seen at the start of his term. “We are making progress in the fight against inflation,” he commented in a statement. “The fight against inflation isn’t over, and every day my administration is working to give families more breathing room.”