Half-year results expected to test Nestle’s pricing and volume strategy
Nestle, the Swiss maker of KitKat chocolate and Nescafe coffee, said it is adjusting its product portfolio and packaging as grocery shoppers split between two extremes: large value packs offering the lowest cost per unit and small budget-sized portions with the lowest checkout price. Mid-sized formats are being left on shelves.
“In tough times, purchasing polarizes,” David Rennie, Nestle’s marketing and sales chief, told the Wall Street Journal. “The bit in the middle always gets squeezed.”
Rennie said there is no market globally where consumers are not feeling cash-constrained, making the polarized buying pattern an international phenomenon.
In the United States, the affordability crunch has sharpened notably over the past six months, according to Jeff Hamilton, CEO of Nestle’s operations in the Americas.
“We really see the strain on personal spending in the U.S. It’s even more pronounced over these last few months,” Hamilton said in an interview.
Nestle is responding by concentrating on what the company calls real internal growth — organic sales volume — rather than pushing through additional price increases, Hamilton said. The company has been adjusting its portfolio, pricing, and range of pack sizes to cater to consumers under pressure while still positioning for volume growth, he added.
The strategy marks a shift from prior years when Nestle raised prices more aggressively, a period during which the company sold fewer products as some consumers turned away from higher-priced items.
Consumer-goods brands more broadly are experimenting with different package sizes to keep stretched shoppers buying. PepsiCo, Campbell’s and Mondelez International are among companies that have added smaller packages with lower price options.
MSI previously reported that brewers including Sierra Nevada and Constellation Brands are rolling out smaller beer cans and bottles as consumers seek to moderate alcohol consumption. Restaurants have also added smaller portion menus aimed at diners on tighter budgets.
In Nestle’s coffee business, prices hinge on volatile commodity markets. As cocoa bean prices fluctuate, the business adjusts prices up or down depending on its costs while trying to keep them in check and offering lower-priced products like instant coffee, Nestle coffee chief Axel Touzet told the Journal this week.
Volume growth is a central question for analysts ahead of Nestle’s half-year results due later this month. Barclays analyst Warren Ackerman wrote in a note that a main question is whether the company can deliver on volumes.