By Emma Nitzsche
Nestlé Co. told consumers to expect increased prices on everything from ice cream to coffee and cereal in a Thursday conference call. The world’s largest food and beverage company cited higher input costs for transportation and raw materials as the reason for the price hikes.
Nestlé said the cost inflation would diminish margins this year, despite the strong demand for coffee that boosted organic sales in the first half of the year. Nevertheless, the company said it expects a profit margin this year of 17.5 percent.
The number reflects the slight downgrade brought by time delays between input cost inflation and pricing. Nestlé brands, including Gerber, Cheerios, and Nescafe, said it would need to raise prices by roughly 2 percent to offset the 4 percent cost increases. In 2021, Nestle raised prices by 1.3 percent.
As many retailers grapple with the rising prices of goods, some companies can hedge against cost increases. However, many companies cannot avoid rising costs of things like transportation and labor shortages, which puts pressure on the company’s margins.
In the conference call, Nestlé CEO Mark Schneider told reporters that “inflation has been virtually absent for a number of years and then pointed up very sharply. It hit us directly.” Still, Schneider believes the price hikes are temporary. Nestlé raised its sales growth outlook for 2021 to between 5 percent and 6 percent.
As more people resume their pre-pandemic daily activities, demand for some products has increased sharply, and global supply chains remain stretched. As a result, companies have warned about rising input costs across countless industries as the global economy slowly recovers from the pandemic.
Unilever, a significant rival of Nestlé, announced it would need to raise prices across multiple markets after facing higher input costs. Unilever owns several brands, including Ben & Jerry’s and Klondike. The company blamed high soybean oil prices, which increased 20 percent last quarter and are now up 80 percent compared to the previous year. Additionally, palm oil prices are 70 percent higher than their long-term average.
“Inflation is impacting us across the full spectrum of input costs in materials, in packaging, and quite notably in freight and distribution costs,” Unilever CEO Graeme Pitkethly told investors on July 22. “We have been and will continue to pull all the levers of pricing and saving.”
Investors and consumers alike are watching the inflation trends for signs of longevity. Last month, the federal reserve said that most price increases would subside or decrease after a year post-pandemic.
