Nestle’s CEO, Mark Schneider, announced on Thursday that the company will push through additional price increases this year.

The company’s reported sales for 2022 rose by 8.4% to 94.4 billion Swiss francs ($102.31 billion), but shareholders’ net profit decreased to 9.27 billion francs, falling short of forecasts of 11.58 billion francs.

“We are watching with interest in quite a few markets whether the inflation that was largely energy and commodity-led, whether that will translate into a wage-driven inflation,” Schneider said.

Nestle, the largest food company in the world, will increase prices further this year, according to chief executive Mark Schneider, after more expensive ingredients caused the full-year net profit to fall short of analyst expectations.

He said it was necessary to offset the harm brought on by rising commodity prices, but he declined to comment on the level of price increases that were anticipated.

They are likely to increase consumer worries about strained household budgets and weakened economies, which are already present due to inflation at multi-decade highs.

The manufacturer of KitKat chocolate bars and Nescafe instant coffee increased prices by 8.2% last year, but this did not completely offset the effect of rising ingredient costs on margins.

“Our gross margin is down about 260 basis points – that is massive. That is after all the pricing we have done in 2022,” Schneider told reporters.

Market-specific price adjustments are likely to differ. He claimed that while inflation has become more subdued in markets like China and Europe, it is still strong in the U.S. and the U.K.

In an interview in Switzerland, Schneider said: “We are watching with interest in quite a few markets whether the inflation that was largely energy and commodity-led, whether that will translate into a wage-driven inflation. Many countries negotiate their annual contracts at the beginning of the year, so that’s something we watch with interest, like everyone else.”

The company’s biggest margin-draining region last year was Europe, where Nestle suffered a margin loss of about 190 basis points.

“It had a lot to do with inflation hitting North America earlier, in 2021, and for different reasons. Europe saw a spike in inflation, in energy costs, especially after the invasion of Ukraine. And so, clearly, some of the annual negotiations were already done, and it was harder to initiate pricing action after that,” Schneider said.

In order to deal with rising costs for almost all raw materials after Russia’s invasion of Ukraine exacerbated the effects of pandemic-related supply chain bottlenecks, the rest of the packaged goods industry has also raised prices.

Inflationary pressures from logistics, more expensive arabica coffee, and dairy products have subsided but are still very high, according to Schneider.

Real internal growth, a measure of a company’s sales volumes, increased just 0.1% for the entire year due to the Nespresso business and North America.

According to Barclays analyst Warren Ackerman, Nestle’s decision to reconsider the range of products it produces and supply chain limitations will account for “almost all” of the lower-than-anticipated volumes.

The key question, according to Ackerman, is how much of the volume weakness brought on by these factors will continue into the first half of the year.

Nestle stated that it aimed for organic sales growth in the range of 6-8% in 2023, which eliminates the impact of currency changes and acquisitions.

The company reported an 8.4% increase in reported sales in 2022, reaching 94.4 billion Swiss francs ($102.31 billion).

Schneider claimed that despite price increases, demand remained strong and that customers were able to switch to less expensive options in a number of categories while still purchasing its brands.

The company’s “growth locomotives,” which include coffee and pet care, are “holding up extremely well,” he said.

“We also see continued trends toward pet food premiumization in all advanced markets, and usually those trends do not slow down or stop during times of economic uncertainty,” he added.

Although analysts noted that the consensus forecast did not take into account the impairment at Nestle’s Aimmune subsidiary last year, shareholders’ net profit decreased to 9.27 billion Swiss francs, falling short of expectations for 11.58 billion francs.

“Nestle’s fourth-quarter and second-half results will cause some mixed emotions,” Bernstein analyst Bruno Monteyne said, adding that Nestle’s water, confectionary and health science businesses contributed.

“Nestle rarely misses and that was a miss,” he said.

(Adapted from DeccanHerald.com)