Nestlé reported impressive 9.3% organic growth in its third quarter, but its positive performance masks the first quarterly volume decline that the group has seen in eight years, GlobalData analyst Amira Freyer-Elgendy has said.
‘As far back as 2014, the company has not needed to report a negative volume (RIG) growth rate in any quarter, but Q3 2022 has blemished this clear record with a -0.2% decline,’ Freyer-Elgendy wrote in a briefing note.
‘Softer volumes are due to high 2021 comparatives [and] supply chain constraints and it indicates that some customers are starting to leave the brand in light of price rises and trade down to more affordable options.’
The group’s third-quarter sales growth was driven by pricing (+9.5%), which takes its year-to-date pricing up by 7.5%. In addition, higher inflation in the supply chain has led to Nestlé lifting its full-year outlook from 7% to 8% last quarter to a steady 8%, GlobalData noted.
Further Volume Declines
According to Freyer-Elgendy, volumes may be set to decline further in the coming months, as consumers cut back on spending.
“North America – Nestlé’s biggest region in terms of overall sales, accounting for 27.6% so far this year – is most affected by price hikes, with 11.1% price growth this year. This is paired with the weakest volume growth – a stagnant 0.1% YTD,” she said.
Seeking Cheaper Products
According to GlobalData’s 2022 Q3 consumer survey, 25% of US consumers are more likely to start buying cheaper alternatives in the next three months, versus the global average of 22%.
“North America’s sales have been driven by strong growth in [Nestlé Purina] PetCare and Nespresso sales,” commented Freyer-Elgendy.
“These regional gains in the Nespresso category are offset by a sales decline in Europe, diluted by foreign-exchange rates and slipping volumes (-1.9%) across the year. Fewer consumers drank coffee at home compared to last year, due to coronavirus restrictions lifting, but Nespresso consumption remains up on pre-pandemic levels.”
To combat this, Nestlé is investing in new-product launches, such as its Vertuo Pop machine, as well as new initiatives to stimulate shopper loyalty, such as the Nescafé Plan 2030, a strategy to implement regenerative agriculture practices and reduce emissions from the coffee supply chain.
“Despite price and margin pressures, investment in environmental action remains important, as 63% of the global population strongly or somewhat agrees that they are more loyal to brands that support environmental matters [GlobalData’s 2022 Q3 consumer survey] – up from 56% in Q3 2021,” said Freyer-Elgendy.