Nestlé has revealed that cost pressures affecting its US ice cream business led to it scrap promotion-led sales in 2012 and says the impact on pricing had been “quite dramatic”.
Today the Swiss multinational reported group sales of CHF 21.389bn (€17.8bn) for January to March 2012 (Q1 2011: CHF 20.261bn) and 13% growth in emerging markets and 3.1% in developed markets.
But CEO Paul Bulcke warned that 2012 was proving a “challenging year” with low consumer confidence in developed markets such as the US.
Nestlé reported declining growth in North America across a number of categories where pricing was higher. Sales were also sluggish in Europe (2.3% organic growth: sales CHF 3.6bn) but Asia, Oceania and Africa grew an impressive 11.4% (sales CHF 4.6bn).
US premium ice cream
Nestlé’s milk products and ice cream business grew 8.5% on Q1 2011 to CHF 4.23bn, but during an investor call to discuss the firm’s results, one analyst asked head of investor relations Roddy Child-Villiers about higher ice cream prices.
“Is the ice cream business pushing pricing, or is there a mix effect? What is behind these very important pricing factors in that category overall,” he said.
Child-Villiers replied: “I think there are two fundamental things – answering your question on milk and ice cream.
“There’s cost pressure so we’re taking price, and in the US the premium ice cream segment (which in Europe would be the mass ice cream segment) has always been sold very heavily on promotion.
“And we have changed our promotional strategy to make it less promotion-led, and that has had a positive impact on pricing which is quite dramatic. I think you’ll see that’s true across the industry.”
So did these factors underpin the numbers since mid-2011, the analyst asked or was it something relatively new?
“It’s more this year than last year – last year’s pricing reflected the fundamental raw material cost pressure, this year’s pricing reflects a carry-through of last year’s pricing and raw materials and what we’re doing on ice cream,” Child-Villiers replied.
'Tough' European markets
Elsewhere, “tough markets” in Europe (Portugal, Spain, Italy Greece) still delivered positive organic growth for Nestlé, Child-Villiers said, albeit not at 2011 levels, although he said that Italy was “doing pretty well” with the firm outperforming peers.
“But there are issues. The quite significant increase in VAT in Portugal is a bit of a challenge – take Nescafé Dolce Gusto, and the impact of the VAT increase is to push the price of a box of capsules above €5, which is quite a challenging price point,” he said.
“So there are issues in those markets that we need to manage – although overall we’re still eeking out growth.”
In Asia, Oceania and Africa, product categories underpinning double-digit growth for Nestlé included dairy, powdered and ready-to drink beverages.
Infant formulas and infant cereals (part of the Nestlé Nutrition business) saw “dynamic growth” in Asia, Africa and Latin America, offsetting slower or declining birth rates in many developed markets.