Nestlé SA has revised its sales forecast downward for the year, citing a slowdown in consumer spending on branded food, water, and pet-care products due to recent price hikes. The company now anticipates a sales growth of at least 3%, down from its previous target of approximately 4%. The world’s largest food company is facing challenges in regaining market share as consumers increasingly opt for lower-cost alternatives.
Nestlé’s shares fell by 3.4% in early trading in Zurich and have declined about 14% over the past year. The company’s revenue increased by 2.1% in the first half of the year, missing analysts’ expectations of a 2.5% rise. The majority of this growth was driven by higher prices, which notably slowed in the second quarter. Nestlé’s coffee division, benefiting from higher commodity prices, was the leading contributor to organic growth, with increases in the mid-single digits.
The ongoing cost-of-living crisis has led consumers to switch to more affordable supermarket brands, creating difficulties for major consumer goods companies like Nestlé in winning them back. In response to the lower growth projections, Nestlé may need to implement more aggressive cost-cutting measures and explore potential acquisitions or divestitures to enhance profitability.
After experiencing high input cost inflation, Nestlé has been working to restore its gross margin, which improved to 47% in the first half of the year from 46% two years ago, though it remains below 2021 levels. CEO Mark Schneider acknowledged that the company is still in a “repairing mode,” and anticipated further pressure on the gross margin in the second half of the year due to rising coffee and cocoa prices.
To address these challenges, Schneider is focusing on innovation, including a new product range designed for consumers using GLP-1 weight-loss medications. This range is expected to launch at the end of the third quarter as part of Nestlé’s strategy to align with evolving consumer trends and drive future growth.
