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Monday, July 15, 2024

Danone and Nestle to Ease Price Hikes in 2024

Consumer goods giants Danone and Nestle announce plans to moderate price hikes in 2024 after facing backlash due to two years of steep increases, driven by global supply chain disruptions and rising input costs.

Two of the world’s top consumer goods companies, Danone and Nestle, said on Thursday they will slow price increases in 2024 after two years of hikes that have prompted shoppers to seek cheaper alternatives for basic goods like yoghurt and coffee.

But Danone, which owns brands including Evian and Badoit water and Activia yoghurt, warned prices would still rise, citing a need to offset labour costs and shipping prices.

Their comments follow British rival Unilever, the maker of Ben & Jerry’s ice cream and Dove soap, which also said this month that price increases would start to ease.

The packaged goods industry has hit shoppers with higher prices for more than two years, citing rises in input costs that started with the COVID-19 pandemic and were exacerbated by Russia’s invasion of Ukraine.

Everything from sunflower oil to freight has become more expensive, taking a toll on global supply chains and fuelling a protracted cost of living crisis.

“We hadn’t seen that sort of inflation spiking since 1973, 1974,” Nestle CEO Mark Schneider told a call with journalists on Thursday. The Swiss firm, maker of Maggi stock cubes, KitKat chocolate wafers and Nescafe coffee, is the world’s biggest packaged food company.

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Investors and analysts have raised concerns that companies are pushing price rises too far and recommended they focus more on marketing and innovation, as cost of living worries help retailers’ cheaper private label brands steal market share.

Higher prices have taken their toll on big brands’ ability to compete, and Unilever’s CEO Hein Schumacher said earlier this month that the company’s “competitiveness remains disappointing”.

This quarter, however, companies have said 2024 prices will rise at a much slower rate as they recoup higher costs.

“Pricing will be a lot lower this year than last year,” Nestle’s Schneider said. “Growth going forward this year is going to be a lot more volume and mix-based,” he added, saying this would likely be “pretty universal”.

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As a result, the company expects slower organic sales growth of around 4% in 2024, and a “moderate increase” of its underlying trading operating profit (UTOP) margin. The 2023 UTOP margin was 17.3%, up by 40 basis points in constant currency.

Danone CEO Antoine de Saint-Affrique was more measured, saying during an earnings call that “we are in a world of slowing-down inflation” but that there would still be “volatility”.

“We expect to have a price component in our growth, it will differ by regions,” Saint-Affrique said.

Unilever’s Schumacher said earlier this month: “We will continue to see inflation in 2024. I would say it will return to normal levels – when I say normal, I mean somewhere between 2.5-3%.”