Nestle CEO on Third-Quarter, Price Hikes, Outlook

Nestle SA CEO Mark Schneider discusses third-quarter performance, the impact of inflation on product pricing, and outlook on “Bloomberg Surveillance: Early Edition.”

I mean it is pretty incredible that you’ve you know passed on the biggest price rise in decades are you worried that people will buy less that people will not be able to afford your products especially in europe i’m saying good morning and thanks for having me good to be back on the show and um look this is a situation that no one wished for and what we’re trying to

Do here is protect our margins from some of the same pressures that every family feels so we’re seeing uh that huge upward pressure coming from energy some of the agricultural commodities and and also transportation costs and we’re not even passing everything on because as we saw with our half year numbers our close margin has also been reducing over the last year

And a half so in a sense we are struggling to catch up and understandably these numbers get all the headline but they’re only partially recovering some of the additional cost pressures that we’re seeing we’re seeing you know different government support in terms of different countries in europe so are there countries where you worry more about consumer backlash

Because of increasing prices just because inflation is too high for them and their wages aren’t following so far we’ve seen only very limited trading down and i think the big unknown especially for western europe for the fall and winter is energy insecurity and how hard that is going to be hitting household disposable income after energy cost and that’s the one

Where we are watching very closely and seeing how the fall and winter will play out whether consumers are switching to white labels a factory again of consumer spending of the cost of living crisis of energy prices of the winter months where do you think or when do you think peak consumer angst is well when it comes to white labels do keep in mind we’re not only

Offering premium brands we have brands across a number of price points and so when there’s trading down it doesn’t mean we lose that consumer we may be able to have a compelling offering at a different price point we are also promoting more in terms of value pack and larger pack sizes with the white label you’ve seen a bit of a recovery because most of these private

Label brands have been suffering a lot due on covert times some of the supply chains weren’t holding up as well as with the printer goods manufacturers so some of the recovery there was already ongoing we now need to wash over the winter exactly how the situation unfolds so mark when you look at all the products that you want for all the categories which category

Do you think is more resilient to price hikes i think in general there was large key categories we have like coffee and petria tend to be very resilient we know that from past crisis and also from other markets around the world so clearly there’s a lot of legends here to these brands and to these products and i think that bodes well under the circumstances i mean

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To protect your margins there are you know other things that you could do and increase you know for example making some of the packaging smaller or the size is smaller but at the same price point has this been done will it be done well a key part for us was to actually look internally and see where we can find efficiencies so they don’t all the pressures here that

We saw on the gross margin arrive at the bottom line and so a lot of internal cost savings have happened over the last year and a half and then we also have undergone a very aggressive program which we call cut the tail to push the head so this is low rotation skus being phased out in favor of high rotation more successful core skus that helps to improve supply

Chain efficiency and the other thing is it really improves visibility of those core offerings so it helps sales down the line so your volume measure which is basically real internal growth actually contracted in the fourth quarter but on the nine months it was rising what does that tell you about price pressures well i think it’s important that we’re living at

A very volatile time and that we don’t interpret the volume development only in response to pricing because we’re also lapping very very strong quarters from last year due to a very strong covert demand people were still spending a lot of time at home in third quarter last year and so that’s where it makes it so hard to read some of it is simply the high level of

Comparables some of it may be the earlier response to some of the pricing some of it is supply chain constraints and some of it is what i mentioned earlier and that is our voluntary phasing out of certain skus as we’re trying to seek efficiencies to offset inflation uh mark talk to me a little bit also about the outlook for wage inflation next year so how much

Will that erode profitability how much do you have to increase wages of your workers that’s a very important question we’re watching this very closely in most countries those negotiations 423 will unfold over the winter and during the first quarter so it’s very hard as of this point to give a precise estimate every country of course has its own calendar but this

To me is a key item to watch out for during the winter and beginning of 23. i think you also said that you were suffering as supply chain constraints for example in the water business and in north america can you give us more details on that yeah so north america is mainly around our pet care business as you know that business has stepped up tremendously during

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Covert times with so many people adopting pets and you know a one-time significant step up in demand and then good continued trove on top of that so here we’re adding capacity which should come on stream uh later this year and next year and help you alleviate the situation water interestingly when it comes to carbonated offerings co2 has become scars as some of the

Industrial gas producers have less co2 available we work supply chain constrained in that area is there anything that you can do to protect yourself against some of these supply chain constraints i know you were quite good at dealing with them during covet and lockdown yeah and look it’s the same recipe now keep your head down focus in your operations focus on the

Daily blocking tackling so when i look at the way we run the company now it’s a lot more operational down into the weeds and the details compared to the time before when there was more time available for longer ranging strategic thoughts now it’s really day to day trying to make sure that these supply chain constraints remain limited and do not morph into bigger

Problems i mean do you expect them to to potentially morph into bigger problems or dirt does it actually ease in 2023 i think what we’re seeing now with some of the economic activities slowing down um i think i’m seeing slight improvement on supply chain issues around the world especially when it comes to global shipping so some of the traffic and the demand is

Down and i think that’s helping to ease things but i think it’s too early to call this like um an end to the crisis so it’s something we still watch very closely and then hopefully uh you know as we go through the rest of this year early 23 um that easement trend will continue yeah and actually same question mark i don’t think i mean i know you talked a little bit

About why wage pressure and wage inflation but overall what are you expecting inflation to peak does it get worse in 2023 overall inflation before settling down yeah so what we’re clearly seeing is some of the inflationary pressures continuing so this is not over yet and some of this will kind of go into 23. when exactly it’s going to peak i think a lot of that

Has to do especially in western europe with the energy situation because that’s a big driver of inflation and also of course has a big impact on our cost position and our manufacturing distribution cost so that’s the big unknown but some inflation would certainly continue into 23 even just because of the folio effects of the rises that we have seen in 22 so far

Um mark where do you plan to position seattle’s best coffee is it going to be high premium with other brands so to us this is a very exciting brand that we got to know through our starbucks global coffee alliance that we struck in 2018 it has positioned less premium compared to the original starbucks brand it’s more of a mainstream mid-range brand very trusted in

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Particular in the united states building of course on seattle’s reputation as being one of the core places to get a good coffee in the united states and so we came to like this brand a lot and it helped to also cover a gap price point wise that we had before and so very excited now to get complete ownership of this brand and to continue to develop it going forward

Um i’ll be talking about coffee american getting a good cup of coffee what happens with nespresso can you increase prices of an espresso capsule is there a limit to how much people will will pay for those capsules so of course being faced with the levels of inflation we’re seeing we also had to adjust prices there um the good news is that the basic interest in the

Brand and portioned coffee or capsule coffee uh continues to be unabated and very strong what you’re seeing when it comes to crow freight compression is mainly due to the very very high quarters that we’re lapping from last year that was unavoidable because as can imagine people working from home consuming coffee from home portion coffee was the go-to solution and

Now as they move back to the office we’re seeing some of that ease the fundamental underlying demand is still very strong we’re very bullish on this brand mark i was actually looking at my shopping basket right you know grocery stores and i was trying to think what i was going to cut so do you have a crystal ball and you know if things get worse if people need to

Save let’s say 10 of their spending and you look at a shopping basket which one of your products would they buy less of or change to a cheaper brand everyone of course would love to have that crystal ball and again the situation right now is pretty volatile and very very hard to read because you’re having the economic uncertainty you’re having some of the inflation

That had happened already plus then you have these very very uneven and volatile year-over-year comparisons due to the pandemic my personal guess is it’s not so much about cutting one thing or another it is mainly about uh you know osama be trading down so more of a trading down that we started to see and that’s why it’s so important that we offer brands at different

Price points the other obvious one in food is if you need to make ends meet eating out less is a quick way to do that because the value proposition between a meal and home and a meal out of home is is vastly different and of course out of home is also hit by the labor constraints in some of the rising labor costs

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Nestle CEO on Third-Quarter, Price Hikes, Outlook By Bloomberg Markets and Finance