Nestlé's Strategic Marketing Boost delivers outstanding results
Nestlé's boosted marketing efforts and price hikes are set to deliver a robust Q4 performance, although concerns linger over its growth in crucial sectors
Despite reporting organic growth of 7.8% across different geographies and categories in the third quarter, Nestlé experienced a decline of 0.6% in its real internal growth, which is a combination of volume and mix.
The company is optimistic that its actions throughout the year will lead to positive internal growth in the second half of the year. It believes that it will once again become the primary driver of growth in the future.
According to Mark Schneider, Nestlé CEO, the company's diverse range of products and unique offerings have helped achieve significant organic growth in the first nine months of the year. This growth was primarily fueled by price adjustments to combat high inflation. The company is also experiencing a rebound in sales volume and product mix. Furthermore, it is reaping the benefits of portfolio optimization initiatives and increased marketing investments in its most successful brands.
A significant portion of the reported growth occurred in developing regions and specific categories. In terms of retail sales, organic growth reached 7.1%, while ecommerce sales experienced a growth rate of 12.7%, accounting for 16.6% of total group sales.
Following the successful introduction of its pet care products under the Purina brand, a substantial portion of the brand's sales were driven by coffee and related products. Coffee experienced strong single-digit growth, with positive sales developments across various brands and channels. Notably, Starbucks products reported robust growth due to the launch of new offerings, such as ready-to-drink products in South-East Asia and Oceania.
Nestlé's health science division experienced minimal growth, primarily due to a decline in sales of vitamins, minerals, and supplements. Similarly, its water-related products also saw a small increase in sales due to capacity limitations associated with the Perrier brand. The company attributed the decrease in demand for infant and baby products to a decrease in birth rates. During the earnings call, Nestlé's CFO, François-Xavier Roger, credited increased marketing investments for the positive outlook, which led to improved internal growth through reduced pricing and portfolio optimization.
The brand plans to increase its marketing investment by approximately 100 basis points in the second half of this year compared to the same period in 2022. The focus for 2023 is to reinvest in marketing, particularly in the "billionaire brands". The shift in strategy is driven by the transition from a phase of supply constraint to a phase of demand generation, which requires an increase in promotional activities.
Nestlé has also announced that several of its leading brands, such as KitKat, are achieving strong performance in terms of customer awareness and demand. This is noteworthy considering the overall price increase of approximately 8% across the company's product range. Among different regions, Europe experienced the highest price rise, closely followed by Latin America.
According to Mark Schneider, the CEO of Nestlé, "Last year, we significantly increased our trade spending as we implemented an 8% price increase after 15 years of minimal or no price adjustments." During the discussion, it was mentioned that Nestlé believes consumers can absorb some of these price hikes due to the potential savings they have accumulated during the Covid-19 pandemic.
Roger acknowledged the increase but stated that price hikes would only occur in certain categories, where there is evident input cost inflation.
Schneider emphasized the importance of focusing on the company's own internal growth due to macroeconomic factors that affect its success in different regions. He acknowledged that global demand is not as strong as it was in the past, highlighting the need to adapt to current market conditions.
