Mark Schneider, CEO of Nestlé Group, stated in the mid-2023 interim report that post-pandemic home consumption has returned to normalcy, eliminating constraints on the growth of some Nestlé product categories.
However, according to Nestlé’s financial reports for the first three quarters, the company’s global and Greater China sales have both declined. Organic growth is mainly driven by price increases, with issues like short-term shortages in vitamins, minerals, and nutritional supplements.
The globally renowned food and beverage manufacturer is currently experiencing a “painful period” in consumer market innovation. The premium product line is struggling, and concerns about product quality are creating obstacles for Nestlé.
**1. High Contribution from Pricing, Difficulty in Boosting Performance through Price Increases**
In the first three quarters of 2023, Nestlé’s global total sales were 68.8 billion Swiss francs, a 0.4% decrease from the same period in 2022. The organic growth rate was 7.8%, with 8.4 percentage points contributed by price increases, resulting in an actual internal growth rate of -0.6% due to product mix and capacity issues.
Nestlé claims widespread growth in most regions and categories. In developed markets, organic growth was 6.9% due to the impact of pricing and slightly positive internal growth, while emerging markets experienced a 9.0% organic growth rate driven by pricing and modest positive internal growth.
However, Nestlé’s sales in the Greater China region were 3.6 billion Swiss francs, a 5.7% decrease from the same period in 2022, primarily due to a negative impact of 10.6% from exchange rates. Organic growth was 4.9%, actual internal growth was 2.3%, and pricing contributed 2.6%.
Nestlé attributes the sales growth in the Greater China region to increased sales in outdoor channels, strong momentum in e-commerce, and pricing contributions. The company’s pet food and confectionery business also saw market share growth, driven by products such as XuFuji and Crunchy Shark.
Nestlé CEO Mark Schneider mentioned that the company’s diversified product portfolio and differentiated supply have led to strong organic growth. Pricing has become a major driver for business growth amid historic high inflation.
In recent years, Nestlé has adopted a pricing strategy, announcing at the beginning of 2023 that food prices would need to be further increased to offset higher production costs. In September, Nestlé announced price hikes of 5% to 15% for various products, with coffee prices increasing by 5% and breakfast cereals experiencing the highest increase at 15%.
Notably, Nestlé’s Super Nan infant formula powder has also seemingly “shrunk” by changing its packaging, reducing the weight from 900g to 800g without any price reduction. This “reduction without a price drop” has raised consumer concerns about disguised price hikes.
In response, Nestlé explained that the company periodically changes product packaging specifications. The formula of this powdered milk product has been upgraded, adding some active organisms, thereby improving its nutritional value. Additionally, reducing the weight of the milk powder allows space for a measuring spoon in the can for better hygiene.
**2. High-end Layout, Distant Water Cannot Quench Immediate Fire**
Nestlé Greater China CEO Zhang Xiqiang has emphasized the importance and uniqueness of the Chinese consumer market within Nestlé’s global layout. To achieve rapid growth in the Chinese market, Nestlé has been actively expanding through brand acquisitions and enhancing the layout of high-end products.
Currently, Nestlé’s high-end products account for more than 26% of total sales, more than double the figure from a decade ago. For example, Nestlé’s coffee business, in an effort to move away from the label of instant coffee, acquired 68% of Blue Bottle Coffee for approximately $425 million, swiftly establishing offline locations.
Recently, Nestlé’s high-end coffee brand ROASTELIER opened its first flagship store in China in Shanghai’s Jing’an Temple. The store, situated in the area with the highest commercial level in Shanghai, features a menu with coffee prices ranging from 29 to 59 yuan, reflecting a clear positioning in the high-end market.
Despite Nestlé’s ambitious plans, the reality is quite lean. ROASTELIER coffee is still in its promotional period, and content sharing on social platforms is limited. On Xiaohongshu (Little Red Book), ROASTELIER has only 39 followers and 41 likes and saves, indicating a challenging path ahead.
In contrast to Nestlé’s pursuit of high-end growth in the coffee category, there is a significant trend in the market towards consumption downgrading. From high-end coffee at Starbucks to discounts offered by MANNER with a personal coffee cup, to the 9.9 yuan coffee at Luckin Coffee – consumers are more interested in the cost-effectiveness of downgraded consumption.
At the beginning of this year, Nestlé officially entered the low-temperature milk market, launching the low-temperature fresh cow’s milk product “A2β-Casein Fresh Milk” on WeChat Mall. The pricing strategy has changed since the initial launch, with significant reductions in the unit prices for two product specifications.
Insiders have pointed out that A2 protein milk has relatively high costs, but the technology and process are not complex enough to justify such a high price. Fresh milk has a short shelf life, and when the shelf life is halfway through, discounts are often necessary. Thus, concerns exist about Nestlé’s high-end low-temperature fresh milk, which may face pricing pressure due to slow sales.
**3. Repeated Involvement in “Quality Gate,” Challenges in Ensuring Food Safety**
As Nestlé continues to strengthen product updates and market efforts through price adjustments, negative issues related to food safety and product quality have been consistently troubling this vast food empire.
Since 2017, Nestlé’s cocoa powder and chocolate have repeatedly raised alarms from food regulatory authorities. Violations or the excessive use of additives such as tartaric acid, copper chlorophyll, and copper glucose have become a “disaster zone” where Nestlé touches regulatory red lines.
According to Spanish media reports, at least 46 ice cream varieties, including Nestlé, produced by Froneri, were recalled in July 2021 due to potential carcinogenic ethylene oxide. The presence of ethylene oxide in the affected batch of ice cream products was mainly due to possible contamination of the raw materials provided by a supplier.
In January 2022, 47 coffee varieties were found to contain the carcinogenic substance acrylamide. Nestlé’s Taster’s Choice Original Soluble Coffee had the highest acrylamide content at 790 micrograms/kg, exceeding the EU’s limit of 850 micrograms/kg.
In the same year, over 500 kilograms of cocaine were found in Nestlé’s factory in Switzerland, hidden in coffee bean shipments from Brazil. After discovery, the batch of goods was isolated and did not come into contact with any materials used in Nestlé production. Nestlé reiterated that all its products are safe for consumption.
While, to some extent, the food safety issues Nestlé has faced in recent years are not directly related to the mainland Chinese market or do not constitute violations, they have still raised concerns among consumers about Nestlé’s food safety and internal control management.
Recently, NetEase reported to the State Administration for Market Regulation, accusing Nestlé
and its agent companies of providing NetEase and other clients with second-hand ice cream machines, posing significant food safety hazards. NetEase stated that Nestlé had issues such as concealing the source, second-hand use, bare machine transportation, and insufficient supervision.
According to feedback from NetEase employees, a batch of ice cream machines transported by Nestlé’s primary agent to NetEase’s Guangjian campus had obvious labels from a third-party company, suspected to be second-hand machines. Upon receiving the feedback, NetEase immediately sealed and tested the relevant second-hand ice cream machines, as well as Nestlé coffee beans and milk powder.
NetEase stated that due to Nestlé’s concealment, the company has stopped using and collected evidence of the relevant ice cream machines and related materials, which will be inspected by a third-party organization. If any problems are found, complaints will be filed with the relevant authorities, and NetEase reserves the right to sue Nestlé Coffee’s primary agents and other responsible parties.
Regarding Nestlé’s response, stating that “after preliminary verification, the ice cream machines mentioned in this incident were not produced or provided by Nestlé,” NetEase pointed out that as the primary agent overseeing the safety risk, Nestlé should clearly assume the responsibility for safety risk control, punish or publicly disclose violations, rather than shifting or shifting responsibility to primary agents.