Nestle CEO: Middle East Conflict Fueling Inflation and Supplier Cost Increases
Impact of Middle East Conflict on Nestle's Operations and Strategy
By Gabriel Araujo and Richa Naidu
Rising Costs and Price Adjustments
CACAPAVA, Brazil/LONDON, Sept 10 (Reuters) - Nestle is raising prices, reformulating products and cutting items consumers are unwilling to pay more for as it tackles the effects of higher energy, freight and raw material costs following the conflict in the Middle East, CEO Philipp Navratil told Reuters on Wednesday.
While the world's biggest packaged food maker has seen little direct impact on sales from the six-month-old U.S.-Israeli war against Iran, Navratil said the conflict was contributing to inflationary pressures faced by suppliers.
Supplier Cost Increases
"Each and every supplier of ours will have some increase in costs," Navratil told Reuters. "Some of them will come to us and we will have to mitigate them (the costs), making sure consumers come along if we have to increase prices."
Product Reformulation and Efficiency Measures
In addition to raising prices, Nestle is reformulating products, "relentlessly" pursuing efficiency savings and eliminating products consumers "are not ready to pay for", Navratil said, without giving details.
Sales Impact and Inflationary Effects
The Middle East accounts for about 2% to 3% of the Swiss company's roughly 90 billion Swiss francs ($111 billion) total sales, meaning the direct impact on sales has been limited.
Primary Effects on Input Costs
"But you will have primary effects in terms of inflation in what we buy, in terms of input costs," he said.
Global Food Inflation Concerns
The U.N. Food and Agriculture Organization (FAO) has warned the world could be heading towards another bout of food inflation. The FAO Food Price Index, which tracks monthly changes in a basket of internationally traded food commodities, averaged 131.1 points in July, up from 130.3 in June and the highest reading since January 2023.
Portfolio Streamlining and Strategic Moves
Nestle, which has over 2,000 brands including Nescafe, Maggi and KitKat, recently sold a stake in its bottled water business and is also exiting vitamins as Navratil has been tasked with streamlining the company's focus on core brands.
Divestments and Acquisitions
Navratil said, however, that Nestle may also buy brands as it reviews its portfolio periodically.
Open to Strategic Acquisitions
"That doesn't mean that Nestle is just divesting things. We are also, as always, open to acquire things that are strategically important," he said, without giving details.
Regulatory Issues and Labeling in India
On a separate issue, Navratil said food manufacturers should be involved in discussions over proposed front-of-pack sugar, salt and fat warning labels in India.
Industry Lobbying and Health Initiatives
Reuters reported in August that companies were lobbying against such warnings, according to documents and recordings it has reviewed.
Navratil said Nestle has removed thousands of tons of sugar, salt, and fat from its products, but argued that labeling has to be done the "right way" and should reflect portion sizes.
($1 = 0.8097 Swiss francs)
(Reporting by Gabriel Araujo and Richa Naidu; Editing by Elaine Hardcastle)
