Nestlé, the world’s largest food and beverage company is set to introduce bigger price hikes as commodity and transportation costs rise.
The company which sells everything from ice cream to coffee and cereal, said on Thursday that it would respond to higher input costs by raising prices in the second half of the year.
CEO of Nestlé, Mark Schneider told reporters on a conference call that, “Inflation has been virtually absent for a number of years and then pointed up very sharply. It hit us directly,”
Schneider said he believes that inflation is short-term. But the owner of brands including Nescafe, Gerber and Cheerios said it would need to raise prices to about 2% to offset cost increases of 4%. Nestlé hiked prices by 1.3% in the first half of 2021.
He also said the company can limit some of the cost increases, such as rising coffee prices. But it can’t avoid the rising cost of things like transportation, which puts pressure on the company’s margins.
Nestlé (NSRGF) said it expects a profit margin this year of 17.5%, a slight downgrade that partially reflects “time delays between input cost inflation and pricing.” Despite that, the company raised its sales growth outlook for 2021 to between 5% and 6%.
Companies from General Electric (GE) to Anheuser-Busch InBev (BUD) and Unilever (UL) have warned in recent weeks about rising input costs as the global economy recovers from the coronavirus pandemic. Demand for some products have highly increased as people resume travel and return to the office, and global supply chains remain extended.
Nestlé’s competitor Unilever said last week that it was increasing prices across multiple markets and product categories in response to higher input costs.
The owner of brands including Ben & Jerry’s cited the example of soybean oil prices, which increased 20% last quarter and is now up by 80% compared to the previous year. Palm oil prices are 70% higher than their long-term average.