Power shock for new Nestle Australia chief Sandra Martinez

The new chief executive of Nestle Australia, Sandra Martinez, is surprised by the cost of energy in Australia.

Nestle‘s key confectionary brands include KitKat, Milo, Smarties, Crunch and Aero,

The new chief executive of Nestle Australia, Sandra Martinez, says she is surprised by the soaring cost of energy in Australia, with utility bills even steeper than that in Switzerland where she had recently been working at the global confectionary and coffee giant’s headquarters.

The drought in Australia also played a part in hiking commodity prices, which became another drag on the company’s profitability.

Landing in Australia last year to run the local arm, the 30-year Nestle veteran said she was also amazed by the intense reliance on promotions and discounting by the leading supermarket chains to drive sales.

That was something she discovered when she went to her local store to buy laundry detergent and found the following week it had been put on sale and the price cut by 50 per cent. The heavy reliance on promotions was one of the biggest challenges for the grocery sector, she said.

Ms Martinez, who joined Nestle in 1988 from Ecuador and has worked in Venezuela, Colombia, Canada and Switzerland, said the Swiss food giant would leverage its network of eight factories across Australia to mitigate the high cost of energy but ultimately would have to pass on some of that cost to consumers. “I was surprised, yes. Energy costs in Switzerland are lower than they are in Australia,’’ she told The Australian.

“There are so many parts in our cost structure — energy is one of them, commodity costs are another one — and what we try to do very hard is to really focus on programs of cost savings and try to absorb as much as we can those cost pressures with cost-savings initiatives.

“Some are global initiatives, some are much more local. We have eight manufacturing sites in Australia right now. We are a company that makes its own products here in Australia and that gives us the flexibility to drive value of ‘made in Australia’, which I think has enormous value given the quality that goes behind it.

“Of course, when the input costs come into higher energy costs, or higher commodity costs due to a very serious drought we have had in Australia and our savings programs cannot offset those costs, we have to pass some of them — not all — some of them on.’’

Rocketing energy bills have been a bugbear for the business sector for years, with chief executives of some of Australia’s biggest companies warning utility bills could cause many businesses, especially manufacturers, to shift overseas and lay off workers in an effort to cut costs or pass on the energy costs to consumers.

Earlier this year leading building materials maker Brickworks warned high energy costs were forcing it to consider overseas opportunities, while CSR chairman Jeremy Sutcliffe warned in late 2017 the group expected a sharp jump in energy costs in the next year of up to 17 per cent, which it would find difficult to recover despite ­efficiency gains.

Nestle Australia, whose key confectionary brands include KitKat, Milo, Smarties, Crunch and Aero, has posted a slight lift in total sales to $2.176 billion for calendar 2018, up from sales of $2.123bn in 2017. Net profit was down 8.3 per cent to $139.95 million as the business was dented by restructuring, rationalisation and impairment costs of $37.44m, according to financial documents lodged with the corporate regulator.

The food manufacturer is a key supplier to the supermarkets through its confectionary brands as well as its powerhouse portfolio of coffee, which includes instant brand Nescafe and coffee capsule system Nespresso.

Ms Martinez said Australian supermarkets were among the biggest users of promotions and discounting in the world.

She noticed this when buying her own groceries.

“I am rather new to Australia and I have to say that it is a market where driving value growth is very hard due to this very highly promotional environment.

“It is probably one of the biggest challenges that we have as an industry, not only in the food category but overall, in terms of how can we really drive the value and drive that value growth which is relevant to the Australian consumer.”

She said innovations that were helping to improve Nestle Australia’s sales and value proposition included new chocolates, such as new flavours of KitKat that were proving very popular, and later this year a new offer of Starbucks for its Nespresso coffee system to be sold in the supermarkets.