Nestle sales rebound in Australia but costs bite into profit

Global food giant Nestle has returned to sales growth in Australia but profits were shaved by continued cost pressures across its business.

Global food giant Nestle has returned to sales growth in Australia thanks to price hikes and the end of pandemic lockdowns, which helped lift consumption of its products.

But the international food conglomerate’s local profit was shaved by continued cost pressures in its business, including labour, energy and supply chain infrastructure, which could not be countered by price rises for some of its brands.

Nestle products range from chocolates and snacks to health foods and pet food, with brands such as Nescafe, Nespresso, Milo, Allen’s lollies, Uncle Tobys and Kit Kat.

As with many food and grocery suppliers, the company has struggled to find workers and pallets, and faced a spike in the cost of key ingredients for its food brands, exacerbated by the war in Ukraine.

Latest accounts for Nestle Australia lodged with ASIC show sales in calendar 2022 rose 4.6 per cent to $2.478bn, with solid growth across all its major business units.

The company said sales were boosted by better pricing and the continued rebound of the out-of-home channel as consumers picked up Nestle brands when out and about at restaurants, cafes and hotels.

But profit was weaker than hoped, rising from $122.15m in 2021 to $126.84m in 2022.

“Profitability for the period increased by 3.16 per cent notwithstanding margins have been impacted by significant cost inflation, supplier constraints, increased distribution costs and currency deterioration,” the Nestle Australia directors report said.

“Supply chain constraints both locally and around the world put cost pressures on our business,” a Nestle Australia spokeswoman told The Australian.

“Globally, this included significant increases in the costs of containers and shipping as well as delays caused by disruption at ports, the impact of the war in Ukraine on ingredient availability and cost, and the overall inflationary environment that saw the cost of raw materials increase. Locally, labour shortages, pallet shortages and disrupted rail and road transport due to natural disasters put additional pressure on our ­business.”

Empty office towers through the early years of the pandemic placed pressure on coffee sales for Nestle, such as its Nespresso coffee pods.

In 2021 then newly appointed Nestle Oceania boss Sandra Martinez conceded she was battling inflationary pressures infiltrating “everywhere” across her food business, and this theme has persisted into 2022.

Cash flow for 2022 sank 76.26 per cent with higher inventory balances and increased payments to suppliers and employees the most significant factors.

“Results were in line with management’s expectations. However, the consolidated entity continues to maximise every consumer and customer opportunity, engage in new business channels, be purposeful about where to invest the funds, focus on growth leverage and disciplined cost control,” Nestle Australia said.

The profit margin pressures are typical of grocery suppliers in Australia, which face higher costs of doing business as they try to convince retailers, such as Woolworths and Coles, to lift prices.

In 2021 Nestle Australia was forced to ramp up its promotional campaigns to maintain growth in the face of a number of challenges thrown at it by the pandemic.

Empty CBD office towers cut demand for Nestle’s coffees and beverages.

The problem now facing Nestle is that the working from home trend has continued, leaving many office towers with low occupancy levels well below capacity.

Nestle has continued to benefit from the strong rise in pet ownership since the outbreak of Covid-19, which has delivered boom time conditions for its flagship pet food brand Purina.