Nestle, the maker of KitKat, has increased its prices, but its sales remain strong

Nestle, the manufacturer of KitKat, has raised its product prices by nearly 10% over the last year to counter a notable increase in costs. However, the company’s sales continued to grow during the first quarter of 2023.

According to research firm Kantar, UK shoppers are increasingly opting for discount supermarkets such as Aldi and Lidl as they look for cheaper food options amid a squeeze on household budgets.

Kantar reported a slight slowdown in the rate of grocery price increases in April, but consumers are still paying 17.3% more than last year. It is important to note that the slowdown in the inflation rate does not equate to lower prices, but rather a decrease in the rate of price increases.

According to Kantar, businesses are being affected by inflation, as are households. Rising prices have led to an increase in own-label sales in UK supermarkets, with the cheapest value lines experiencing a 46% surge as households try to manage their budgets.

In economic downturns, the “lipstick effect” theory suggests that sales of small indulgences like confectionery, cosmetics and alcohol tend to remain strong as shoppers seek out affordable treats.

Despite hiking prices on more than 2,000 of its brands, which include coffee, pet care, baby food, drinks, cereals and prepared dishes, Nestle reported an increase in worldwide sales of its confectionary products in the last quarter.

Nestle is recognized for its popular brands in the UK, including KitKat, Smarties, Shreddies, Cheerios, Nescafe, Nespresso, San Pellegrino, and Purina pet food.

Nestle’s Q1 2023 global sales increased by 5.6% to CHF 23.5bn (£21.3bn).

According to Matt Britzman, equity analyst at Hargreaves Lansdown, Nestle’s ability to implement significant price increases with minimal impact on sales volumes highlights the importance of having a strong portfolio of brands.

Major consumer goods firms have been increasing prices, but there are indications that the rate of these increases may be slowing down.

Earlier this year, PepsiCo, whose average prices rose 16% in Q1, announced it had finished increasing prices, while Coca-Cola, which saw an 11% rise in average selling price, has stated it anticipates a moderation of price hikes during the year due to significant “uncertainty”.

Procter & Gamble, the company behind Pampers, Tide and Old Spice, increased prices by approximately 10% earlier this year. The consumer goods giant also informed investors that the demand in Europe has been most affected by inflationary pressures, with many consumers switching to cheaper private-label options.

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By Ryan

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