Brexit Has No Shape or Form Yet, Says Nestlé Boss

20 Oct 2016 --- Nestlé chief executive Paul Bulcke today (Thursday) stated that Brexit needed to take “shape” and “form” before the food giant would make any decision on its investment in the UK while saying the likelihood of a pricing spat with a retailer would be down to individual markets.

Nestlé cut its forecast for the year, saying that its full-year rise in sales would now be 3.5 percent, down from its previous forecast of 4.2 percent, amid price deflation in Europe and the US and a slowdown in growth in emerging markets.

The current “softer” trading environmenet is causing food prices to fall and, like its rivals, Nestlé is struggling to raise prices amid tough competition between supermarkets.

“These are now a few years of a very, very soft trading environment and deflationary environment,” said Bulcke, who wouldn't be drawn on whether the fall in value in sterling, which has pushed up the price of imports, would impact the prices of Nescafé, Nesquick and Kit Kat on Britain’s supermarket shelves.

The fall in value of sterling, which has fallen in value by around 16 percent since the UK voted to leave the EU, led to a recent pricing spat between Unilever and Tesco, which temporarily stopped Unilever’s products from being sold.

Bulcke said: “In the UK, first of all I want to say pricing is done in the markets. The pricing  is done in the UK by our people there and what they do isconsider all elements.”

“They are going to have sort it out and do it responsibily. We produce actually almost over 90 percent of what we sell in the UK locally.There is quite a lot of local dimension in that. I think Kit Kat is going to stay a very enjoyable great break.”

Nestlé has previously signaled that it will remain Britain for the long-haul, despite the impact of Brexit, though Buckle said today it was too early to make any strategic decisions on its investment in the UK.

He stressed that Brexit has as yet no “form” or “definition”.

He said: “I won't speak about Brexit until it really lands. We have invested quite heavily in the UK. We export quite a bit to Europe from the UK.”

“We have an investment plan that is basically a long term structure, so we are not going to start revisiting all investment and starting to readjust that. Let's let the dust settle and give that some perspective. Investments are long term commitments so we are not going to start dong short terms dimensions and corrections.”

Nestlé reported that sales over the nine month rose to 65.5bn Swiss francs ($66.3bn), up from 64.9bn Swiss francs ($65.6bn) the year previous.

By region, across Latin America and North America, sales came in at 18.8bn Swiss francs ($19bn), up 4.5 percent on an organic basis.

In North America, growth was driven by Coffee-mate, frozen food brand Stouffer's and Lean Cuisine while in Latin America there was growth across dairy, Nescafé and confectionery. Growth in Brazil was hampered by “necessary” prices increased across diary and confectionery.

Across EMENA (Europe, Middle East and North Africa), sales were 12.2bn Swiss francs ($12.3bn), up 2.2 percent organically. Nescafé Dolce Gusto, petcare and frozen pizza were the main growth drivers in westen Europe while in central and eastern Europe, Russia delivered double-digit growth.

In the Middle East and North Africa, growth was driven by Nescafé and ambient culinary. Turkey grew double digit with Nescafé and confectionery performing well. In the Middle East, however, instability continued to affect Nestlé’s business.

Across AOA (Asia, Oceania and sub-Saharan Africa), sales came in at 10.6bn Swiss francs ($10.7bn), up 2.8 percent organically. China remained challenging but India grew strongly as the Maggi noodles business continued to gain back market share.

Bulcke added: “In an environment marked by deflation and low raw material prices, we continued to privilege volume growth, resulting in real internal growth at the higher end of the industry in both emerging and developed markets. Pricing remained soft but increasing.”
 
“Our growth was broad-based across categories, allowing us to gain or maintain market share in most of our businesses. We are making progress in addressing our challenges and driving our different initiatives amidst a generally softer trading environment.”
 
“In line with our strategy we continue to invest for the future. We maintain a high level of brand support while building our innovation pipeline, both globally and locally. At the same time, we drive more operational and structural efficiencies by standardizing, sharing and scaling more activities above market.”