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Coffee helps Swiss food giant Nestle brew up sales growth

Nestle said on Thursday April 18th that its sales have climbed, boosted by recent acquisitions including the right to market Starbucks coffee products in supermarkets around the world.

Published: 18 April 2019 09:55 CEST

Coffee helps Swiss food giant Nestle brew up sales growth

Nestle CEO Ulf Mark Schneider addresses the annual general shareholders meeting on April 11th, 2019 in Lausanne. Photo: Fabrice Coffrini/AFP.

Despite the overall climate of stagnant consumer spending in industrialized countries and a slowdown in growth in emerging markets, Nestle reported a 4.3 percent rise in sales in the first quarter of this year to 22.2 million Swiss francs ($22 billion, €19.4 billion). Recent acquisitions accounted for 1.2 percentage points of that increase.

In recent years, the company has been under intense shareholder pressure to boost sales and profitability, and has been shaking up its portfolio that includes over 2,000 brands, including household names such as Gerber's baby food, Perrier sparkling water and Haagen-Dazs ice cream in addition to its eponymous chocolate.

Nestle, which owns the Nespresso capsule and Nescafe instant coffee brands, has made coffee a key priority in its growth strategy, including the $7 billion acquisition last August of the rights to market Starbucks coffee outside of the chain's cafes.

READ ALSO: Switzerland's Nestlé agrees to sell insurance unit for $1.55 billion

The group has in particular sought to expand its coffee presence in the United States, where it has bought a majority stake in California-based high-end brand Blue Bottle Coffee and acquired Texan brand Chameleon Cold Brew.

Chief Executive Mark Schneider highlighted the launch of a new range of 24 premium coffee products under the Starbucks during the quarter.

“The Nestle and Starbucks teams did an outstanding job and developed these products in just six months,” he said, adding that the company's increased speed and innovation “are clearly paying off”.

The company confirmed its forecast for higher sales on a like-for-like basis and bigger operating profit margins this year.

The Swiss group was not completely impervious to the sluggishness in consumer spending, being able to increase its sales prices by only 1.2 percent in the quarter.

READ MORE: Nestlé pays $7.15 billion to license Starbucks products

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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