Nestlé Escapes Netflix’s Fate for Now
Early signs indicate that consumers are beginning to rein in spending as prices rise. The good news for companies like
is that household essentials are lower down the list for cuts.
On Thursday, the world’s biggest-food company said sales increased by 7.6% in the three months through March compared with a year ago. The growth was made up of a 5.2% rise in prices, the highest level since 2008, and a 2.4% increase in the amount and mix of goods sold. This shows that consumers aren’t yet trimming how much they buy as prices increase. The trend was particularly striking in North America, where Nestlé’s prices shot up by 8.5% but volumes were still positive in the quarter.
Stronger-than-expected volumes were reported by other companies that make essential consumer goods this week.
volumes increased by 3%, even though it charged 5% more. Evian bottled-water supplier
sold more goods despite raising its prices. Spending on beer has also been resilient, according to results from Heineken, the world’s second-largest brewer, which shifted 5.2% more beer in its latest quarter than a year earlier.
There are signs that more discretionary consumer goods like streaming services are coming under pressure.
lost more than one-third of its value Wednesday after reporting its first fall in paid subscribers in over a decade. Intense competition between streaming platforms was a factor, but users may also be trying to reduce their outgoings.
In the U.S., spending on fast-fashion brands has slowed compared with this time last year, as low-income consumers feel more pinched, according to a
analysis of credit-card data. This coincides with sharp falls in the number of U.S. cigarettes sold. Smokers tend to have lower-than-average incomes and are especially sensitive to gasoline prices, which currently stand above $4 a gallon.
Companies that make essential household goods may not always be spared. They need to raise prices again soon: The war in Ukraine has pushed up the cost of energy, which will feed through to plastic prices. This hurts consumer-staples companies, which tend to be heavy users of packaging.
Costlier agricultural grains will also fuel inflation in ingredients for savory snacks, as will rising milk and meat prices as it becomes more expensive to feed livestock. Shortages of sunflower oil—an ingredient in many baby food brands that is normally exported by Ukraine—will hurt Nestlé and Danone as strict regulations for infant formula recipes make it hard to substitute the input with, say, palm oil.
If brands are too aggressive with price increases, more consumers could trade down to cheaper equivalent products such as supermarket labels, damaging the volume growth on which the health of packaged-goods companies ultimately depends. For now, though, consumers seem focused on saving money elsewhere, and consumer-staples companies are living up to their defensive reputation.
Write to Carol Ryan at carol.ryan@wsj.com
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