(Bloomberg) -- Nestle SA and Danone are trying to encourage shoppers to buy more branded food products again by easing off on price increases as inflation slows from levels that pushed many to opt for cheaper private labels.
The Swiss maker of Maggi stock cubes said price hikes over the last two years have increased pressure on many consumers and affected their purchasing habits. Many households switched to store brand items or bought fewer goods, but Nestle now wants to claw back some of that lost market share.
Both Nestle and Danone already recorded volume growth in the final quarter of 2023 as some of the easing pricing pressure starts to take effect. However, Nestle's sales growth forecast is lower than analysts expect as supply problems in its vitamins business lasted longer than expected.
Still, both Nestle and Danone managed to increase profitability in 2023, and expect another moderate expansion this year, too. The boost in profits could invite further scrutiny that producers are raising prices excessively.
Nestle shares fell as much as 3.8% Thursday morning, while Danone rose as much as 3.4%. Nestle has dropped 14% over the past year, while its French rival has gained 16%.
Read More: Unilever Looks to Claw Back Market Share as Inflation Eases
Revenue should increase about 4% in 2024 on an organic basis after gaining 7.2% last year, Nestle said Thursday. The company also expects a 6% to 10% gain in underlying earnings per share.
Schneider said that in 2024, Nestle is prioritizing growth led by volume and mix — shoppers switching to pricier formats — boosted with increased marketing and innovation.
The company's underlying operating margin rose 40 basis points in constant currency to 17.3% in 2023, and it expects a further moderate improvement this year.
Nestle returned to growth through higher volumes and consumers choosing more expensive formats: its real internal rate of growth — a proxy for volume — was positive at 0.4% in the final quarter of 2023, the first increase in a year and a half. Â
Sales of vitamins fell in the second half, Nestle said, adding that the business is taking longer than expected to recover. The company expects an acceleration of growth in the second quarter of 2024.
Separately, Nestle said it's reviewing its operating practices in its mineral water business in France and Switzerland amid allegations the company treated water by illegal means. Â
Danone reported fourth-quarter sales rose in line with expectations Thursday amid easing inflation for the yogurt maker.
In his third year as chief executive officer, Antoine de Saint-Affrique is trying to show progress in his turnaround.
The company confirmed its mid-term guidance of growth between 3% and 5% for 2024, with a moderate improvement in profitability.Â
Danone expanded its margin from operations — a measure of gross margin — by 140 basis points in 2023.Â
(Updates with comments on vitamins, bottled water)
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