Consumer stockpiling stemming from the spread of COVID-19 helped boost Nestle SA sales in the first quarter.
The company reported 4.3% organic sales growth in Q1, but Nestle SA CEO Mark Schneider tempered the news with a reminder of the extreme uncertainty facing the consumer goods industry.
“It is important … not to get carried away by the strong organic growth of 4.3% for the first quarter,” he said in an earnings call. “Behind this global and consolidated number, you see significant and unprecedented ups and downs by category, channel and geography. This highly volatile situation is expected to stay with us for a while.”
The consumer stockpiling, experienced in a majority of Nestle’s markets, particularly North America and Europe, occurred over a short period — in March for EMENA and the later part of March in the Americas.
While the Americas reported organic growth of 7.4% for the period, China sales sharply declined thanks to movement restrictions and limited consumer stockpiling, higher exposure to out-of-home channels, and supply chain challenges related to Chinese New Year.
E-commerce sales now represent 10.4% of total Nestle sales, up from 8.5% in 2019. Schneider said he expects that food and beverage will experience a “breakthrough event” in this channel as a side effect of the health crisis.
Whereas food and beverage has lagged such consumer goods categories as consumer electronics or books, “I think some of that is changing now because people see the convenience of e-commerce in food and beverage as well,” he said.
Nestle is the No. 1 company on the CGT Top 100 Consumer Goods Companies 2019 ranking.
Products in Demand
Products perceived as everyday necessities were in high demand in the first quarter, including culinary products, Purina PetCare, coffee (prompted by Starbucks demand) and Nestlé Health Science.
Confectionery and ice cream sales, meanwhile, declined because of reduced impulse buying and gift-giving demand.
All markets experienced a significant shift from out-of-home to in-home consumption, with the most impacted businesses including Nestlé Professional, Nespresso boutiques (98% were closed by the end of March), and water in the out-of-home channel. These businesses account for about 10% of the company’s sales.
“We also saw reduced consumer demand in convenience and moms-and-pops stores for on-the-go products,” said François-Xavier Roger, Nestle SA chief financial officer. “By contrast, we observed elevated demand in retail and a significant increase in e-commerce sales of 29.4%.”
In M&A developments, the company is exploring a potential sale for its Yinlu peanut milk and canned rice porridge businesses in China, but it will retain and develop its Nescafé ready-to-drink coffee business, which also operates on the Yinlu supply chain platform.
Its divestment of its U.S. ice cream business for $4 billion to Froneri closed on Jan. 31, and the sale of a 60% stake in the Herta charcuterie business to Casa Tarradellas is expected to close in the first half of 2020.
The company is expanding its medical nutrition business with the acquisition of the Zenpep gastrointestinal medicine from Allergan — expected to close in Q2 — and it acquired pet food business Lily’s Kitchen in April.
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