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Nestlé’s coffee category slows in Europe amid rising costs and Ukraine war

The Swiss food and beverage giant has reported subdued growth for its coffee products around the world, particularly in Europe, as inflation and the war in Ukraine present major market headwinds leading to higher product prices

Nestlé has said first quarter growth for its coffee categorty in Europe was "almost flat" | Photo credit: Nestlé



Nestlé’s coffee business has experienced a slow-down in the first quarter of 2022 amid rising raw materials costs and disruption from the Russian invasion of Ukraine. Reporting its results for the first three months of 2022, the Swiss food and beverage giant posted a 5.4% rise in revenues to CHF 22.2bn ($23.4bn), with growth based on increased pricing, continued momentum in retail sales and a further recovery in out-of-home channels.
 
Coffee is a vital category for Nestlé, contributing more than $25bn, or around 27%, of the company’s sales in 2021.
 
Overall, coffee saw high single-digit growth fuelled by continued demand for Nescafé, Starbucks and Nespresso products, Nestlé said. However, category growth slowed in most markets, particularly in Europe, where soaring energy costs, inflation and the war in Ukraine have dented consumer confidence.
 
Nestlé’s North America business posted sales of CHF 5.8bn ($6.1bn), a 1.5% decrease on the same period in 2021. Its beverages category reported high single digit growth, with strong double-digit growth and high demand for its Starbucks-branded and Coffee Mate products.
 
In Europe, where first quarter sales rose 2.2% to CHF 4.6bn ($4.9bn), Nestlé said growth in coffee was almost flat, following strong double-digit growth in the first quarter of 2021. Nevertheless, Starbucks products and Nescafé Farmers Origins, a new range of coffee capsules for Nespresso machines, had ‘resonated strongly with consumers’, the company added.
 
Meanwhile, Nestlé’s Asia Oceania and Africa business saw sales rise 3% to CHF 4.6bn ($4.9bn), with its coffee products gaining market share across the zone, particularly in South Korea and Malaysia.
 
Latin America saw revenues rise 14.4% to CHF 2.7bn ($2.9bn), with strong demand for Nescafé in Mexico, Nestlé reported.
 
In China, where Nestlé’s sales grew 7.6% to CHF 1.4bn ($1.5bn), coffee achieved double digit growth with ‘strong momentum’ for or Nescafé ready-to-drink and Starbucks products.
 
Nestlé’s Nespresso business reported a 2% sales increase to CHF 1.6bn ($1.7bn) over the period, with out-of-home channels seeing continued recovery following the pandemic. Growth was largely fuelled by increased adoption of its new Momento system and ‘continued momentum for its Vertuo system.
 
“In these first months of the year, the war in Ukraine has caused unspeakable human suffering. We remain focused on supporting our colleagues there and providing humanitarian relief, while standing with the international community in the call for peace,” said Mark Schneider, CEO, Nestlé.
 
“Amid this challenging environment, we delivered strong organic sales growth with resilient RIG. We stepped up pricing in a responsible manner and saw sustained consumer demand. Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year. The Nestlé team addressed these headwinds and advanced our long-term strategy and sustainability objectives with agility and determination. We confirm our guidance for the year,” Schneider added.
 
Nestlé has faced criticism for continuing to supply products to Russia amid its ongoing invasion of Ukraine. In a statement on its website, Nestlé said it had suspended all advertising and investments and the supply of non-essential brands in Russia, but would continue to uphold ‘the principle of ensuring the basic right to food’, including the supply of essential products, such as milk formula.
 
Nestlé said it did not expect to make any profit or pay any taxes Russia ‘for the foreseeable future’, but that any profit would be donated to humanitarian causes.
 
In Ukraine, Nestlé said it had maintained ‘close contact’ with its 5,800 employees in the country and is providing advance salary payments and relocation support. The company said it had largely been able to maintain operations in the west of the country and had established support hubs in neighbouring countries, including Poland.

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