Consumers are drinking more coffee at home, even as the pandemic ebbs, buoying sales for the owner of Nescafe instant coffee, Coffee-Mate creamer and Nespresso pods.
Nestlé SA, the world’s largest packaged-food maker, said Thursday its coffee business was the biggest contributor to organic sales growth last year, boosted by demand from consumers continuing to work from home.
“Even when you step away from the pandemic, everyone has learned a flexible work-life pattern, everyone is working from home more," Chief Executive Mark Schneider said in an interview, describing the trend as an “at-home revolution."
Coffee has been a top seller for Nestlé throughout the pandemic, with its portfolio of products predominantly consumed at home, rather than out and about. The 2018 purchase of the rights to sell Starbucks Corp.’s coffee and tea in grocery and other retail stores has also benefited Nestlé since Covid-19 struck.
Mr. Schneider said Nestlé has been working to capitalize on the continuing at-home trend, in part by doubling down on its Starbucks license. Nestlé is now selling Starbucks-branded coffee in pods for its Nespresso machines in soluble form, roast and ground and in whole beans. The company is also expanding its Starbucks range to new regions including Latin America and Southeast Asia, where it will sell it in retail stores and online.
Nestlé said strong demand for its Starbucks-branded products, as well as a recovery in its out-of-home offerings as restaurants and cafes reopened, drove a 9.7% rise in full-year coffee sales on an organic basis, which strips out deal making and currency moves.
Overall organic sales growth came in at 7.5% for the year, made up largely of higher volumes with some price increases, with pet food and health products also top performers. Total sales rose 3.3% to 87.09 billion francs—or about $94.46 billion—and net profit rose 38% to 16.91 billion francs.
However, like others in the consumer-goods industry, Nestlé said it was grappling with a significant increase in costs.
Nestlé’s underlying trading operating margin for the year fell by 0.3 percentage point to 17.4%. Mr. Schneider said container shipping rates in some places were seven times higher than they used to be, that packaging was more expensive and that rising labor and energy costs were impacting trucking rates.
Mr. Schneider said Nestlé planned to raise prices on premium products but on more everyday and nutrition-focused products in emerging markets would first look to offset cost increases with internal savings. The company forecast a margin of between 17% and 17.5% for 2022.
Elsewhere Thursday, Lysol owner Reckitt Benckiser Group PLC also flagged rampant cost inflation. The London-listed company said it had seen rises in plastics, tin plate, dairy products and many other commodities—and that it expects costs to keep climbing.
To offset those increases, Reckitt plans to raise some product prices, as well as seek cost savings from improved productivity. It expects such measures to boost its profit margin in 2022 after a dip last year.
Reckitt’s comment on costs came as it reported a 3.3% rise in comparable sales for the fourth quarter, with strong demand for cold and flu products helping to offset a decline for cleaning products like Lysol.
Reckitt CEO Laxman Narasimhan said that while consumers weren’t cleaning as much as they were at the peak of the pandemic, rates were still higher than before Covid-19 struck—a trend he expects to continue. “80% of consumers globally are telling us they will maintain their new hygiene habits post-Covid," he said.
Reckitt has launched Lysol laundry sanitizer and begun selling a new plant-based disinfectant under its Dettol brand. While Dettol sales declined sharply last year compared with 2020, Mr. Narasimhan said sales of the brand were now stable at 40% over pre-Covid levels.
