Nestle has become a beverage and pet care giant
Nestle has become famous for its chocolate and other food products. A decade ago, edible products represented 58,7 % of the revenue for the company. The drinks were a bit less than 30%.
Last year edible products had declined to 50,4%, whereas drinks had increased slightly to 30,4%. Within drinks, the significant differences over the decade have been the transition from Waters (7,8% -> 3,7%) to Powdered and Liquid Beverages, ie. Coffee (21,8% -> 26,7%).
The big change over the last decade has been in the PetCare business, which has grown from 11,7% to the second biggest category within the company with a 19,2% share of revenues. During that time, the PetCare business has almost doubled its revenues. At the same time, Water, Milk & Ice Cream, and the Confectionary segments lost income.
Profitability challenges from the declining segments
As the company’s Operating margin has gradually declined since the peak in 2020, it has been driven by the declining segments: Waters, partly Confectionary and Prepared dishes.
On the other hand, the strong segments of Beverages and PetCare have increased profits significantly. The PetCare segment has grown its Operating income by 85% in the last decade. In 2022 PetCare and Beverages combined were responsible for 50% of the Operating income generated by Nestle.
A challenging start to the year with high inflation
The first quarter of the year was challenging for Nestle as pricing increases drove the growth almost entirely. The volumes were slightly down. Of the different segments within the business, Confectionary outpaced the Total Group in growth by 13,5%. This phenomenon has been playing out in grocery markets as consumers reduce spending in many categories but splurge on confectionery.
The fastest growing segment during Q1/2023 was the PetCare segment, with a whopping 15,7% growth. That was more than double the growth rate of the Beverages business.
The long-term trend of increased pet ownership and spending on pets also benefits Nestle.
