Nestlé Waters suffers Iraq war backlash

- Last updated on GMT

Related tags: Bottled water, United states dollar

Last year's stockpiling of bottled water in advance of the Iraq war
had a beneficial effect on first quarter sales at Nestlé Waters,
the Swiss-based bottled water group, but meant that this year's
figures showed a significant downturn - a situation not helped by
the decision to withdraw from beer distribution in Germany and only
partially offset by an upturn in other beverage sales, writes
Danny Vincent.

Nestlé reported total beverage sales (water, coffee, etc) of SF 5.0 billion in the first quarter, a slight decline compared to the SF5.1 billion posted a year earlier. But excluding the impact of currency fluctuations and the decision to sell its stake in the Trinks beer distribution business in Germany, growth was a more optimistic 3.1 per cent.

Total first quarter sales were up 3.4 per cent at SF20.4 billion.

Beverage brands such as Nescafé, Milo, and Nesquick performed well throughout the quarter, the company said, but the Nestlé Waters division saw its organic sales growth limited to a modest 2.4 per cent to SF1.8 billion, mainly due to the comparison with last year's particularly strong first quarter figures.

Group spokesman François-Xavier Perroud explained that water sales witnessed strong growth last year because the US authorities encouraged consumers to buy bottled water in case natural water supplies were contaminated by terrorists in response to the war in Iraq.

The decision to sell Trinks (to a consortium of German brewers) was the main reason for the slight fall in overall beverage sales, and Perroud explained the reasoning behind the decision to sell the low margin distribution business.

"Nestlé is an industrial producer, not a distribution business, and this element did not fit into the strategy of the company. Added value products - not distribution - is the area of company interest."

Unlike many in the industry, Nestlé was relatively unaffected by currency movements in the first quarter. The weakened US dollar had a negative effect of just 0.3 per cent.

"Currency effect was relatively low because the US dollar is not strong against the Swiss Franc and at the same time there is a strong euro",​ Perroud explained.

Nestlé is looking forward to the coming months with "cautious optimism".​, suggesting that added value products would be the main driver of growth throughout the year.

"We believe that it is evident that more regions are looking forward to economic growth than the year before. Overall, we think that the economic climate is better than this time last year,"​ Perroud concluded.

Related topics: Soft Drinks & Water

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