‘Aggressive’ private label pricing hits Nestlé Waters

By Ben BOUCKLEY contact

- Last updated on GMT

Picture Credit: LiliVanili/Flickr
Picture Credit: LiliVanili/Flickr

Related tags: Nestlé waters, Private label, Nestle

Nestlé CFO Wan Ling Martello admits that Nestlé Waters faces a tough US waters environment in 2013 due to aggressive private label competition that has eroded its market share.

The division - which counts Perrier, San Pellegrino, Deer Park and Arrow Head among its brands - posted sales across all territories of CHF 3.7bn ($4.02bn) in H1 2013, and 2.2% organic growth, but profits – on the basis of a 10% operating profit margin, unchanged year-over-year, were flat.

Powdered and liquid beverages overall grew 4.7% in organic terms, driven by Nespresso’s double-digit growth in H1, while margins grew by 100bps (1%); coffee and malt beverage margins both improved.

Discussing Nestlé Waters’ performance in the US, Martello said: “The waters’ environment is tough, with private label players pricing aggressively. We have taken a more profit-focused approach, which has of course impacted our market share.”

Challenging times in Europe

She added: “We’re positive on water though, with continued growth in the market and in our business. The premium brands San Pellegrino and Perrier are performing well.”

Turning to the division’s performance in Europe, Martello said it was also suffering a “challenging year”​ after strong growth in 2012.

“The competitive environment has intensified – the same story as North America with increased promotional activity. Our best performers are the more differentiated waters.”

Nestle’s coffee activities, Nescafe, Nescafe Dulce Gusto, Nespresso, continued to be growth enhancing, Martello said, highlighting notably good performance in Russia, the UK and Germany.

Mixed coffee picture

But in Asia, Oceania & Africa, Martello said Nestle’s coffee activities were a “bit of a mixed picture”​.

“Some of our public-private partnerships are fighting tough competitive battles in countries such as The Philippines,”​ she said.

“But we’re doing well in premium and in systems, both in the developed and emerging markets in AOA, as well as in ready-to-drink.”

Quizzed by one analyst over rumoured recent price increases for Nespresso in the US, Roddy Child-Villiers, head of investor relations, said: “On Nespresso, frankly I don’t know what the pricing structure is in different countries around the world. But I do hope you’re right.

“I do hope they have taken pricing in the US. Because I know when you compare their capsules to the competitor capsules…we represent extremely good value.”

Nestle H1 group sales rose 5.3% to CHF 45.2bn with trading operating profit up 6.8% to CHF 6.8bn.

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