Coronavirus (COVID-19): Nestlé highlights impact all along its supply chain

Jon Wright
Head of Insight - RA EMEA
@RetailAnalysis

Date : 27 April 2020

As part of its first quarter results, Nestlé discussed the impact the coronavirus pandemic had had on all parts of its operations and how it had performed in China towards the end of the quarter as the country exited the worst effects of its lockdown.

1. China exiting the quarter ‘gradually’

Given China was loosening its lockdown towards the end of the quarter, Nestlé discussed what it was seeing. Although it stressed it was difficult to call how China was exiting the quarter, it noted that demand was ‘coming back… but… not at the level where [it was] before the crisis’. The company said the improvements were being felt gradually and differed by sub-geography in the country.

The company said it had seen ‘an increased interest in value-for-money’ products as ‘ people are very value-conscious and there's a strong interest in that’. However, on a wider geographic basis Nestle said it had seen good growth for its premium products, which it said echoed developments from previous crisis, suggesting it was a case of ‘ the two extremes, the value side and the premium side, that do hold up quite well in a downturn’.

2. Importance of ecommerce highlighted

Nestlé said the overall trend was from ‘out-of-home to in-home consumption’, which affected specific categories and products. This led to significant sales declines for its Nestlé Professional, water and Nespresso boutiques channels.

While retail channels benefited from this shift, it highlighted how ecommerce sales had increased by 29.4% during the quarter. The pace of growth meant the channel accounted for 10.4% of total group sales for the first time, versus 8.5% in 2019.

The channel’s growth was called out in its North America operations where it said the Purina PetCare brand had seen ‘sustained momentum in ecommerce and premium brands’. Underlining how it was not limited to that geography, in China it said ‘ecommerce sales posted double-digit growth supported by strong demand for Nescafé and Starbucks products’. Specifically for Nespresso, Nestlé said ‘ecommerce sales grew by nearly 60% in March, which more than offset the declines in other channels’.

3. Impact felt along the supply chain…

Nestlé looked at the challenges it had faced during the quarter along the whole of its supply chain. It said it had been difficult to acquire certain raw materials for its products, which had led to it ‘air freight at times to expedite the process’. This led to an increase in costs for parts of its operations, but that this had been offset by less business-related travel and the lowering of some promotional activity.

4. …Which requires it to support its suppliers

The company said the pressure that it had felt in terms of maintaining business continuity was accentuated for its out-of-home and food service customers, which it said had been ‘severely affected’. As a responsible member of the supply chain Nestlé said it was providing its partners with ‘prompt and pragmatic assistance to weather the crisis and help them restart their businesses’.

As an example, the company highlighted the ‘Always open for You’ initiative, which saw it extend payment terms, suspend rental fees for coffee machines and offer free products to certain companies. It said the initiative was expected to cost it around CHF500m (US$513.6m). Meanwhile, in relation to its dairy supply chain it said it was working with more than 200 000 dairy farmers globally, buying agreed volumes to help them maintain their livelihoods.

5. Maintains 2020 outlook

In contrast to many other companies, retailers and manufacturers alike, reporting now, who have removed their forecasts for 2020, Nestlé has said it is maintaining its full year guidance. It said it was ‘too early to assess the full impact of COVID-19’, which meant it would maintain its guidance for the short term.

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