European food giants Nestle and Danone plan to shift their focus towards increasing volumes this year after experiencing significant price hikes in recent years. The surge in prices led many consumers to explore more affordable alternatives as rising costs across the board, from ingredients to logistics, squeezed budgets and impacted purchasing habits.

Nestle's Strategy for 2024

According to Nestle's Chief Executive Mark Schneider, the company acknowledges the challenges brought on by unprecedented inflation and is aiming for volume- and mix-led growth in the coming years. This strategic shift comes after the company's recent earnings report highlighted the need to adapt to changing consumer behaviors.

Danone's Approach to Price Increases

Similarly, Danone, known for its Activia brand, is also adjusting its pricing strategy to focus on enhancing volumes. Following price hikes exceeding 7% in the past year, both Nestle and Danone anticipate a more moderate approach to pricing in the current year. Instead of broad increases across all products and regions, the companies intend to implement targeted adjustments focusing on specific areas of their businesses.

Consumer Pressure in U.S. and Europe

Barclays analysts noted that consumers in the U.S. and Europe continue to face economic pressure, reinforcing the importance of strategic pricing and volume-driven growth for companies like Nestle and Danone. By prioritizing volume expansion and adapting to evolving market dynamics, these industry leaders aim to navigate through challenging times while delivering value to their customers.

Analyzing Nestle and Danone Performance in Sales Volume

As Nestle focuses on recovering real internal growth, the key measure of sales volume, questions arise about whether price increases have been too steep. The acid test for the company will be improving market-share momentum and driving innovation to boost real internal growth in 2024.

Diverging Fortunes in Volume Growth

Last year, Nestle and Danone experienced contrasting outcomes in volume growth. Nestle faced sales setbacks in its vitamins, minerals, and supplements division due to IT integration issues, which Citi analysts noted did not bode well when compared to Danone's success in volume growth.

Danone's dairy and plant-based product volumes surged by 2% during the final quarter, surpassing consensus expectations by 170 basis points. This growth compensated for any drop in pricing, as observed by analysts.

Sales and Margin Projections for the Future

Both companies have outlined similar forecasts for sales and margin growth in the upcoming year. Nestle anticipates organic sales growth of approximately 4%, alongside a moderate uptick in its underlying operating margin. Meanwhile, Danone expects a 3% to 5% like-for-like sales increase, coupled with a moderate enhancement in recurring operating margin.

Market Reaction

As of the latest trading session, Nestle shares were down by 4.9% at CHF94.22, while Danone shares faced a 0.8% decline at EUR61.20.