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Nestlé and Nespresso report growth despite COVID-19 in half-year results

From the August 2020 issue.

Nestlé has reported organic growth of 2.8 per cent in the quarter ending 30 June 2020, with real internal growth (RIG) of 2.6 per cent and pricing of 0.2 per cent.

Despite this, total reported sales decreased by 9.5 per cent from CHF45.5 billion the year prior to CHF41.2 billion.

“Nestlé has remained resilient in a rapidly changing environment, delivering solid organic growth and improved margins in the first half. These results demonstrate the agility of our business and the strength of our diversified portfolio across geographies, product categories and channels,” Nestlé CEO Mark Schneider says.

“With consumer behaviour evolving faster than ever, we are adapting to this new reality by strengthening our innovation, leveraging our digital capabilities and executing with speed. Our engaged teams and their commitment to deliver business results while driving progress against our societal and environmental commitments make us a stronger company every day."

Nespresso grew at a mid-single-digit rate, supported by significant sales acceleration for e-commerce and the Vertuo system.

North America saw strong double-digit growth, with continued market share gains. Africa, Oceania, and Asia grew at a double-digit rate, with positive contributions from most markets. Sales in Europe decreased, reflecting significantly reduced demand in the out-of-home channel and boutique closures.

Globally, at the end of June, 86 per cent of boutiques had reopened. In July, Nespresso announced a CHF160 million investment in the expansion of its Romont production center in Switzerland to meet growing consumer demand worldwide.

Nestlé says the COVID-19 crisis has led to profound changes in operating environments across markets. The global economy has entered a recession, supply chains have been tested, and consumer behaviour has changed at a rapid pace. Nestlé quickly deployed effective measures to address this new reality, and its supply chain has proven resilient, as manufacturing and distribution facilities continued to operate without significant disruptions.

With shifting consumer habits, Nestlé has been developing solutions to meet increased demand for at-home consumption, products that support health and boost the immune system, as well as affordable offerings. The company has also accelerated the development of its digital capabilities and expanded e-commerce and online communication.

In the first half of 2020, the effects of COVID-19 on organic growth varied materially by geography, product category and sales channel, depending on the timing of outbreaks, scope of restrictions and consumer behaviour.

Geographies
The majority of markets saw slower growth in the second quarter. This trend reflected the full effect of out-of-home channel closures and consumer destocking after pantry building in March. North America remained resilient. China posted a double-digit sales decline, with growth improving to almost flat in the second quarter as movement restrictions eased.

Product categories
Demand for at-home consumption, trusted brands and personal health products increased. Coffee at-home products were among those that reported strong growth.

Sales channels
All markets saw a significant shift from out-of-home and on-the-go products to at-home consumption. Retail sales significantly accelerated. Out-of-home channels posted negative growth, with significant sales declines for Nestlé Professional and Nespresso boutiques. E-commerce sales grew by 48.9 per cent, reaching 12.4 per cent of total Group sales.

In the first half, COVID-19 related costs were CHF290 million, including expenses for bonuses paid to frontline workers, employee safety protocols, donations, and other staff and customer allowances.

In addition, the Group absorbed costs of CHF120 million related to staff and facilities made idle due to lockdown measures.

Consumer-facing marketing expenses decreased. In many markets, in-store activation could not be implemented during COVID-19 related lockdowns. Nestlé increased media spend, particularly in digital channels, to support brand building and consumer engagement. Lower media rates allowed for increased consumer reach.

Nestlé says the exact financial impact of COVID-19 for the full year remains difficult to quantify and will depend on the duration and economic consequences of this crisis as well as the speed of recovery in the out-of-home channel.

"COVID-19 continues to impact people around the world. We stand with all those affected and are committed to helping where we can. I would like to thank every member of the Nestlé team for their dedication and hard work in the face of incredible challenges,” Schneider says.

“Our priorities remain the same; keeping our people safe, assuring continued supply of essential food and beverages to consumers and caring for our communities and business partners through financial and in-kind support.”

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