Nestle CEO says Middle East conflict driving inflation, higher supplier costs

By Gabriel Araujo and Richa Naidu

CACAPAVA, Brazil/LONDON, Sept 10 (Reuters) - Nestle is raising prices, reformulating products and cutting items consumers are unwilling to pay more for as it tackles the effects of higher energy, freight and raw material costs following the conflict in the Middle East, CEO Philipp Navratil told Reuters on Wednesday.

While the world's biggest packaged food maker has seen little direct impact on sales from the six-month-old U.S.-Israeli war against Iran, Navratil said the conflict was contributing to inflationary pressures faced by suppliers.

"Each and every supplier of ours will have some increase in costs," Navratil told Reuters. "Some of them will come to us and we will have to mitigate them (the costs), making sure consumers come along if we have to increase prices."

In addition to raising prices, Nestle is reformulating products, "relentlessly" pursuing efficiency savings and eliminating products consumers "are not ready to pay for", Navratil said, without giving details.

The Middle East accounts for about 2% to 3% of the Swiss company's roughly 90 billion Swiss francs ($111 billion) total sales, meaning the direct impact on sales has been limited.

"But you will have primary effects in terms of inflation in what we buy, in terms of input costs," he said.

The U.N. Food and Agriculture Organization (FAO) has warned the world could be heading towards another bout of ​food inflation. The FAO Food Price Index, which tracks monthly changes in a basket of internationally traded food commodities, averaged 131.1 points in July, up from 130.3 in June and the highest ​reading since January 2023.

Nestle, which has over 2,000 brands including Nescafe, Maggi and KitKat, recently sold a stake in its bottled water business and is also exiting vitamins as Navratil has been tasked with streamlining the company's focus on core brands.

Navratil said, however, that Nestle may also buy brands as it reviews its portfolio periodically.

"That doesn't mean that Nestle is just divesting things. We are also, as always, open to acquire things that are strategically important," he said, without giving details.

On a separate issue, Navratil said food manufacturers should be involved in discussions over proposed front-of-pack sugar, salt and fat warning labels in India.

Reuters reported in August that companies were lobbying against such warnings, according to documents and recordings it has reviewed.

Navratil said Nestle has removed thousands of tons of sugar, salt, and fat from its products, but argued that labeling has to be done the "right way" and should reflect portion sizes.

($1 = 0.8097 Swiss francs)

(Reporting by Gabriel Araujo and Richa Naidu; Editing by Elaine Hardcastle)