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.

While sales of the world's biggest packaged-food maker have not been greatly impacted by the six-month-old Iran war, 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 in an interview on Wednesday. "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."

The comments underscore how the war's disruption of energy and commodity markets is filtering through global supply chains to the food aisle, even for companies with minimal direct exposure to the region.

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 elaborating.

The Middle East accounts for about 2% to 3% of the Swiss company's roughly 90 billion Swiss francs ($111 billion) in 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.

PROCTER & GAMBLE FACES SIMILAR PRESSURES

U.S. consumer goods firm Procter & Gamble, which had already estimated a $1 billion after-tax profit hit in fiscal 2027, said on Thursday that oil prices above $100 a barrel, Canada's retaliatory tariffs on the United States and a U.S. driver shortage were all making the situation harder to manage. 

"We all wake up every morning and something else happened," Procter & Gamble's chief financial officer, Andre Schulten, told a Barclays conference in Boston. The pressure on pricing would increase the longer oil stays above $100 a barrel, he added.   

Schulten said the challenges remain manageable. "It makes it harder, but I'm still confident that we are in the right range." 

NESTLE URGES ROLE IN INDIA LABELING TALKS 

The U.N. Food and Agriculture Organization (FAO) has warned that the world could be heading toward 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. It was the highest ​reading since January 2023.

Nestle, which has more than 2,000 brands including Nescafe, Maggi and KitKat, recently sold a stake in its bottled water business and is also exiting vitamins as Navratil seeks to streamline 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 franc)

(Reporting by Gabriel Araujo in Cacapava, Brazil, and Richa Naidu in London; Additional reporting by Juveria Tabassum in Bengaluru and Alexander Marrow in London; Editing by Elaine Hardcastle and Matthew Lewis)