KitKat's rising prices

Jamie

This month KitKat lovers received some of the worst news since last year. Nestle, the world’s largest food conglomerate, announced on the 2nd of February 2023 its plans to raise goods prices after an initial 8.2% increase in 2022. Chief Executive Mark Schneider spoke at a press conference implying that further price rises were due to failing to meet profit forecasts last year, therefore hoping to up the firm’s revenue in 2023 to compensate. We ask the question why has Nestle failed to achieve its previous profit goals, and what are the causes for its economic shortcomings?

The main reason for this increase in price of its many common consumer goods (such as Nescafe, Aero, etc.) is because of the recent spike in commodity prices, drastically increasing the cost of production for the company, and reducing profit per unit sold. Therefore, by raising the price of their products, they hope to offset the impact of the higher cost of production, aiming to keep on track towards their 2023 turnover goals. A large contributor towards the inflation of commodity prices at the moment is the Russia Ukraine conflict, marking its first anniversary this month. Because these two countries have such extensive agricultural land and factories producing vital materials for production processes across the world, the sudden invasion has halted a significant proportion of exports instead using the land to focus on military practices. As well as the addition to the numerous trading sanctions placed on Russia by NATO countries and reducing the supply of raw materials, this has led to supply bottlenecks, whilst demand has remained the same. As a result, commodity prices rose in order to ration off demand. Whilst Nestle should continue to raise its prices if it hopes to maintain its profit goals, the long-term effects could be more costly than a shortterm loss in monetary gain. Namely, if consumers begin to think that the price of the company’s products are too high, they may switch to an alternative good, again reducing the revenue for the firm. Because the market they are in is highly competitive and heavily saturated with substitute goods (such as Cadbury’s chocolate), it would be relatively easy for customers to change even if they are a loyal Nestle consumer.

Nonetheless, due to the firm’s widespread presence in countless domestic markets, these changes should be financially beneficial for them, as their prior influence on consumers will be enough to keep revenue at expected heights. However it is important to consider the longterm effects in decisions like these, as they could be far more detrimental than the initial problem itself.