By Dominic Chopping

European food giants Nestle and Danone will focus on growing volumes this year, executives said, after a bout of hefty price hikes over the last couple years pushed many customers to seek cheaper alternatives.

Higher costs for everything from ingredients to logistics forced many major packaged-food producers to sharply lift prices and as budgets tightened some consumers moved to lower-priced alternatives or removed them from shopping baskets altogether.

"Unprecedented inflation over the last two years has increased pressure on many consumers and impacted demand for food and beverage products," Nestle Chief Executive Mark Schneider said Thursday after the company's earnings. "Looking to 2024, we are prioritizing volume- and mix-led growth."

Both KitKat maker, Nestle, and Activia producer, Danone, said the pace of price increases would moderate this year following hikes of more than 7% in the last, with the companies hoping they will see volumes pickup. Both expect price increases to be smaller and focused on specific areas of their businesses, rather than across all products and regions.

"The consumer remains under pressure in the U.S. and Europe," analysts at Barclays said in a note.

Overall the question will be how Nestle recovers real internal growth--its key measure of sales volume--and whether it has raised prices too much, they said. "The acid test will be improving market-share momentum and innovation to drive real internal growth in 2024."

The two companies saw diverging fortunes in volume growth last year. An IT integration problem hit sales at Nestle's vitamins, minerals and supplements business, which "does not compare favourably to Danone's volume inflection story," Citi analysts said in a note.

Danone's dairy-and-plant based product volumes rose 2% in the final quarter of the year, beating consensus by 170 basis points, which more than offset weaker pricing, the analysts said.

The two companies have guided for similar rates of sales and margin growth this year, with Nestle forecasting organic sales growth of around 4% and moderate growth in its underlying operating margin, and Danone guiding for 3% to 5% like-for-like sales growth and a moderate improvement in recurring operating margin.

Nestle shares traded 4.9% lower at CHF94.22 in afternoon trade while Danone shares were down 0.8% at EUR61.20.

Write to Dominic Chopping at

(END) Dow Jones Newswires

02-22-24 1131ET