An increasing number of big food processing companies are airing concerns about inflation, warning that they will have to deal with it through some combination of charging higher prices and accepting lower profits.
Raw materials, packaging materials, transportation and labor are all increasing the cost of doing business. Companies that have made recent announcements about inflation affecting their financial prospects include:
- Nestlé, which slightly downgraded its projected profit margin to 17.5% due to "time delays between input cost inflation and [product] pricing." Nestle raised prices by an average of 1.3% worldwide since the beginning of the year, with a 3.5% increase in ice cream and other milk-based products.
- AB InBev, which says that increased costs for barley, freight and aluminum cans will affect it going forward. Its second-quarter sales rose 28% over last year, due mostly to consumers visiting newly open bars and other establishments.
- Diageo, which said its North American operating margin declined by 1.24 percentage points. The company attributed this in part to rising costs for agave, the raw material for tequila, as well as higher prices for corn, aluminum and transportation.
- Danone, which noted rising costs for milk, packaging and transportation, even though its second-quarter sales were up 6.6% year over year.
Decision-makers at food & beverage companies have to decide how long-term inflation will be – whether it’s a temporary phenomenon caused by the economic recovery as the pandemic ebbs, or whether it’s longer-term. “Frankly, that’s the $64,000 question at this point,” Nestlé’s CEO Mark Schneider told the Wall Street Journal.