Nestlé is on course to report its best profit figures since 2008 when full-year figures appear next month. The Swiss maker of consumer favourites from KitKat to Nespresso coffee is expected to shrug off the cost of living crisis affecting consumers in most of its big markets to keep shareholders smiling in 2023.
US rival Procter & Gamble, which competes on several fronts with Nestlé, has performed a similar magic trick. Back in October, the maker of Pampers nappies said average prices across its product lines rose 9% in the first quarter to the end of September, more than offsetting a 3% fall in sales.
A similarly upbeat message is expected from Jon Moeller, the chair, president and chief executive at P&G, who received a 44% pay rise in 2022 to $17.7m (£14.7m), when the firm’s second-quarter results are announced later this month.
Both firms have committed themselves to maintaining or increasing dividend payments and buying back shares to reduce the number in the market and thereby increase their value.
Increasing sales and maintaining profits for shareholders appear to be at the expense of wage rises.
Across all industries, salaries have increased by just 4% this year, according to data covering private sector pay deals. Only the workers in the financial services sector and those in business services such as accountancy are winning in the wage war, pushing the official figure for average earnings growth to 6.9%.
On the other hand, profitability remains strong across most sectors, which begs the question, why are workers and consumers allowing investors to be largely untouched by the pandemic and the fallout from the Ukraine war? Why accept across-the-board price rises when it contributes to the worst fall in living standards in a century?
P&G raised prices by 9% and the value of organic sales increased by 7%. At Nestlé’s headquarters on Lake Geneva, executives found that almost 90% of the organic sales growth of 8.5% was the result of product price rises to maintain an underlying trading operating profit margin of about 17%.
As a reward for investors, the boss Mark Schneider said the company was aiming to repurchase 20bn Swiss francs (£18bn) worth of shares from 2022 to 2024 and said it had already bought about half to help bolster its share price.
The world’s largest consumer product makers are not alone: there are similar stories across many industries where wages are being held in check while the prices charged by the firm are rising, improving profitability and shareholder dividends.
Obvious examples include the energy companies that have made huge windfall profits from selling gas, electricity, diesel and petrol over the past two years.
They face a windfall tax in recognition of their profiteering. The EU has a tax and so does the UK.
A similar one-off “war tax” on consumer goods makers would pose insurmountable problems, which is why consumers should consider a boycott.
Otherwise we all become victims of marketing that tells us higher prices are inevitable and here to stay.
Nestlé and P&G tell shareholders that the cost of basic raw materials continues to eat into profits, but celebrate how their price rises have offset those bills.
We know Nestlé’s Schneider, who has run the company for more than five years and earns about £9.5m a year, is also threatened by another potential cost – that workers’ salaries should keep pace with inflation.
In October he said: “I worry about the development of wages.”
Asked what pay rise Nestlé workers enjoyed in 2022, a spokesperson for Nestlé declined to comment.
Schneider was one of many company bosses who urged central banks to raise interest rates in an effort to bring down inflation.
However, inflation is not falling quickly enough to prevent another year of sharp decline in living standards, should employers continue to keep a tight rein on wage increases.
Rip-off Britain was a slogan that gained traction after the 2008 financial crisis when there was a suspicion that copy-cat price rises were pushing inflation higher than it needed to be. It’s time for consumer groups to dig out those old posters and start picketing.