Blog: Dean BestIt's tough at the top

Dean Best | 17 August 2009

Last week, we were given further insight into how food manufacturing and retail majors are fairing in the current difficult trading environment when behemoths Nestle and Wal-Mart delivered their first half results.

Nestle's European peers – including Cadbury, Unilever and Danone –  have all beaten consensus expectations in their respective first-halves, putting considerable pressure on the Swiss company to book a strong performance.

When the group posted a 2% drop in profits on organic growth of 3.5% - falling short of consensus estimates of 3.9% and its own target of 5% - the market reacted unfavourably and shares plummeted.

As Kepler Capital Markets analyst Jon Cox told just-food: “Nestle is a bit unfortunate that is reporting after all of the other majors in food, who have basically beaten results. It missed top line when another beat had been expected.”

During the half, Nestle saw particular problems in its European businesses, where organic growth increased just 0.2%. In the region, Nestle sales lagged as its competitors stepped up their investment in marketing and innovation.

Nevertheless, the group insisted that it expected its European performance to improve in the second half of the year, as pressure from customers over pricing is alleviated.

Indeed, it seems likely that Nestle will now look to pick up the pace of organic growth, approaching the final six months of the year firing on all cylinders.

With US retailers struggling as consumer confidence comes under continuing pressure and food deflation hits sales, Wal-Mart was able to beat expectations when it posted earnings per share at the top end of its forecast on sales that were down 1.4%.

The world's largest retailer shrugged off a 1.5% drop in ID sales at its Wal-Mart US business,which fell short of the company's guidance of flat to positive 3% comparable-store sales growth. Instead, Wal-Mart pointed to an increase in footfall and market share growth during the period to suggest the health of its US operations.

Wal-Mart's discount positioning and investment in communicating its value-message has allowed it to attract more shoppers.

A pertinent question, then, is whether Wal-Mart will be able to hold on to these new customers when the economic situation improves. The retailer's answer has been to embark on an extensive programme of store remodels – 500-600 each year for the next five years.

"It's not just remodelling, its about re-engineering the stores to improve the overall shopping experience,” a spokesperson for the company told just-food.

As we move into the second half, all eyes will be focused on whether the world's largest food maker and retailer will be able to strengthen their positions further – particularly in the key markets of Europe and the US.

Katy Humphries, Deputy Editor


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