Why Nestle Share Price is Falling

Top Fast-moving consumer goods (FMCG) stocks are facing a double whammy: weakening demand and a lack of near-term solutions.

The S&P BSE FMCG Sector index tumbled 53 points today, adding to its woes of a 2.6% decline just in the past week.

This year has been particularly rough for the sector, with the Nifty FMCG index down over 5% year-to-date (YTD) compared to the broader market's (Nifty) 1% gain.

The weakness extends beyond rural areas, impacting even urban demand for packaged goods.

This lack of a turnaround paints a concerning picture for the sector.

Feeling the heat, FMCG Giant Nestle tanked 5% yesterday.

Here's what caused the sudden fall of the FMCG giant.

#1 Baby Food Sugar Controversy

A recent report by Swiss NGO Public Eye and the International Baby Food Action Network (IBFAN) has stirred controversy.

It revealed stark differences in the sugar content of Nestle's baby products across various nations.

The investigation, which scrutinised around 150 baby products from different countries, alleged that Nestle's products in South Asian (including India), African, and Latin American markets contain significantly higher sugar levels than those in Europe.

The report, highlighted findings from a Belgian laboratory that tested the samples, indicating that the sugar content exceeded international food safety guidelines.

Of particular concern is Nestle's wheat-based product, Cerelac, designed for six-month-old babies.

While Cerelac, sold in the UK and Germany, boasts no added sugars, its counterpart in India contains 2.7 grams of added sugar per serving.

What Are Added Sugars?

Added sugars are sweetening agents, like syrups, added to processed foods and beverages. They're considered more harmful than the naturally occurring sugars in fruits and milk.

Why is it Concerning?

The World Health Organisation (WHO) advises against introducing added sugars before age two.

Doing so can lead to addictive eating habits and a preference for sweet tastes from an early age.

Excessive sugar intake can also cause weight gain and obesity and increase the risk of chronic diseases like type 2 diabetes, heart disease, and certain cancers later in life.

Responding to the allegations, FSSAI has affirmed its commitment to conducting a thorough investigation.

If Nestle is found at fault, the regulatory body has pledged to take stringent action against the brand. As part of the investigative process, a committee will be formed to delve into the details of the case.

This led to stock tanking 5% yesterday.

#2 History of Controversies

In 2021, Nestle encountered criticism following the disclosure of an internal presentation indicating that a substantial portion of its mainstream food and beverage offerings did not meet established health standards.

Nestle acknowledged that 60% of its food and drinks portfolio, excluding pet food, baby formula, and coffee, fell short of health benchmarks.

The company asserted that it had decreased sodium and sugar levels in its products by at least 14-15% over the previous seven years.

Maggi Ban

One of Nestle India's most famous controversies arose from the 2015 ban on its popular Maggi noodles. The ban was prompted by the discovery of excessive levels of lead and monosodium glutamate (MSG).

This led to the withdrawal and destruction of approximately 38,000 tonnes of Maggi noodles, significantly impacting Nestle India's market share and revenue.

The ban followed the discovery of labelling discrepancies by a food inspector in Uttar Pradesh, with subsequent laboratory tests confirming the presence of MSG and lead.

This incident prompted a nationwide product recall and regulatory intervention by the Food Safety and Standards Authority of India (FSSAI).

Discouraging Breastfeeding Allegations

Nestle faced criticism in the United States in 1977 for allegedly discouraging breastfeeding to promote its baby formula, leading to boycotts of Nestle products in the US and Europe.

The boycott persisted until 1984 when Nestle agreed to adhere to an international marketing code endorsed by the World Health Organization (WHO).

Child Labour Allegation

In 2021, Nestle faced legal challenges over allegations of child labour in cocoa farms in the Ivory Coast, reported Utopia.org.

Former alleged child slaves sued the company, but a US District Court dismissed the case in 2022 due to a lack of evidence linking Nestle to specific plantations.

Environmental Concerns

Nestle's packaging practices have also raised environmental concerns, with critics questioning the company's approach to plastic waste management.

Despite pledging to design over 95 per cent of its plastic packaging for recycling by 2025, allegations have arisen regarding the incineration of plastic waste, contributing to environmental pollution.

Additionally, accusations of groundwater exploitation also emerged in Pakistan, where Nestle's operations allegedly contributed to sinking water levels and contamination.

Forensic audits submitted to the Pakistan Supreme Court revealed water wastage, prompting scrutiny over Nestle's water management practices.

With a history of controversies, the latest issue surrounding the company's product has further added to investor concerns, contributing to a decline in the stock's performance.

What Next?

Nestle has been increasing its market size by focusing on strengthening its reach in small towns and large villages under its RURBAN strategy.

It has also continued to widen and customise our RURBAN portfolio by introducing products which cater to specific local requirements.

Further, Nestle is piloting NESmitra, its customer ordering app in RURBAN markets, that will help retailers connect with the distributors.

The company has accelerated its focus on innovating and renovating, launching many new products. Currently, it has 30 new projects in the pipeline.

It is working on developing a diverse range of food products across multiple brands that highlight millet as a more eco-friendly and sustainable food option.

Additionally, the company has doubled its spending on sustainability in sectors such as dairy, plastics, and sustainable sourcing.

Being an established player in milk and nutrition products, chocolates and confectionary, Nestle India stands among the top FMCG stocks in India.

How Shares of Nestle have Performed Recently

The share price of Nestle has climbed by 2% in the past one month. In past five days the stock has lost 4%.

So far in 2024 the stocks is down 11%.

Over the past one year, shares of the company have rallied 17%. In the past five years, shares have delivered multibagger returns of over 120%.

The company touched its 52-week high of Rs 2,769 on 2 January 2024 and its 52-week low of Rs 1,950 on 17 April 2023.

About Nestle India

Nestle India is the 100-year old, second largest FMCG company in India. It dominates the noodle (Maggi) and the hot beverage (Nescafe) categories.

After more than a century-old association with the country, Nestle India today has presence across India with 8 manufacturing facilities and 4 branch offices.

Nestle India is a subsidiary of NESTLE S.A. of Switzerland. The company has more than 2,000 brands ranging from global icons to local favourites, and is present in 191 countries around the world.

The products offered by Nestle range across categories such as milk and nutrition, chocolates and confectionary, beverages, and prepared dishes and cooking aids.

Some of the famous brands of the company are Nescafe, Nestle Everyday, Sunrise, Maggi, KitKat, Milkybar, Milkmaid, Nestea, Munch, Bar one, Polo, and many more.

For more details about the company, you can have a look at Nestle India's factsheet and Nestle India's latest quarterly results on our website.

For more details about the FMCG sector, you can check out the FMCG sector report on our website.

You can also compare Nestle with its peers on our website.

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