Reuters reported that Nestlé has decided to expand its Nespresso brand offering to include paper capsules to attract customers who have been put off buying their products by the metal capsules used until now. Most consumers do not know that they are made of aluminium, can be effectively recycled, and often end up in a landfill instead of being recycled.

 

Choice option

"The aim is not to replace all aluminium capsules with paper, but to give the consumer more choice. It's an alternative for sustainable options," commented Guillaume Le Cunff, CEO of Nespresso, on the new product line. He also added that customers will be able to choose the version that better suits their own preferences- i.e. whether they want to compost the paper version or prefer to recycle the aluminium one. The new product line could thus bring new customers to the company who had not considered buying the products until now. As Nespresso stated on its official website, the development of the compostable capsules took three years and sales will be tested in Switzerland and France, while it should start already in the spring of 2023. In addition, it has been working with the Rainforest Alliance since 2003 on a sustainable quality programme.

 

Shares have not reacted significantly

Nestlé shares did not see a significant reaction from investors following the announcement made by Nespresso. In fact, they have been in an uptrend for the last month, but looking at the last year, we can see a correction of less than 8 percent in the chart. However, in the case of 5-year performance, we observe that the stock has done well in the long term and has gained 32 percent over the period.

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Nestlé's historical share price development since 1995 is in green numbers. (Source: Google Finance) *

 

Stability even in times of economic fluctuations

Did you know that Nespresso is one of Nestlé's biggest brands and also one of the most profitable? Revenues of the operating unit Nestlé Nespresso S.A. in 2021 reached CHF 6.4 billion (USD 6.7 billion). Nestlé's total sales increased 3.3 percent last year to CHF 87.1 billion. Net profit rose by 38.2 percent to CHF16.9 billion. The so-called organic growth was 7.5 percent, which not only surpassed the company's own but also analysts' expectations. However, continuously rising costs could have some impact on the company's final profit in 2022[1]. 

 

An interesting part of the investment portfolio

Although the growth trend has seen a slowdown after a surge in sales during the pandemic, Le Cunff did not give any sales targets for the new capsule line. Nespresso has seen good resilience during previous crises, so management and the markets have no reason to be concerned about the future, even in light of the uncertain global economic situation. From this perspective, Nestlé shares can be an interesting addition to any investor's portfolio.

 

Olivia Lacenova, Chief Analyst at Wonderinterest Trading Ltd.

 

[*] Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.