Food and Beverage Business
Finance

Orkla ready to increase prices in response to rising costs

Orkla ready to increase prices in response to rising costs Orkla Food and Beverage Business

Orkla, a Norwegian food-to-hydro conglomerate, has announced its plan to increase prices this year in response to rising raw material costs, specifically cocoa, fish oils, and tomato ingredients. The company also expects to see easier costs for sugar and grain-based ingredients. Speaking during the company’s fourth-quarter results call, CEO Nils Selte stated, “We will increase prices if necessary for the period to come when we see price increases on the raw materials.”

The company’s operating revenue rose by 16% in 2023, reaching Nkr67.8bn ($6.45bn). However, operating profit decreased by 9.6% to Nkr6.2bn, influenced by positive currency translation effects and organic sales growth for the consolidated portfolio companies due to price increases. CFO Harald Ullevoldsæter acknowledged the challenge of input costs but noted that the situation is showing signs of stabilizing.

The division of Orkla Foods Europe (OFE) reported broad-based organic sales growth driven by price increases in the fourth quarter of 2023, along with a slight reduction in volume/mix. The company also revealed plans to restructure the business in the Czech Republic, which included closing one factory, selling another, and assessing the status of two more to tackle increased costs and falling volumes.

Orkla Food Ingredients (OFI) experienced a 1.8% decline in volume/mix in the fourth quarter and a 0.4% dip for the full year due to lower ice cream volumes in its sweet line and its bakery unit facing challenges from high consumer demand for lower-priced goods. The company sold a minority stake in the OFI business last October for Nkr15.5bn. CEO Nils Selte expressed optimism, stating, “We see signs of easing of competition” and mentioned the rise in private label prices.

Orkla Confectionary & Snacks booked operating revenue of Nkr2.6bn in Q4, with an organic sales increase of 8.1%. EBIT was lower, and underlying profit missed expectations. The company faced distribution challenges within its biscuits business in Sweden and the Baltics and production issues at its new Latvian biscuit factory. Analyst Bruno Monteyne noted that Orkla missed expectations on both organic growth and profitability in Q4.

In response to this stance, Orkla announced its plan to increase prices this year against the rising raw material costs in the food and beverage industry. This move is expected to address the rise in raw material costs, stabilize the input costs, and counter the negative impact on volumes in the coming years. Orkla’s active approach to the challenge is a response to provide business insights and leverage the competitive edge in the food and drink consumer trends.