Danone, Nestle Will Cut China Prices Amid State Probe

2013-07-04

 

 Nestle SA (NESN) and Danone’s (BN) infant-nutrition units will cut prices of key products in China after the government started investigating possible pricing and anti-monopoly violations by overseas companies.

Wyeth, which Vevey, Switzerland-based Nestle acquired from Pfizer Inc. (PFE) in April 2012, will lower the prices of certain infant-formula products by 6 percent to 20 percent, and promised not to raise prices of new products for a year, it said yesterday in a statement. The average reduction will be 11 percent. Danone’s Dumex unit is preparing a price cut and will disclose details later, the company said in an e-mailed response to questions.

“It was a bit of a surprise, and it may trigger further pressure on prices for all of the players in that market,” Jon Cox, head of Swiss equities at Kepler, said by phone. “That’s probably going to have an impact on the profitability of these companies. It’s not positive, that’s for sure.”

China’s National Development and Reform Commission, the nation’s top economic planning agency, has started an investigation into the pricing of infant formula sold by Wyeth and other foreign companies including Danone and Mead Johnson Nutrition Co. (MJN), the People’s Daily newspaper reported on July 2.

The NDRC has evidence that the companies sold goods at high prices in China and their pricing increased about 30 percent since 2008, according to the report, which cited the agency. Melamine-tainted milk powder killed at least six infants that year, fanning distrust among Chinese consumers of local milk and driving them toward foreign brands at home and overseas.

‘Damage Limitation’

Wyeth’s price cut “looks like damage limitation, and I’d imagine others will follow,” said James Targett, an analyst at Berenberg Bank in London. “The question is whether this will make the consumer aware it is being overcharged, or whether it wi