The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee Donnellan

LONDON, May 15 (Reuters Breakingviews) - Faced with President Donald Trump’s tariffs, business leaders have a variant of the same dilemma. They can pass the ensuing cost inflation onto customers in the form of higher prices, or they can swallow the hit themselves. The consumer goods sector offers a stark example of how different companies are taking different approaches – and how, in the case of $272 billion Nestlé NESN.S, that involves taking quite a risk.

When consumer giants face inflation in the price of ingredients like coffee, sugar and other raw materials, they typically hike the prices they charge consumers to protect their operating margins. The extreme version of this came in the pandemic – in 2022, supply chain cost rises meant $33 billion Kraft Heinz KHC.O raised customer prices by 15%, while Nestlé increased its own by 8.2%. Yet this comes with a downside.

The immediate issue is punters buy fewer branded products: Kraft Heinz’s volumes, for instance, slumped by 4.8% in 2022. But it’s also a risky time to be shrinking market share. If ketchup-buyers pivot from branded products to cheaper but essentially similar private-label goods sold by supermarkets, it may prove tricky to get their custom back.

As such, it’s striking that a number of big U.S. consumer goods players recently said they would pass on the cost of Trump’s tariffs regardless, effectively accepting they could lose customers and thus revenue. The $373 billion Pampers manufacturer Procter & Gamble PG.N last month downgraded its sales growth guidance for the year to 2%, from a previous estimate of 3% to 5%. P&G finance chief Andre Schulten said the company would “pull every lever” to mitigate the impact of tariffs. The main levers identified were cost cuts and higher consumer prices.

Meanwhile $72 billion Colgate-Palmolive CL.N lowered its 2025 sales guidance to 2% to 4%, from 3% to 5%. Both P&G boss Jon Moeller and his Colgate counterpart Noel Wallace blamed a volatile and challenging outlook, but both added they’d be passing on some tariff costs. Kraft Heinz, which also lowered its guidance, is trying a number of different strategies to avoid passing on prices, including shifting suppliers, but may ultimately have to pass on extra costs to consumers.

Compare this doom and gloom to the optimism emanating from Nestlé. In February, CEO Laurent Freixe said the company was largely “immune” to any tariff impacts, helped by the fact that the company produces around 90% of the goods it sells locally. In April, Freixe went a step further and stood by the company’s sales guidance for 2025. That decision was underpinned by his pledge to swallow any rise in costs resulting from tariffs.

On the face of it, Freixe’s gambit is legitimate: if his prices rise less rapidly, Nestlé will be able to boost sales and expand its market share. The CEO and his chair, Paul Bulcke, can also be forgiven for prioritising top line growth. Between the second quarter of 2021 and the end of 2022 the company’s real internal growth, a metric that measures the part of sales growth driven by volumes, slumped by 10 percentage points. Added to underinvestment in research and development which left its brands somewhat stale, Nestlé endured over two years of negative volumes and started to fear a downward spiral. The maelstrom was a key reason behind the ouster of Freixe’s predecessor Mark Schneider last August.

Still, Nestlé’s wager is being undertaken from a position of valuation weakness. Even though Procter & Gamble and Colgate-Palmolive cut their sales guidance for 2025, they are still trading on higher multiples than they did during the pandemic: P&G is now at over 24 times its expected earnings for 2025 versus 22 times in 2020, while Colgate-Palmolive is at 27 times versus 24 when Covid-19 began spreading. But partly due to its recent panic, Nestlé’s fortunes have reversed: it now trades on just 19 times its earnings, versus nearly 23 times in 2020.

Meanwhile, Freixe’s wager amounts to a major gamble. That’s because it also comes with a tangible downside: Nestlé reckons its operating margin will drop from 17% to 16% in 2025 as it absorbs Trump’s potential 10% reciprocal tariffs across the board, which could increase its coffee and cocoa input costs. Right now, analysts think this effect will reverse quickly: they’re pencilling in nearly 17% in 2026, according to Visible Alpha estimates. That’s a bet that tariff effects will not be too painful, and more widely that Nestlé investors value top line growth as much as its top brass does.

If either of these bets go wrong, Nestlé’s C-suite may see fresh turmoil. But while Freixe looks like the consumer chief with the most to lose, Moeller, Wallace and other peers ought not to be resting too easy. As the Swiss group knows only too well, hiking the cost of branded commodities that are already notably expensive can be a fast track to market share pain.

Follow @aimeedonnellan on X

(Editing by George Hay and Oliver Taslic)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))