If you’re interested in the global agrifood industry, then, it’s useful to keep tabs on what Nestlé is up to! At $93bn (2019), its annual sales make it far and away the biggest food & drink company in the world and its market capitalisation (value in the eyes of the market) is close to $300bn. Number 2 and far behind in the global league table is PepsiCo, with sales of $67bn and market cap. of $200bn.
Nestlé is on the news recently! In late-2020, the company acquired Freshly a US subscription-based fresh-prepared meal delivery service for $1bn (it had taken a minor share in 2017), and last week they snapped up UK recipe kit business Simply Cook, a similar business. Nestlé is on a mission!, as it continues to grow rapidly its home delivery business in the wake of Covid era.
We’ve mentioned that “Big Food” took a good bashing during the 2015-2019 period, only seeing sales recover oddly enough during the pandemic as “locked-in” consumers rushed to buy previously out of fashion comfort foods with trusted brand names. Kraft Heinz is a classic case in point. Kraft & Heinz were put together by majority owners 3G Capital and Berkshire Hathaway in 2015. Analysts liked the zero-based budgeting approach and focus on slashing costs but its products looked increasingly old-fashioned. Its current share price is one-third of the high point in early-2017.
How has Nestlé performed during the torrid 2015-20 period for “Big Food”? Better than most! In 2018, USA investor activists targeted Nestlé intent on waking up the sleeping Swiss giant! Well aware of the slow rate of sales growth in developed economy fmcg markets, Nestlé’s Board acted out of both previous practice and character in hiring a new CEO who (a) was not from within the company and (b) who had a non-food and non-fmcg background. Since early-2017 to late-2020, Nestlé’s share price has risen by around 40%. Its focus on “at home” products, rather than food service has been helpful during the pandemic.
Under Mark Schneider’s (the new CEO) leadership, the company has taken a middle ground of setting more challenging profit margin targets and undertaking needed reorganisation within the company. He re-established the need to grow the “top line”, i.e. sales. Organic sales growth at Nestlé had fallen from 7.5% p.a. in 2011 to 2.4% in 2017, slowed down by food price deflation, changing middle class diets in Europe and North America, and sluggish growth in emerging markets where young consumers are spending more money on digital products than on confectionery! Initiatives taken over the past 2 years include:
- Increasing speed to market for new products. Nestlé was looking slow-footed relative to startup brands who had strong social media and e-commerce skills. Schneider’s view was that taking 3 years to launch a new car was acceptable but not for a chocolate bar! Garden Gourmet plant-based burgers were launched in Europe in 2019 and the improved “Sensational” burger in 2020. Nestlé Purina offered an allergy-busting cat food. As mentioned in last week’s “NPD and more” nugget, a R&D Accelerator has been established for dairy and plant-based dairy products;
- Transformative deals were negotiated such as the licensing of Starbucks coffee for sale in any retail outlet apart from a Starbucks café;
- An aggressive acquisition strategy, such as adding businesses to its nutritional health division and, in late-2020, paying $1.5bn for startup Freshly, an American home delivered healthy meal business, and recently acquiring SimplyCook and a majority stake at Mindful Chef in the UK. Underperforming and/or slow growing businesses have been sold – such as its American ice cream brands in late-2019, and selling the majority portion of its European packaged meat business to a Spanish specialist meat company;
- Increasing its share of premium products in the overall Nestlé portfolio (e.g. the “super snobbish” “flat white over ice” Nespresso pods) and pinned its flag to the mast of plant-based foods as a driver of future sales growth;
- Making a substantial statement about its concerns and actions on sustainability issues – apportioning a budget of $3.5bn to combat climate change, including $1.3bn to work with farmers on regenerative agriculture, pledging to make all packaging recyclable or reusable by 2025 (Nespresso pods by 2022);
- Rejigging its China portfolio (next to the USA, China is Nestlé’s 2nd biggest market) by concentrating on infant nutrition, coffee, confectionery and pet care and selling its canned food business (Yinlu).
“Big Food” has taken a bashing but Big doesn’t have to be Bad. Scale brings access to huge resources and, when guided by astute senior management, ensures a 150 year old company’s products and services meet the needs and wants of 21st Century consumers.
Iconic staircase at Nestlé Headquarters. Vevey. Image Source Domink Gehl. https://www.instagram.com/p/Buv1wZbAosI/?utm_source=ig_share_sheet&igshid=urwehh2muugy
Supermarkets in your pocket. 