Nestlé is set to make major shifts as it embarks on ambitious strategies to reinvigorate growth, focusing on cost reductions and heightened marketing efforts. The Swiss-based food giant, known for its extensive portfolio including favorites like Nescafé and KitKat, announced plans to cut costs by approximately $2.8 billion by 2027, alongside increasing investment in advertising and marketing back to levels last seen before the COVID-19 pandemic.
Following the appointment of Laurent Freixe as CEO, replacing the ousted Mark Schneider, Nestlé aims to breathe new life back to the company amid concerns over slow sales velocity and dwindling market shares. Under Schneider, Nestlé had previously focused on trimming its marketing and innovation budgets during the pandemic, which left the company vulnerable and unable to fend off competition from cost-effective and innovative food products. This led to the company losing its foothold to rivals who maintained investments to attract consumer attention.
Freixe, who has decades of experience within the company, has a clear mandate to restore Nestlé’s former glory. At the recent Capital Markets Day event held in Vevey, Switzerland, Freixe laid out his vision for the company's future, emphasizing the importance of optimizing underperforming sectors and stating, "We want to 'fix, rather than sell, the majority of our businesses.'" This is indicative of the company's broader strategy to not only reduce costs but to simultaneously boost sales and market share.
The projected growth targets are ambitious. Nestlé aims for organic sales growth of over 4% under normal operating conditions, significantly higher than the projected 2% for the year ending December 2023. This plan includes ramping up its advertising budgets, with expectations for spending to reach 9% of total sales by 2025, up from 7.7% recorded this past year.
Financial insights reveal Nestlé is committed to structural changes, particularly with its water and premium drinks segments. The company intends to carve these out as standalone global entities starting January 1, 2025. This restructuring aligns with efforts to streamline operations and focus on core brands, countering any discourse about downsizing their expansive portfolio of 2,000 brands.
Chief Financial Officer Anna Manz echoed Freixe’s sentiments, firmly declaring, "We don't have a portfolio problem." Analysts from RBC Capital Markets have commented positively on these developments, viewing the updated medium-term guidance as reassuring against market anxieties surrounding Nestlé’s ability to maintain margins. Likewise, Barclays analysts are eager to hear more detailed plans about the timeline for these projected cost savings and how Nestlé will address flagging sales.
Analysts have weighed the company's strategies favorably. Vontobel’s Jean-Phillipe Bertschy noted, “It’s definitely a first step to restore sales growth,” highlighting the necessity for enhanced marketing investment heading back to historical levels.
Marketing experts believe Nestlé's elevated spending could help recapture its lost market share by reigniting consumer interest across its product lines. They call the move both strategic and timely, offering Nestlé needed leverage to reclaim its competitive stance.
The company’s inclination to focus on fixing its business model also reflects broader concerns within the consumer packaged goods sector, which has expanded rapidly, often at the expense of long-established brands. With Freixe at the helm, Nestlé appears determined to navigate through these tumultuous market dynamics, channeling efforts not only to regain growth but also to solidify its status as the world’s largest food company.
Looking forward, Nestlé has embraced the mantra of agility—implying readiness to respond to changing market conditions swiftly. The shift marks not only operational changes but also reflects on cultural adjustments within the organization, enhancing responsiveness and efficiency which Freixe believes will yield positive outcomes for stakeholders involved.
Yet, as with any ambitious plan, the pressure is on. Analysts are observing how these changes play out against the backdrop of consumer behavior, market competition, and global economic challenges. Many are hopeful, yet cautious, acknowledging the uphill battle Nestlé faces but praising their efforts to reestablish growth.
"Our action plan will also improve the way we operate, making us more efficient, responsive and agile," Freixe stated confidently. With these initiatives, both Nestlé and its followers are expecting something significant as the company looks to reclaim its industry-leading position.
