Nestle leadership in single-serve coffee touted

by Josh Sosland
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More than half of the company's Nespresso sales are on-line.

LONDON – Success achieved by Nestle S.A. in the global market for coffee underscores the company’s ability to adapt to a rapidly changing marketplace, said Luis Cantarell, Zone Head EMENA.

Mr. Cantarell said Nestle, with its Dolce Gusto business, has emerged as the global leader in single-serve coffee capsules and machines and also has built a major on-line coffee business. He spoke March 16 at the 2015 conference of the Consumer Analyst Group of Europe at the Hilton London Metropole.

His presentation followed by a few weeks the release of Nestle’s financial results for 2014 in which the company said it achieved growth of 4.4% in underlying earnings per share (actual reported earnings were up 43%) and real internal growth of 2.3% in sales (reported sales were down 0.6%).

In what often was a conceptual presentation that was part company overview, part update on the company’s progress and part reflections on his own professional journey, Mr. Cantarell offered insights into a number of major Nestle initiatives.

Proud about changes made in recent years and Nestle’s position globally, Mr. Cantarell said, “We are a company that created the concept of a Nutrition, Health and Wellness company.”

He said Nestle’s objective is to enhance lives by offering people “tastier and healthier food and beverage choices at all the stage of lives.” The company since 2008-09 has built on this vision and has been driven by opportunities judged on market attractiveness, ability to win and prospective return on invested capital.

During this period, Nestle implemented GLOBE, the most ambitious information technology project ever at the company, a SAP based enterprise resource planning initiative.

“Through the work that the company did in implementing GLOBE, we said that the company is like a Rubik’s cube,” he said. “Basically, you have responsibilities in terms of a category in a given geography in a given channel, and the idea of identifying the cells.”

All told, the company has identified 2,200 such cells globally.

Offering as an example the division which he leads, Mr. Cantarell said initiatives in recent years have allowed the company to enhance profit margins in Europe, even in a deflationary environment. He cited a 5% to 6% cut in operating costs in 2014, a figure that eclipsed efficiencies gained the year before.

More than just cost cutting, Nestle has undertaken efforts to adapt to changing market conditions, Mr. Cantarell said. He cited “embrace digital” as an important such directive at the company.

Toward that end, the company is deploying “digital acceleration teams” in each of its major markets.

“We have already implemented a Silicon Valley innovation outpost with particular focus on nutrition, health and wellness,” Mr. Cantarell said. “We have already global partnerships with Facebook and Google, and in e-commerce we are leading with the experience built by Nespresso. You know that more than 50% of our sales in Nespresso are on-line, and this helps also to build new possibilities. Specifically, we are going to talk about Nescafé Dolce Gusto.”

With annual sales of just under 10 billion Swiss francs ($10 billion), Nestle is the global leader in coffee among consumer packaged goods companies. The Nescafe Dolce Gusto business, Nestle’s single-cup coffee machine and capsule business, was success cited by Mr. Cantarell with particular pride.

“I said this will have an outstanding future, and then in 2006 we started with annual sales of 4 million Swiss francs,” he said. “We put a huge amount of money behind supporting this product, this brand, and today, we’re in 75 countries worldwide. We have gone from 4 million Swiss francs to 1 billion in eight years. And we are number one in retail in terms of machine sales. There have been more than 16 million Nescafé Dolce Gusto machines sold since the inception. We are the fastest company growing in retail. We are number one in machine sales in retail. We are number one in capsule sales in retail, and as I was telling you before, we believe, through our expertise coming from Nespresso, that we will be also driving this in online and in e-commerce.”

In cost reduction efforts, dubbed complexity management by Nestle, Mr. Cantarell noted the company operates 480 production plants globally and has pursued opportunities to rationalize production capacity where appropriate. Similarly, stock-keeping unit totals were reduced by 6% in 2014.

“Even more important are the specifications,” he said. “Just to give you an example, we used to have more than 120 specifications for vanilla flavor to produce our ice cream. We have been reducing these dramatically in order to improve the quality of our procurement and also the efficiency of our factories. We have also improved the quality of our production lines.”

When it comes to spending, Mr. Cantarell said more than 50% of the company’s research and development budget is directed toward “areas that we identified as growth areas for the company.” Similarly, consumer spending is weighted toward “accretive categories,” he said.

Mr. Cantarell described an army of Nestle associates who may be deployed from cell to cell as needed.

“We have a concept of center-based expatriates,” he said. “We have around 3,000 people that we can move around the world in a very short period of time to help us managing business, different responsibilities, from finance to technical, from marketing to HR, and this is a very important group of people. These people are recruited from all over the world, and they’re managed centrally in Switzerland. I've been using them in order to help me manage and push different businesses.”
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