Nestle 'on high alert' in coffee

by Eric Schroeder
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The Vevey-based company holds a global leadership position in coffee through its Nescafe and Nespresso brands.

VEVEY, SWITZERLAND — The pending acquisition of Keurig Green Mountain by JAB Holding Co. has put Nestle S.A. “on high alert” in the coffee category, a segment the Vevey-based company holds a global leadership position in through its Nescafe and Nespresso brands, said Paul Bulcke, chief executive officer of Nestle.

“We see what’s happening out there and actually, at the end of the day, we like good competition, and it looks like we’re going to have good competition there,” Mr. Bulcke said during a Feb. 18 conference call with analysts. “They’re closing in on our leadership, yes, but they’re not hanging on our wheel, and we don’t want to let them get in our wheel. We know, and the cyclists, they know, when the cars start getting into the wheel, they’re hanging in. So we’re going to maintain different standard.”

Paul Bulcke, c.e.o.

Mr. Bulcke said Nestle has a clear and distinctive strategy and positioning for its Nescafe and Nespresso brands. They each cover a different consumer occasion and segment, he said, ranging from mainstream to premium to luxury.

“With Nescafe and Nespresso we have been inventing and reinventing the coffee category,” he said. “And we have the intention to continue doing so in the future, and lead in this fascinating competitive growth category.”

Nescafe coffee originated in Brazil in the 1930s, expanding to Switzerland in 1938 and then into France, the United Kingdom and the United States.

For Nespresso, which was introduced in 1986, Mr. Bulcke said he envisions a brand that is a “class apart” because of the quality in the cup, and that is the positioning Nestle is taking with the brand moving forward.

“We are engaging in North America with a special Nespresso offering that adapts 100% to what ‘class apart’ in the United States means, and that’s fantastic,” he said.

Another category Nestle believes in — but one that remains challenged — is frozen food. Mr. Bulcke said the company is seeing promising first signs in turning the business around.

Nestle frozen foods, Lean Cuisine Marketplace, Stouffer's Fit Kitchen
Nestle's frozen food performance is improving behind new product innovation.

“We have relaunched our Lean Cuisine brand,” he said. “We have relaunched Stouffer’s, Hot Pockets and DiGiorno. We have adapted the entire market mix, and especially the products themselves to be able to respond to the consumer expectations for organic, natural, low-fat, low-sugar, tasty product, high protein etc. This strategy is bringing consumers back to the category. It’s bringing back to our brands these consumers in a very remarkable way.”

Francois-Xavier Roger, executive vice-president and chief financial officer, said Nestle’s U.S. frozen food franchise delivered positive organic growth in the second half of fiscal 2015, with mid-single-digit real internal growth.

“Results so far in frozen food are justifying our portfolio management approach to put investment back into this business,” Mr. Roger said.

Net profit at Nestle in the year ended Dec. 31, 2015, was 9,467 million Swiss francs ($9,525 million), equal to 2.90 Swiss francs per share on the common stock, down 36% from 14,904 million Swiss francs, or 4.54 Swiss francs per share, in fiscal 2014. Net sales in fiscal 2015 totaled 88,785 million Swiss francs ($89,329 million), down 3% from 91,612 million Swiss francs a year ago.
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