VEVEY, SWITZERLAND — While focusing on the growth categories of coffee, bottled water, infant nutrition and pet care, Nestle S.A. may also lessen its presence in other categories.
|Mark Schneider, c.e.o. of Nestle|
“We will need to trade out of some product areas and into others,” said Mark Schneider, chief executive officer, in a Sept. 26 investor seminar. “We have announced some of this with our review of the U.S. confectionery business, as an example. When it comes to the criteria for trading in and out, those have not changed from the past, and let me assure you that when we do trade, we will do this prudently.”
The company will not be just “polishing around the edges,” he said. The trade-outs will have magnitude.
“So we are thinking, at the present time, about 10% of group sales,” Mr. Schneider said.
Nestle on June 15 announced it would explore strategic options for its U.S. confectionery business, including a potential sale.
Nestle remains committed to its frozen foods business, the company said. Mr. Schneider pointed to Nestle USA on Sept. 7 announcing it had agreed to acquire Sweet Earth, a plant-based foods manufacturer based in Moss Landing, Calif., and involved in frozen food.
“We have a very strong frozen supply chain in the U.S.,” he said. “That's a source of competitive advantage. That's an envy to the industry. It's a huge barrier to entry to other people who would like to offer frozen.”
Nestle at the seminar also announced an underlying trading profit margin target of 17.5% to 18.5% by 2020, which would be up from 16% in 2016. Nestle achieved overall annual organic sales growth of 4.1% from 2013-16. The four categories of coffee, water, nutrition and pet care combined were at 5.1% annual organic growth while all other categories were at 3.2%.
Mr. Schneider gave examples of how Nestle is capitalizing in the growth categories.
Nestle has a 27% global market share in coffee, which had a compound annual growth rate of 5% from 2013-16. Nestle on Sept. 14 announced it had acquired a majority stake in Blue Bottle Coffee, a high-end specialty coffee roaster and retailer based in Oakland, Calif. The deal marked Nestle’s first foray into out-of-home coffee, Mr. Schneider said.
“Out-of-home consumption of coffee is growing faster than in-home,” he said. “Both are growing at very attractive rates, but out-of-home is growing faster.”
Nestle has a 10% global market share in water, which had a CAGR of 9% from 2013-16. An increased digital presence is boosting bottled water sales for Nestle. Mr. Schneider pointed to the company’s ReadyRefresh business in the United States.
“And this is basically the old-fashioned water truck with a digital storefront,” he said. “So on your app, you order what you want to order, you enter your subscription, whatever you want to buy, and the water truck brings it to you.”
Nestle has a 27% global market share in infant nutrition, which had a 4% CAGR from 2013-16. Nestle’s infant nutrition business is doing especially well in certain geographic areas.
“When it comes to the Chinese market, with this deeper push now into third- and fourth-tier cities, I think we also will have a better chance to benefit from the growth opportunity that this market offers,” Mr. Schneider said.
Organic infant nutrition is another growth area.
“I would want to assure you that while we were a little slow to recognize this whole natural organic trend when it comes to baby food, we're deeply committed to making this a success now,” he said.In addition to the core categories identified and the company’s frozen business, other Nestle brands in the United States include Libby’s, Toll House and Carnation under the Baking umbrella; Dreyer’s, Häagen-Dazs, Edy’s and Skinny Cow in Ice Cream; and Nesquik, Milo, Nestea, Ovaltine, Skinny Cow and Nido in Drinks. Other global categories include Cereals, Chocolate and Confectionery, Dairy, Food Service and Recipes.