VEVEY, SWITZERLAND — Nestle SA launches more than 1,000 innovations and product renovations annually, but that is about to change, said Laurent Freixe, chief executive officer. The company is set to cut that annual number in half and shift the company’s innovation strategy to a more targeted approach.

“This does not mean investing less on innovation,” Freixe said during Nestle’s Nov. 19 investor day. “It means focusing on fewer, bigger and better; the bigger bets that have the greatest potential to bring incrementality.”

Supporting the shift in strategy is the fact that Nestle’s top 4,000 stock-keeping units account for roughly 50% of the company’s sales and 50% of its margin.

“With fewer and bigger initiatives, we have (the) leading science and research capabilities,” Freixe said. “We invest more in R&D than any other company in our industry and we are determined to spend well and better, in a more focused way. And this will ensure we are getting the right innovation — these breakthrough innovations — that create a before and an after when they hit the market.”

The company has identified five categories where it plans to place some of its big bets, including infant formula, coffee, meal preparation, snacks, pet food and in-home coffee appliances.

Examples of such innovation cited by Freixe include the 2023 launch of Sinergity, an infant formula that combines probiotics with six human milk oligosaccharides (HMOs) to support age-adapted infant development. Research has shown the composition of HMOs in breastmilk changes during the lactation period. Therefore, to meet the specific needs of infants according to age, products containing the new blend have varying levels of six different HMOs, according to Nestle.

Like other consumer packaged goods manufacturers, Nestle also wants to capitalize on consumer demand for cold coffee applications. In May, the company launched Nescafe Espresso Concentrate Coffee.

Nescafe EspressoPhoto: Nestle

In 2023, 32% of the coffee consumed out of the home was cold, and the cold coffee segment is one of the fastest growing in the industry, with consumption rising 15% during the past four years, according to Nestle. The concentrates were developed to give consumers a convenient option to create customizable cold lattes or Americanos.

Freixe said Nestle will add more big bets in 2026 and 2027 so the company will have approximately 15 to 20 in development with the potential to deliver at least 100 million Swiss francs ($113 million) in incremental sales.

“Nestle has reduced investment over the last years in the area of generating demand, which is not the best idea to drive growth and market shares,” he said.

Freixe emphasized the goal of the shift in strategy is for Nestle to build on its “existing winners.”

“Let’s start with coffee,” he said. “We are the No. 1 coffee company globally with 25% of the at home market and with the three best brands in the industry and out of home is a large and fast-growing market opportunity for Nestle. It generates 2.5 billion Swiss francs in sales. We see the potential to grow at a double-digit rate with an accretive margin in the years to come.”

That growth will come from white spaces in new geographies, subcategories and business models, Freixe said.

“We also see a lot of potential in our ready-to-drink coffee business platform,” he said. “Currently, more than 1 billion Swiss francs in sales with the potential to grow at double digits over the coming years.”

Anna Manz, chief financial officer, said that in addition to changing its innovation strategy the company is changing its marketing strategy.

“… We need to increase the investment behind our brands on marketing,” she said. “That means getting back to a rate of 9% of sales by the end of 2025. And this is not about spending a little bit more everywhere. It’s about significant targeted investments against our biggest growth opportunities.”

In response to an analyst’s question, Freixe said “time will tell” if 9% of sales is the optimal level of investment for marketing.

“But we are determined to put the resources that it takes to win in the marketplace,” he said.