Nestlé to separate water and premium drinks businesses, announces US$2.8B cost-cutting drive
SWITZERLAND – Nestlé plans separate its water and premium drinks businesses into a standalone global unit from next year January as it looks to drive growth.
The growth strategy also includes plans for a cost savings scheme of at least 2.5 billion Swiss francs (US$2.83 billion) by 2027 to fund new investments.
The Swiss multinational food giant said it will increase investment in advertising and marketing to 9% of total sales by 2025 to support growth. The last time Nestlé spent this proportion of its sales on marketing was in 2019.
Advertising and marketing expenses in 2023 were 7.7% of sales, an increase of 80 basis points from the year before, according to Nestlé’s latest annual report released this year.
“It is definitely a first step in the right direction to restore sales growth,” Vontobel analyst Jean-Philippe Bertschy said. “The additional cost savings are significant.”
Nestlé said it was considering its strategy for the business and would explore “partnership opportunities”.
David Hayes, an analyst at Jefferies, said he expected Nestlé to identify the root of the underperformance in the past few years, and whether the group had a “cultural issue” at the capital markets day.
Like many consumer goods companies, Nestlé has struggled to build back sales volume growth following a period of record inflation as consumers push back against the soaring cost of everyday goods.
CEO Laurent Freixe, a 40-year veteran of the world’s biggest food company, took the reins in September, replacing ousted Mark Schneider who had disappointed investors for several quarters with weak sales volume growth.
In his first move as chief executive, Freixe, who was previously head of Nestlé’s Latin America business, in October lowered Nestlé’s sales growth guidance for the year to about 2 percent, from the 3 percent forecast in July, due to persistent consumer weakness.
Freixe said he wants to “fix, rather than sell, the majority of” its underperforming businesses, echoing his past statement where he noted that he wants to invest heavily in the company’s core brands like Nescafé and Maggi, which make soups, sauces, and noodles.
“Our action plan will also improve the way we operate, making us more efficient, responsive, and agile,” Freixe said in a statement.
“This will allow us to deliver value for all our stakeholders. We don’t have a portfolio problem,” finance chief Anna Manz said, adding that the company wants to invest in organic growth.”
The company forecasts medium-term organic sales growth to be more than 4% in a normal operating environment and an underlying trading operating profit margin of 17%. That compares to organic sales growth of about 2% expected for the year ending Dec. 31.
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