Annual Revenue for 2017:
The world's largest food manufacturer will likely continue to remake its portfolio as consumer tastes shift and growth in some lines of its businesses slows.
Nestlé, the world's largest food company, has built up an impressive roster of iconic foods and drinks during its 152-year history. But as consumer tastes and consumption habits change, the Swiss giant has been aggressively remaking itself into a more agile and competitive business — no small task for a company worth roughly $260 billion.
In an effort to stoke growth and rebuff pressure from activist investor Daniel Loeb, who has criticized the company's "muddled" strategy, Nestlé has focused its capital spending efforts on high-growth food and beverage categories such as coffee, pet care, infant nutrition and bottled water. To do that, it has set a margin target and pledged to overhaul 10% of its portfolio.
"The ability to drive an organization to be able to thrive in that environment of an informed, agile consumer that is getting better every day is one of the core challenges as we move forward," Steve Presley, CEO of Nestlé USA, Food Dive. "We're always looking at our portfolio and assessing if we're in the right place or not."
This year alone, Nestlé shed its American candy business, which accounted for about 3% of its sales in the U.S., to Nutella owner Ferrero Group for $2.8 billion. The deal resulted in the divestiture of iconic candies such as Butterfinger, Baby Ruth, Crunch and 100 Grand. It also purchased a majority stake in Terrafertil, a Latin American natural and organic plant-based food company.
But its biggest deal occurred in May later when it paid $7.15 billion to Starbucks to sell the chain's coffee beans and drinks in grocery stores and other outlets around the world. This further cemented Nestlé's footing in a segment where it already had popular brands such as Taster's Choice, Nescafe, Chameleon Cold-Brew, Blue Bottle and Nespresso.
"It's difficult to make a deal and move the needle (for Nestlé). … The business has been through a period of underperformance in the last couple years, and the new CEO has recognized the reasons for that underperformance," Ioannis Pontikis, a Morningstar analyst in Amsterdam, told Food Dive.
"The main reason was this disconnect between research and development and the introduction of new products. Nestle missed out on some very important consumer trends during those couple of years," he said.
Pontikis added that a 10% rebalancing of its portfolio is a good target "for a conservative company company like Nestlé." Still, he warned that with a healthy balance sheet and assets it could monetize at its disposal, the company “must be very careful to find an acquisition that matters and is value creating for shareholders."
"The ability to drive an organization to be able to thrive in that environment of an informed, agile consumer that is getting better every day is one of the core challenges as we move forward. We're always looking at our portfolio and assessing if we're in the right place or not."
CEO, Nestlé USA
While M&A remains a key part of its strategy, Nestlé's evolution also has focused internally. It's reaped dividends from an effort to get products to market faster. A pair of new items — a frozen food line called Wildscape and the Outsiders brand of pizza that pays tribute to under-respected regional styles — made it to market in less than nine months, much faster than products are usually introduced.
And six months after purchasing plant-based foods maker Sweet Earth for an undisclosed sum, Nestlé, which owns pizza brands such as Digiorno, Tombstone and Jack's, introduced a cauliflower crust pizza under the Sweet Earth banner.
Presley said consumers are increasingly better informed, and the pace with which they make decisions in a digital world continues to gain momentum. The change has put the impetus on food companies like his to adapt at a much faster pace, he said.
"We're never done. We are constantly evolving. And we believe relentless evolution is how we continue to win, not only today but in the future. If the consumer does, we do," Presley said. "We talk about consumer obsession a lot because ultimately that's how we win. We win through the consumer."