- Nestlé Waters will restructure from a globally managed business to one that is managed locally in each of the company's three geographic regions, announced Nestlé CEO Mark Schneider in an earnings call on Oct. 17. Maurizio Patarnello, who oversees the water division, will leave after 16 years.
- According to Schneider, 60% of the unit's business by volume in the water category is local brands in various countries so operating with regional units will improve proximity to the customer and allow for Nestlé to focus on higher-margin segments.
- Jefferies analyst Martin Deboo said water has become a "problem category" for Nestlé, The Wall Street Journal noted. Deboo said Nestlé is losing share in still water and has been slow to respond to rapid growth in sparkling and flavored water.
Demand for water is growing. Bottled water officially edged out soda as America's most popular beverage in 2016. The category grew 70% between 2011 and 2016, according to Euromonitor International as consumers moved away from sugary beverages. The International Bottled Water Association estimated recently that nearly two-thirds of adults in a recent poll said that still or sparkling bottled water is among their most preferred beverages.
That's all good news, but while water remains a popular beverage, questions about the sustainability of plastic bottles and fierce competition have put pressure on companies such as Nestlé who have long been category leaders. Water makes up about 8% of Nestlé's overall sales and under 5% of profit, according to Jefferies data highlighted by The Wall Street Journal.
Recent numbers show that Nestlé's strategy in water is no longer working. In the call Schneider said, "Depending on the year, typical growth is between 5% and 7%. So as you can see, with our current numbers, we’re quite a bit away from that."
In response to minimal growth in the water category this year, the Swiss company is going to pursue a strategy that focuses on high-value premium brands, functional waters as well as flavored and carbonated products. And they are going to do it with a local lens. This strategy will enable the world's largest food company to target high-margin products that are increasingly popular with shoppers. As Jefferies noted, Nestlé has been slow to respond to rapid growth in sparkling and flavored water, so perhaps a more targeted, localized approach will help it catch up.
Already Nestlé has tested out a more personalized approach to water. Early last year, the company launched a line of regional sparkling spring water products packaged in cans and plastic bottles. These brands were aimed at local demographics and intended to attract consumers who were not willing to purchase Nestlé’s long-standing premium Perrier and San Pellegrino brands.
Despite its dominant position in water, Nestlé is facing growing competition from the likes of PepsiCo's buby and SodaStream. Even Costco has launched a line of sparkling waters that have cans, flavors and price points are similar to LaCroix sparkling water. Other upstarts also are gaining in popularity like Spindrift, a Massachusetts producer of sparkling water made with real fruit.
Even if Nestlé hones more closely into the demands of its individual geographic regions, the company will continue to face steep competition, making a change to the division now imperative. Last year Nestlé took a similar step and restructured its infant nutrition arm by geography. Within the first year, Schneider said the local proximity to consumers was already driving growth. "And so that’s why I do believe that this structure change will also benefit the waters business a lot," he said.