- Nestlé announced it is considering the sale of the majority of the North American Nestlé Waters business unit. Brands within this portfolio include Poland Spring, Deer Park, Ozarka, Ice Mountain, Zephyrhills and Arrowhead.
- The Swiss company said it remains committed to its iconic international brands Perrier, S.Pellegrino and Acqua Panna. It will also focus on further building these brands as well as investing in functional water with health-enhancing ingredients.
- Bloomberg reported that the sales figures from Nestlé’s bottled water unit had their worst performance in a decade. The global umbrella of Nestlé Waters contains 48 brands, which last year had sales of 7.8 billion Swiss francs ($8.3 billion). The North American business unit had sales of 3.4 billion Swiss francs ($3.6 billion) last year.
Nestlé has been struggling for years to turn its water business around, and this contemplated divestiture is the company’s latest attempt to reinvigorate the category. Although bottled water remains the most popular beverage in the United States, The Wall Street Journal said Nestlé has been gradually watching its market share in bottled water slip as competition increases and consumers wrestle with questions of sustainability surrounding plastic bottles.
Not only is sustainability a growing concern, but flat water from a bottle is not the hot segment it once was. Today's consumers have shifted toward functional beverages and sparkling water. The International Bottled Water Association estimated recently that nearly two-thirds of adults rank still or sparkling bottled water among their most preferred beverages. Nestlé has not been unaware of this trend, but the company has been slow to respond to the bubbly trend as competitors Coca-Cola and PepsiCo have lapped up other sparkling brands such as Topo Chico and SodaStream, respectively.
Two years ago, Nestlé rolled out a line of regional sparkling spring water products, but not much innovation has transpired in the space since then. This move to a focus on modern trends through a regional lens pushed the company to further explore localized control of its brands. Last fall, the multinational company restructured from a globally managed business to one that is managed locally in each of the company's three geographic regions. However, it is clear from this contemplated divestiture of regional North American brands that this move was not sufficient to turn the tide of sagging sales.
Still, the company has not given up on trying to bring its water offerings more in line with trends today. In December, the company said it will introduce two new lines of bottled water in 2020: Poland Spring energy water and Nestlé Pure Life Plus. Poland Spring energy water will contain the same amount of caffeine as a cup of coffee, but the stimulant will be derived from green tea extract. Nestlé Pure Life Plus will be the brand's initial foray into functional water. This most recent effort is in line with what Nestlé’s CEO Mark Schneider said in a statement regarding the possible divestiture.
"The creation of a more focused business enables us to more aggressively pursue emerging consumer trends, such as functional water,” he said in the statement. “This strategy offers the best opportunity for long-term profitable growth in the category, while appealing to environmentally and health-conscious consumers.”
Schneider has been aggressively adding and subtracting business units from Nestlé’s portfolio since he stepped into the role of CEO in 2017. He is working to reposition the company's portfolio into faster-growing sectors including coffee and plant-based meats while divesting U.S. operations posting minimal growth, including ice cream and candy.
It's been a busy week on the M&A front for Nestlé, which in the past few days has also announced the sale of the North American segment of Buitoni Pasta to Brynwood Partners and the acquisition of a majority stake in collagen-infused food and drink producer Vital Proteins.
Flat bottled water has relatively slow growth, so it is no surprise that Schneider has put the segment on the chopping block. Water makes up about 8% of Nestlé's overall sales and less than 5% of profit, according to Jefferies data highlighted by The Wall Street Journal. A continued decline in the category could have substantial effects on Nestlé’s bottom line.
If the largest food company in the world decides to shed its less-than-standout brands, it could have a substantial sum with which it can reinvest into developing a new brand of sparkling water or further developing its functional water portfolio. Based on the divestments of other segments of the company — Nestlé Skin Health netted $10.8 billion and the U.S. confectionery business fetched $2.8 billion — Nestlé could expect a healthy sum from the sale of its North American Waters division.
By pivoting to focus on higher-growth areas of water with the sale of a slower-performing segment, Nestlé could find itself flush with cash that it can use to experiment with new innovations and on-trend offerings to entice consumers to keep hydrated.