While Nestlé USA posts the kind of strong growth in the food and beverage space that has eluded its CPG competitors, the Swiss giant has struggled to make some of its core brands more relevant to variable consumer tastes and preferences.
The world's largest food manufacturer had 2.6% sales growth in the U.S. last year compared with a scant 0.2% increase in 2017. The U.S. is Nestlé's biggest market, with roughly a third of its global sales at $28 billion annually. Nestlé reported sales increases in pet food, water and coffee. It also had a mid-single digit growth in its frozen segment, with strong results in pizza and Hot Pockets.
"The momentum is picking up and the good news is it's broad-based across the portfolio," Steve Presley, who took the helm of Nestlé's U.S. operations in April 2018, told Food Dive on the sidelines of the annual Consumer Analyst Group of New York conference in Florida last month. "But we need to get better about driving relevance into our big brands to drive that growth in our business."
Still, Presley conceded Nestlé may have focused too much attention on consumers looking for traditional health and better-for-you foods in its Lean Cuisine and Stouffer’s brands. In addition to serving consumers who want healthy products, there is growth opportunity in making a better-tasting lasagna or mac and cheese, he said. To help rejuvenate sales, Nestlé reassigned its U.S. chief running its successful beverage division to oversee its meals.
Consumers "eat across the spectrum of pure health to indulgence," Presley said. "We were very focused on driving the business toward pure health when a lot of the growth is actually in mainstream and indulgence."
Similar to other food and beverage companies, Nestlé overhauled its portfolio in the last few years to better position it to grow and mesh with shifting consumer tastes. The Switzerland-based company's capital spending efforts have focused on high-growth categories such as coffee, pet care, infant nutrition and bottled water. It has jettisoned underperforming units, like its U.S. candy business that was sold to Ferrero Group for $2.8 billion last year. The divestitures are part of a global target announced by Nestlé in 2017 to remake about 10% of its portfolio.
Ioannis Pontikis, an analyst with Morningstar, told Food Dive that Nestlé's "unique market positions in high-growth categories" such as plant-based creamers, e-commerce health supplements and premium ice cream have been "the main driver of growth outperformance for Nestlé versus many of its U.S.-based peers." In addition, the divestiture of low-growth segments and the "acquisition of strong scalable local and global brands ... have added to the positive momentum."
A major focus for Nestlé has been bulking up its presence in the fast-growing coffee space, especially in the premium segment. The Swiss company, which had for years defined its presence in coffee with Nescafé, Taster's Choice and Nespresso, acquired a stake in popular coffee shop chain Blue Bottle, snapped up Chameleon Cold-Brew and spent $7.15 billion last year to sell Starbucks’ coffee and tea in grocery and retail stores.
“All of our acquisitions are actually delivering double-digit growth, so we feel the portfolio transformation is working. It’s delivering a big part of our growth change in the market, which is why we do it,” Presley said. "Portfolio transformation is just part of how you drive growth long term."
Nestlé also worked to bring hot trends to some of the brands in its portfolio, such as adding a cauliflower crust pizza under the Sweet Earth brand it purchased two years ago and introducing almond, coconut and oat milk varieties to its $1 billion Coffee-mate creamer line. Coffee-mate's market share has responded, rising 1.2% this year.
During his presentation to analysts at CAGNY, Presley said Nestlé has spent the last few years taking out costs and improving its margins — a common theme among companies attending the conference this year. The move, Presley said, has better positioned Nestlé to post "long-term, sustainable, healthy growth" by acquiring new products, renovating legacy brands and transforming its portfolio. Presley noted Nestlé has room to "add billions of dollars" in U.S. revenue by organically growing its existing brands.
"If you deliver the right product at the right price with the right communication, it absolutely drives growth in the marketplace, and we see it on some of our big brands," Presley told the audience. "So for us, as we look at this fundamental shift in the consumer behavior; how they eat, how they shop, how we engage with them. It’s forcing everyone, including us, to change our traditional CPG model."