Although the epidemic may bring more unknowns, Nestle, the world’s largest food company, is not satisfied with only reaching the “bottom line” of its annual positive growth target.
After the release of the 2020 semi annual report, Nestle CEO Mark Schneider and other senior executives attended the analysts’ meeting and talked about Yinlu’s strategic assessment, China’s milk powder business, whether to adjust the consumption business outside the family, the acquisition rhythm expectation and the interpretation of growth guidance.
Now, let’s have a look.
Mark Schneider, Nestle’s chief executive (photo)
Continue to be optimistic about instant coffee
According to Nestle’s previous half yearly report, the growth of its Chinese market “improved to almost flat in the second quarter”. Many categories, including coffee and dairy products, resumed positive growth, and the sales reduction of Wyeth infant formula milk powder also slowed down.
Snack agents noted that in the recent meeting, Nestle’s ready to drink coffee and milk powder in the Chinese market attracted the attention of analysts.
For ready to drink coffee, some analysts asked about the new product plan of the category, especially the medium-term plan of the Chinese market. In response, Schneider said: “this is an area we attach great importance to, and there are indeed important expansion plans, not only in China, but also in other parts of Asia, Latin America, North America and well performing markets. I think eventually, you will see the rise of this category in the European market. “
Then, when he specifically talked about the Chinese market, he said: “now, all eyes are looking at our strategic evaluation of Yinlu’s implementation, and we all want to understand what decisions we want to make.” He made it clear that no matter what the conclusion of the strategic assessment is, it will not affect and damage Nestle’s ready to drink business prospects in China, “which is very operational in itself”.
“Nestle coffee is a major brand that we want to expand [in China], and it’s very mature, and so is ready to drink products.” Said Schneider.
Earlier, according to sources familiar with the matter, Nestle plans to sell most of its shares in Yinlu, while considering retaining a minority interest in Yinlu to supervise the production of Nestle ready to drink coffee, which is currently in the charge of Yinlu.
According to the snack agent, Yinlu is responsible for the filling and distribution of Nestle China’s ready to drink coffee, accounting for about one-third of the latter’s business. When it announced its strategic assessment of Yinlu, Nestle confirmed that it would retain its ready to drink coffee, and said it would continue to invest heavily in Nestle ready to drink coffee in the Chinese market.
Interestingly, from the PPT broadcast at the meeting, we can clearly see that the business schematic diagram under Nestle’s “strategic assessment” shows two categories of Nestle porridge and peanut milk, and there is no Nestle ready to drink products.
Commenting on the infant powder business in China, Nestle CEO Snyder pointed out that in the second quarter, the leadership of Nestle’s infant formula business in China had changed, stressing that nestle would still be committed to improving the business in order to achieve the goal.
According to the introduction of snack food agency, Wyeth launched the locally produced zhenlang infant formula milk powder brand in June to strengthen its product layout in super high-end market segments and low-end cities. At that time, Wyeth’s new commander in Greater China, Zhang Suyi, once said that he hoped that zhenlang would become at least a product of “1 billion level” or above like Qifu.
Business focus of off home consumption
After people have reduced their activities and consumption due to the epidemic situation, consumer products in the family have become the “growth engine” of the performance of many food and beverage companies. Turning to the impact of the epidemic, Schneider said a major short-term change is a rapid shift towards household consumption.
Coffee is a typical example of this change. According to Fran ó OIS Roger, Nestle’s coffee business grew by 2.9% in the first half of the year, driven by double-digit growth in coffee consumption within households. However, the double-digit growth was partly offset by a decline in sales of off home channels and ready to drink products.
Interestingly, Schneider also listed a set of comparative data on the global coffee market. “Looking back at the global coffee market in March and April, we expect that the consumer market outside the home lost about 40 billion cups of coffee, while only 9 billion cups went back to the domestic consumption It’s mainly because part of the coffee consumption comes from social activities, which is affected by the blockade. ” He said.
For quite a long time in the future, it may be difficult to completely get out of the haze of the epidemic. However, in Schneider’s view, Nestle can not shrink the “front line” of consumption business outside the home, but should use the resources on its hands to seize new opportunities.
An important reason behind this is that the boundaries between consumption within and outside the family have become increasingly blurred, such as takeout.
“When you order, you eat at home, but the dishes are actually prepared and assembled outside.” Schneider said that while such blurred consumption scenarios will vary from market to market, there are still many opportunities for Nestle to introduce its products and services into the “explosive growth” of new delivery services.
Mark Schneider (data photo)
Therefore, he believes that it is more important to ensure that the established business resources are maximized rather than trying to cut the costs of the off home consumer business.
“For me, the blurring of the boundaries between consumption within and outside the family is just another manifestation of consumption at any time, which makes the traditional channel less meaningful.” It also represents the need to reach consumers in new ways, Schneider said.
In general, Schneider believes that it is not appropriate to draw conclusions based on short-term performance as to whether to consider some rationalization of the off home consumption business.
“There is no doubt that there will be some volatility in quarterly performance and we may have to make some adjustments in some areas. But overall, we want to keep the growth focus. ” “Don’t forget that in the decades before the outbreak, we had a higher growth in consumer goods out of households than in households,” Schneider said
After encountering the impact of blockade measures and other factors, Nestle’s off home consumption business has gradually recovered.
According to Fran ó OIS Roger, the decline in the out of home consumer business peaked in April and has been gradually improving, but it will take some time to return to the previous level.
According to its introduction, before the epidemic, consumption channels outside the home accounted for about 10% of Nestle’s sales. The channel business accounts for nearly 15% of the group’s sales if the products purchased anytime, anywhere and impulsive are included.
Schneider said that although it will take some time for the business to recover, Nestle is still fully committed to developing the business. It’s time to rethink and rethink this business to help Nestle’s business partners in this area.
In addition, Schneider also talked about long-term consumption trends.
He said that most of the long-term trends in Nestle’s fields which had been continuously deployed in the past still remain unchanged, and some of them are even accelerating development, such as e-commerce, digital interaction, health and nutrition, especially plant-based nutrition and products related to the immune system.
In fact, Nestle has invested in the Chinese market this year. In May, Nestle announced a series of capital increase plans and projects totalling more than 100 million Swiss francs (about 730 million yuan) in Tianjin. The capital increase plan includes expanding the company’s existing pet food in Tianjin and building Nestle’s first plant-based product line in Asia in Tianjin.
Organic sales are expected to increase by 2% – 3% in the whole year
More than half of the 2020 process, once described by Nestle as the “year of business.”. At the meeting, Schneider revealed that the two tasks are “more balanced” than last year.
“Compared to 2019, we are more and more balanced between significant divestitures and strategic reviews, as well as acquisitions in high growth areas such as Nestle Health Sciences and pet care.” Schneider revealed.
Speaking of acquisitions, Schneider said at the meeting: “compared with last year, the proportion of mergers and acquisitions is becoming larger, we will continue to work in attractive areas, and hope there will be more.”
In terms of acquisition, Nestle has successively completed the acquisition of majority equity of Lily’s kitchen, zenprep business of Allergan, and vital proteins, a US collagen product brand.
On the sale side, Nestle completed the sale of 60% of its US ice cream business and Herta (cold cut meat and meat products) business this year.
Targeted “buy buy buy” is a key to Nestle’s growth goals.
After Schneider “took over” Nestle’s CEO, he set new growth targets for the company. Many times, Nestle has invested in a number of categories such as baby care, high water consumption, and so on.
So, after the outbreak, especially after the announcement of a possible divestiture of a large drinking water business, has Nestle changed its definition of high growth categories?
“Drinking water continues to be one of our four high growth target categories.” ‘the high growth category doesn’t mean it’s going to be high every quarter or every year, ‘Mr. Schneider said at the meeting.
He said the drinking water business had experienced a period of weak performance, and Nestle benefited from the new strategy to ensure that the category returned to high growth in the future. Schneider said he believed there was the best opportunity for Nestle to have high-end and functional products, “so we are working hard.”.
The snack generation noticed that although Nestle achieved growth against the trend in the first half of the year, Nestle was still cautious in setting annual growth targets. Previously, Nestle expects organic sales to grow by 2% to 3% in 2020, compared with 2.8% in the first half of the year.
Does this imply that nestle expects growth to slow down in the second half of the year? In response, Schneider said at the meeting that, given the current turbulent situation and the uncertainty of the epidemic situation, we can not infer the trend of the second half of the year by simply calculating the annual growth guidelines and the actual growth gap in the first half of the year.
In fact, Nestle is also one of the few companies in the food industry to provide full year guidance.
“Obviously, we do our best in this area, but we also need a little bit of protection from the downward trend.” He said he hoped that the outside world would regard Nestle’s financial guidance as a calm, firm and confident performance. Nestle’s goal is not to reach the low range of growth, but to “really do better”.