As the world’s largest food and beverage enterprise with an annual income of more than 600 billion, Nestle can be said to exist as a “wind vane” in the industry. So how did Nestle, which achieved the highest growth in the past decade in the post epidemic era, go against the trend and create brilliance? Which vents need to be added?
“Over the past few years, we have done a lot of work to build our product portfolio to achieve sustainable median single digit growth. Nestle’s organic growth has increased steadily since 2017 and accelerated to 7.5% in 2021, partly due to the increased demand for products under the epidemic.” Fran ç OIS Xavier Roger, chief financial officer of Nestle, said at the recent New York consumer analysis conference (cagny) forum.
He said that the key factors behind Nestle’s transformation and market share growth include: investing in high growth categories and regions, rapid innovation, vigorously reshaping its product portfolio and so on. Looking forward to 2022, the company will continue to increase investment.
Next, let’s have a look.
The strong rise from the epidemic is inseparable from Nestle’s efforts to reshape its product portfolio in the past few years.
At the beginning of the “show muscle” link of the product family, Roger said that nestle had entered seven of the ten fastest-growing food and beverage categories. “We are in a leading position in most of these categories, ranking first or second in five of them.”.
“Today, high growth categories such as coffee, pet care, health sciences and plant-based products account for more than half of our sales, compared with only one-third in 2012.” “We believe that the current product portfolio can structurally achieve the goal of sustainable median single digit growth,” Roger said
After combing the snack generation, it is found that the path of Nestle’s product portfolio transformation can be roughly divided into two. On the one hand, it is the “addition and subtraction method”, which rapidly expands the growth leader through mergers and acquisitions, and divests the weak sectors at the same time. Examples include the acquisition of sweet earth to bet on plant meat, the acquisition of freshly overweight convenience meals, a fresh food takeout company, and the divestiture of American candy business, North American Volkswagen water brand, Yinlu peanut milk and Babao porridge.
How about the transformation of Nestle products? Roger said at the meeting that since 2017, the company has completed or announced more than 85 transactions, equivalent to 20% of the group’s sales.
“Portfolio management has had a significant positive impact on our financial performance. In 2021, the business acquired since 2017 generated sales of 6.8 billion Swiss francs (about 47.958 billion yuan, calculated at the weighted average annual exchange rate in its 2021 financial report), with an average growth rate of 18%, contributing 80 basis points of organic growth during the period.” Roger said.
On the other hand, by anchoring high-end and differentiated value points, Nestle also tap the potential of traditional advantageous categories by accelerating innovation. Roger said that Nestle has vigorously promoted the transformation of high-end products, and the proportion of high-end products in the group’s sales has increased from 11% in 2012 to 35% at present.
Taking dairy products as an example, Roger said that Nestle China’s Yiyang brand launched two high-end new products last year, focusing on supporting mobility and immunity. “The sales of Yiyang elderly nutrition products have exceeded CHF 100 million, an increase of 13 times in the past 13 years”.
He further pointed out that in addition to applying professional knowledge to products, fitting the local market is also an important factor for differentiation, and it is necessary to ensure that products meet the tastes and preferences of local consumers.
This idea is also reflected in Yiyang’s new products. Chris pipe, general manager of Nestle China R & D center, once said that the initial R & D of the two Yiyang new products is the responsibility of its global experts, while the more specific formula and product taste are implemented by the Beijing R & D team. “This also reflects Nestle’s ability to use global resources to make some local products.”.
Roger said at the meeting that thanks to focusing on differentiation and accelerating innovation, Nestle’s overall market share has increased. Over the past three years, more than 60% of its business has stabilized or won more share. “Our R & D investment is also the highest in the (food and beverage) industry, with an annual expenditure of about 1.7 billion Swiss francs.” He said.
Turning to the focus of R & D and innovation, he said that Nestle’s focus includes: high-end and providing consumers with new benefits, affordable products, plant-based, sustainability and digitization.
Looking forward to 2022, Nestle plans to continue to lay out the future with “next priority”, especially focusing on pet care and coffee outlets.
Roger said at the meeting that in recent years, Nestle’s capital expenditure accounted for 4% ~ 5% of sales and 5.8% in 2021. It is expected that this proportion will increase to 6% ~ 7% in 2022 to meet the demand growth of some categories.
It is noteworthy that it said that about two-thirds of Nestle’s capital expenditure this year will be allocated to pet care and coffee. According to Roger, these are the two largest businesses of Nestle at present, and the growth rate in the past five years has also exceeded the market average.
According to the information of the meeting, coffee and pet care accounted for 26% and 18% of Nestle’s sales respectively in 2021. According to this rough calculation, the sales of Nestle coffee and pet care last year were about RMB 159.715 billion and 98.286 billion respectively.
It is also worth mentioning that when Nestle broke the 10-year growth record last year, the pet care and coffee sectors also took the “top and second place” in growth. The organic growth in 2021 was 12.5% and 8.9% respectively.
Analyzing the reasons for the growth, snack generation noted that nestle CEO Mark Schneider said at the 2021 performance meeting held last month that during the pandemic, the global pet adoption rate increased in 2020 and 2021, which means that pet food and pet care products have long-term and huge prospects. To this end, Nestle is also investing heavily in production capacity.
In terms of coffee, Schneider described it as “a landmark category benefiting from the change of home consumption”. He believes that nestle coffee can use its retail strength to seize opportunities, and believes that the trend of home drinking will continue.
In fact, in the Chinese market, pet care and coffee are also Nestle’s powerful growth engines. Xiaoshidai introduced that both businesses achieved double-digit growth last year. In 2021, Nestle China will also focus on these categories.
In terms of pet food, the company added 230 million yuan to the Tianjin factory to strengthen the layout of high-end and ultra-high-end pet food production. In addition, for coffee, Nestle also announced the ready to drink series product management department in Qingdao and the innovation center responsible for developing ready to drink coffee and other liquid products.
Next, what big moves will Nestle, which has left the haze of the epidemic behind? Snack generation will continue to pay attention to it.