In the second quarter report card handed over by Nestle a few days ago, the “early confirmation” of China’s milk powder sales composed of Wyeth and other brands has become one of the biggest highlights, which has been much discussed in the industry.
How does the head operate here? International analysts are also interested in this. Recently, Nestle CEO Mark Schneider gave his understanding of the event when attending the performance meeting.
“We have made some very important changes, and I think these changes are paying off.” Schneider also said that he believed that the positive trend of milk powder business in China would continue until the second half of this year.
Nestle executives have repeatedly said that they are working to improve China’s milk powder business, and predicted that they are expected to “see results” this year. Therefore, this business undoubtedly became the focus of analysts’ attention at the meeting.
Schneider said at the meeting that Nestle’s infant nutrition business in China “has stabilized”, achieved positive growth in the first half of the year, and began to see the trend of improving market share.
An analyst asked, “can you explain what you have done in distribution and SKU rationalization, and how you have restored the growth of illuma and nenen?” The analyst also said that a competitor of Nestle in China was talking about the stock of milk powder and the birth rate of newborns. Can nestle also talk about it?
In this regard, Schneider said that the recovery of China’s milk powder business was indeed one quarter ahead of the planned schedule.
“You mentioned that one of the measures we have taken is SKU rationalization. I think we have too many products, so we don’t know how their pricing is interrelated. This has brought some confusion to consumers.” He said.
Schneider said that nestle had done a lot of work at the end of last year and the beginning of this year, specifically cooperating with various channels.
“As you know, the Chinese market has a quite complex distribution system. It is beneficial for our retail partners to really ensure that we cooperate with us and promote our products at all levels of the distribution system. Therefore, there are a lot of basic things to deal with at the distribution level.” He explained.
In Schneider’s view, these achievements are still inseparable from key figures.
He then commented: “I think the new CEO of Greater China has a strong background in sales (for performance improvement) which is very helpful. And it is obvious that he is very familiar with sales work and his understanding of sales channels. He worked in the milk powder industry for a long time in the past. As you know, before taking over the work of the whole greater China region, his last job was managing Tai Tai le.”
Schneider believed that when the milk powder industry began to become difficult, “he
Xiaoshidai noticed that in addition to China’s milk powder business, the topic of product price was still widely concerned at the performance meeting.
When asked by many analysts about Nestle’s next pricing strategy, Schneider said that the cost of goods sold hit Nestle “like a freight train” from the second half of last year, and continued to rise in the first half of this year. The pricing started in the second half of last year continued to the first half of this year, easing the profit margin.
“Suppose there is no new future
Among them, pet care (rising costs) is mainly due to grain, but the good sign is that grain prices have stabilized. Milk and dairy products (costs) have increased a lot, and coffee has increased by nearly 50% over last year, “mainly related to the climatic conditions in Brazil last year, including frost and heavy rain”.
In addition, in response to analysts’ questions about “whether the current pricing will be maintained if the cost price is eased”, Roger responded that the company’s current pricing has not fully reflected the cost pressure it has endured so far, so he intends to “go further”. He added that in the case of specific categories or regions, due to Nestle’s leading position, “most competitors do follow our pricing”.
At the performance meeting, some analysts asked whether the low single digit organic growth of Nespresso in the second quarter and the actual internal growth of -1.6% were related to the fact that consumers chose more coffee consumption from outside the home instead of some home coffee consumption under the normalization of epidemic prevention and control.
In this regard, Schneider described strong coffee as doing very well, and did not see the factors of sales decline.
Roger added that in the first half of last year, espresso achieved double-digit growth, reaching 14.6%, which is very high. “So if you look at the superposition of two years, you may have a better concept. Strong coffee has a strong growth of 8.6%. Its performance is very good.” He also pointed out that a good measure is to compare it with the level before the epidemic: if judging from the sales of espresso in the first half of 2022, it is 21% higher than that before the epidemic at a fixed exchange rate.
“This is a three-year compound growth rate of 6.6%, and we haven’t seen any real slowdown. It’s just that we had a particularly high level in the first half of last year and the second quarter.” He also said that the overall growth level of the coffee business in the first half of the year was significant, reaching 6.9%, and above the particularly high comparative base in 2021 (10.7%).
“If we look at the two-year data again, our growth in the first half of this year was 9%. So it is very encouraging. Our three major brands, Nestle coffee, Starbucks and Nongyu coffee, have made positive contributions. We have gained market share in most market segments, geographical regions and brands.” Roger said. It is reported that in order to meet the market demand for production capacity, especially Purina pet care and coffee business, Nestle group accelerated its capital expenditure.
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Nestle’s milk powder business recovered in China ahead of schedule, and the CEO mentioned one person when explaining