Big changes ahead for Nestle?

by Monica Watrous
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VEVEY, SWITZERLAND — Big challenges may yield big changes for Nestle S.A.

During an Oct. 1 investor seminar, executives described slowdown in emerging markets, crisis in developed markets and “new dimensions of competition” that have spurred the company to make some strategic decisions.

“Divestitures, we’re going to have some,” said Paul Bulcke, chief executive officer. “We’re not going to give figures on this, as you can imagine. But certain things that are not — that we can see — all of our strategy and all that — but we cannot enjoy the business. We want to be in business, not in agony.”

The complexity and scope of Nestle’s portfolio have both benefited and burdened the company, prompting the question of which underperforming brands should be fixed and which should be nixed.

“The short list of (brands that need) fixing is slightly longer than getting rid of,” Mr. Bulcke said. “We are business people; we want to do business, not get rid of business. But there are some things we don’t think we can fix.”

Declining to mention specific brands on the block, the company said it is facing a fast-changing competitive landscape across geographies and categories.

“We have to be aware — and we are — that so much competition is coming from new places,” Mr. Bulcke said. “You have many, and we always had, the small local players and teasing here. Or being already in the market for a long time and having leadership. … We should not be blinded by only the classical players and what they do only. They’re part of it. But we should have an increasing openness to these new competitors. And I can tell you they’re fantastic.”

Softened growth in emerging markets has hampered sales for the company in recent quarters, but Mr. Bulcke noted the slowdown hasn’t been sudden and, to some extent, may be healthy, such as in China, where he said consecutive years of double-digit growth “overheats the engine.”

But lukewarm conditions in a slowly rebounding North America also have weighed on company earnings. While weaker U.S. businesses, such as a “suffering” Lean Cuisine, may simply benefit from continual innovation, other brands may require more action. Recent reports suggested a sale of PowerBar, which Nestle acquired in 2000.

“When we think about portfolio — managing our portfolio more actively, there are really two sides of the coin,” said Wan Ling Martello, chief financial officer. “It’s not just walking away from businesses that are under-performing, but also accelerating where we need to accelerate. … It’s not just an automatic assumption that if a cell or category in a geography has not been doing well, it’s not an automatic assumption that we’re going to put it on the block. Rather, can we fix it? How long is it going to take? And if not, maybe this is just a business that we’re not the best owner for. And, therefore, we will walk away from it.”
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