Nestle counts on coffee, water to reach 2020 goal

by Jeff Gelski
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Nestle Nescafe coffee
High growth categories such as coffee should play key roles at Nestle.

VEVEY, SWITZERLAND — High growth categories such as coffee and water should play key roles as Nestle S.A. targets mid-single-digit organic sales growth by 2020.

The company’s powdered and liquid beverage products, which include coffee items, had organic sales growth of 4.6% to 19,792 million Swiss francs ($19,741 million) in the fiscal year ended Dec. 31, 2016. The business of Coffee-mate Natural Bliss creamers grew by 42% in the United States, said Francois-Xavier Roger, chief financial officer of Nestle S.A., in a Feb. 16 earnings call.

Ulf Mark Schneider, Nestle
Mark Schneider, c.e.o. of Nestle

“I would like to focus for a moment on coffee in particular because I think in all modesty in coffee we really have it all,” said Mark Schneider, chief executive officer, in the earnings call. “We don't just have a leadership position, a significant one, but we also have, I think, four major approaches to the market.”

The company has an “iconic” brand in Nescafe, he said, while Nespresso provides a cartridge system and a flow of product innovations. Nescafe Dolce Gusto provides a cartridge system that continues to be rolled out in many global regions. Mr. Schneider said the fourth approach involves each of Nestle’s geographic regions managing its coffee business individually.

Nestle Waters in the fiscal year had sales of 7,926 million Swiss francs ($7,905 million) as organic sales grew 4.5%. In the United States, international premium brands saw another year of growth while regional brands Poland Spring, Ice Mountain and Deer Park contributed to results as well.

Nestle water
Nestle Waters in the fiscal year had sales of $7,905 million.

“With Nestle Waters, we are clearly benefitting from positive category dynamics, with a good variable trend for healthier beverages, as well as strong demand for safe drinking,” Mr. Roger said.

Mr. Schneider said Nestle S.A. will continue to invest in high-growth categories like coffee, pet food and water.

“Clearly giving these categories all the resources they need to either extend their lead (in market categories), or defend their lead, this is going to be one of our key recipes for mid-single-digit organic growth going forward,” he said.

Companywide, Nestle S.A. reported fiscal-year profit of 8,883 million Swiss francs, down 6% from 9,467 million Swiss francs in the previous fiscal year. Sales of 89,469 million Swiss francs were up 0.8% from 88,785 million Swiss francs in the previous fiscal year. Organic sales growth was 3.2%.

Nestle Dolce Gusto coffee machine
Nescafe Dolce Gusto provides a cartridge system that continues to be rolled out in many global regions.

Nestle S.A. expects organic growth between 2% and 4% in 2017, Mr. Schneider said. Restructuring costs for the year could be about 500 million Swiss francs, he said.

“This is an investment, from my point of view, to drive future profitability, and you should take confidence from the fact we're stepping that up from the roughly 300 million Swiss francs we already shouldered in 2016, and 2016 was a step up from the circa 150 million Swiss francs that we had in 2015,” he said. “So I think we're on the right path here towards addressing operational efficiency issues and clearly that will pay off.”

In Zone Americas (AMS) in the 2016 fiscal year, sales were 26,356 million Swiss francs as organic sales grew 4.2%. Lean Cuisine and Stouffer’s Fit Kitchen delivered strong organic growth through line extensions. Confectionery’s performance in the United States was disappointing.

Nestle confectionery
Nestle's confectionery segment has been negatively impacted by volume.

“Confectionery has been negatively impacted by volume, mainly in the United States and the U.K.,” Mr. Roger said.

In Zone EMENA (Europe, Middle East and North Africa), fiscal-year sales were 16,249 million Swiss Francs. Organic growth was 2%. Sustained low commodity prices, trade pressure and competition affected pricing negatively in Western Europe.

In Zone AOA (Asia, Oceania and Africa), fiscal-year sales were 14,493 million Swiss francs. Organic growth was 3.2%. The Yinlu business in China suffered a double-digit decline. 
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