KANSAS CITY — When the largest food and beverage company in the world abruptly replaces its chief executive officer, as just occurred at Nestle SA, the global food industry takes notice. What changes at the company follow likely will create ripples affecting the entire sector. While specific changes to be pursued by Laurent Freixe, the Vevey, Switzerland-based company’s new CEO, were not shared in an Aug. 23 investor call after the announcement, clear thematic priorities emerged.

Josh Sosland, editor of Milling & Baking News.
Source: Sosland Publishing Co. 

“We will relentlessly focus on meeting consumers’ and customers’ needs,” Freixe said. “We aim to do this in a decisive and disciplined way through increased investments behind innovation as well as behind our brands.”

Nestle’s merger and acquisition activity during the last several years offers one filter to view a way the company’s focus may be changing. The discussion on the call centered on the food and beverage sectors and what Nestle needs to do to build market share and grow. By contrast, the company’s M&A activity has been anything but food and beverage focused. Apart from major transactions building on its leading position in coffee, Nestle in recent years appeared more focused on reducing than increasing its exposure to food.

Selling parts of the businesses, joint ventures were created for Nestle’s European frozen pizza business in 2023, a European charcuterie and dough business in 2019, and its US ice cream business in 2016. In 2018, Nestle sold its US confectionery business to Ferrero. Over the period, Nestle made numerous acquisitions in the supplement and nutraceutical business, including Puravida, Better Health Co., Bountiful Co., Vital Proteins and Zenprep, to name only a few.

Nestle has been focusing on the health and wellness sector for nearly 20 years, reaching well beyond food and beverages. As early as May 2006, top Nestle executives said the company was determined to become the “world leader in health, nutrition and wellness.” In addition to creating a Wellness unit, Nestle said the company would “drive the nutrition, health and wellness dimension across all group companies.”

The first step was the acquisition of the Jenny Craig weight loss company a month later, in June 2006. A year after that, Nestle acquired the Gerber business from Novartis AG for $5.5 billion. It acquired Pfizer’s infant nutrition business in 2012 for $12 billion.

During the August call, Paul Bulcke, Nestle’s chairman, offered a passing affirmation of the company’s “nutritional health and wellness strategy,” but he too emphasized the importance of “leveraging (Nestle’s) basic strength — marketing-driven, fueling our brands, investing in them, rolling out innovation, connecting and reconnecting and changing and knowing the preference of changing consumer. It is pricing and doing the price dynamics in the markets and not just pricing per se.”

Nestle Health Science was the company’s worst performing segment in 2023, with a 3.2% sales decrease and 12% profit margins (versus -0.3% and 22.2%, respectively, for its Zone North America segment). While the division’s sales growth was stronger at the start of the current decade, its underlying margins have lagged consistently.

It is a testimony to the company’s unparalleled global footprint and the underlying strength of Nestle’s food and beverage portfolio that the company has performed well over time, even as its major strategic initiative of the past generation failed to produce hoped for returns.

From the company’s May 2006 declaration of its goal to become a leader in health and wellness, Nestle’s share price performance has bested its largest food and beverage peers, climbing 475%, adjusted for dividends. That compares with 420% for General Mills, 393% for PepsiCo and 465% for Coca-Cola.

Amid skepticism over the efficacy of supplements and the emergence of GLP-1 medications for weight loss, it remains to be seen whether Nestle’s focus on health and wellness will be modified. In an uncertain consumer environment, Nestle, and the entire food industry, would benefit from a sharp focus on the company’s food and beverage core.