Pushing past pricing: Nestle targets premium and healthy ageing innovations to boost performance
Nestle recently announced its FY2023 full year financial results, reporting a -1.5% year-on-year decrease in sales to CHF93bn (US$) but an increase of 17.3% in underlying trade operating profits to CHF16.1bn (US$).
In the firm’s financial results press conference which FoodNavigator-Asia attended, Nestle CFO Francois-Xavier Roger highlighted that overall organic growth for the company has been estimated at a 7.2% growth year-on-year – but that this was made up of 7.5% pricing growth and -0.3% of what the company calls Real Internal Growth (RIG), which is a measurement of growth generated by volume and mix/innovation.
Acknowledging this as an unsustainable means to long-term growth, Nestle CEO Mark Schneider told the floor that the firm was committed to move back to RIG-led growth in 2024, laying out several strategies towards this.
“The food sector softness that has been seen over past two years globally has come from a food price increase spike that is the highest we have seen in some 50 years since 1973 to 1974, coming in at a 14.7% spike which is the highest since the 16.3% we saw back then,” Schneider told us.
“Given this, it is understandable that there has been a significant consumer response to the price increases whether it be switching to lower-priced brands or private labels and so on, and on our end we have also had to deal with inflation so severe it had not been seen in many decades, as well as lingering supply chain issues.
“So one of our 2024 operational priorities is now to focus on returning to RIG-led growth, which is the sum of volume and mix (a proxy for innovation) as we recognise as being very important in this day and age [in all of the markets we operate in] including in Zone Asia, Oceania and Africa (AOA).
“Basically for the past two years pricing has been driving the organic growth, but now we must go back to ensuring volume and mix return to being our success drivers, and must take over as the main bedrock of growth from pricing.”
Nestle reported 8.3% overall organic growth for Zone AOA in 2023, 8.0% of which was pricing driven and 0.3% of which was RIG-led. Together with Zone Greater China (2.5%), the APAC region was one of the only markets showing positive RIG alongside Latin America (0.3%), compared to North America (-0.3%) and Europe (-2.4%)
Roger added that Nestle is predicted to return to RIG-led growth towards the latter part of this year.
“2023 has seen a pattern towards normalisation with lower pricing and more RIG leading organic growth for Nestle,” he said.
“We expect to continue return to normalisation this year, and to RIG-led growth over the rest of the quarters in 2024.
“This recovery is not expected to be linear, and likely to be weighted more towards the second half of 2024.
Schneider also said that marketing and growth investments would be a major part of the company’s strategy this year, with special focus to be placed on brands and products known to be ‘proven winners’ or ‘fast-growing billionaire brands’.
“Some of the growth catalysts we identified even amidst the adverse conditions include products such as Nespresso and KitKat, products that showed strong RIG growth beyond price-dependent growth,” he added.
“In 2023, KitKat demonstrated 8.4% RIG growth out of 14.3% overall growth, and Nespresso showed 2.0% RIG growth out of 5.3% overall growth, and we will certainly be looking at innovations for these across all markets.
“We have also identified premiumisation as a core part of our growth strategy – here, we do not mean premium as luxury, premium is defined for us as products priced 20% and more above midpoint pricing in the category.
“This has done wonders for our growth over the past few years and contributes 35% of sales now compared to 11% back in 2023 so we are committed to growing this; but that said we also remain committed to the other end of the spectrum of affordable products.
“This is especially so in emerging markets, where our products often stand for affordability and brining nutritional benefits to economically-challenged consumers -we will also be expanding our innovation here, not shrinking it.”
Healthy ageing the way to go
In addition to premium growth, Nestle will also be stepping up its game in the healthy ageing category.
“Nestle was founded at a time of record high birth rates globally, but now we are seeing a demographic opportunity for healthy ageing solutions what with many markets especially in Asia having seen elderly populations grow overproportionally – so we aim to address these needs,” Schneider added.
“This will primarily be led by Nestle Health Sciences but is definitely not limited to this category – I would say just about all the categories we have will develop products relevant to this section, including dairy and protein product innovation.
“There are many ways to go about this, but our top four areas of focus for healthy ageing will be active lifestyle support, nutritional balance, life stage transitions and preventive care.”
