U-turn ahead: Nestle reunites Greater China management with rest of Asia as new CEO pledges ‘core’ growth focus
Nestle recently announced its Q3FY2024 sales results, reporting CHF67.1bn (US$) in sales value and an overall 2.0% of Organic Growth which comprised 0.5% RIG (real internal growth) and 1.6% pricing adjustments. No profit numbers were released in these results.
This was overall in line with the company’s target since Q1 this year to return to a non-pricing-led, ‘normalised’ growth model led by RIG, a measurement of growth generated by volume and product mix/innovation and not price hikes as RIG has risen from -2.0% (Q1) to 0.3% (Q2) and now 0.5%.
That said, the firm has admitted that the progress of RIG is being impacted by various external factors currently.
"RIG is being impacted by factors such as softening consumer demand and consumer hesitancy towards global brands, linked to geopolitical tension, in various markets including our Zone Asia, Oceania and Africa (AOA),” Freixe told the floor at the investor and analyst call which FoodNavigator-Asia attended.
“Our growth over these nine months has been strongly driven by categories such as coffee and confectionery, as well as PetCare and Nestle Health Science.
“Nestlé has industry-leading leading R&D capabilities [but] we need to focus - My mantra on innovation moving forward will be ‘fewer, bigger, better’.
“Another priority is investment, as to drive growth we need to restore our investment to gain market share and drive category growth - but we must also be selective in looking at core categories and core innovations for this – in short we must focus on our core to make impact at scale.
“In FY2025 we aim to bring back historical levels of investment into our brands, not in an incremental manner but all in one go to step up our game.
Nestle CFO Anna Manz highlighted that solid growth continued to be seen in Zone AOA and Oceania despite the ongoing geopolitical tensions.
“There is pressure on global brands linked to geopolitical tensions affecting some markets, as well as further economic slowdown in India and Pakistan, but most categories delivered robust growth,” she said.
“The Zone has continued to focus on affordable offerings, which grew high single-digits in the third quarter.
“We see that product costs still may go up, but as we always do if so we will evaluate how consumers respond, and if we find that consumers cannot accept this we will work to reduce the prices to stay within their reach – and this means we will innovate in order to ensure we can deliver within our margins.”
Freixe added that both premiumisation and affordability remain key priorities for the company, and pricing strategies will be guided by this.
“Of course we want to premiumise, as this is a tremendous opportunity across many categories to innovate and provide products with better taste, higher quality, more convenience and so on – but we are also mindful of affordability,” he said.
“Premium products can be seen as more acute in times of crisis, as those who can afford it will be searching for the best possible value for the best purchase - But we do have consumer sentiment softness in mind as well, and are well aware that the best, most premium product in the world won’t work for us if it does not sell.”
Adjusting course
Nestle is also making a significant U-turn on its 2021 decision to ‘sharpen’ focus on more individual regions when it segregated out two of its major regions - Greater China and North America – to take a more localised approach.
“Nestle will sharpen our geographical focus by creating Zone North America and Zone Greater China, which will strengthen the company's market-led approach and further our ability to win in a rapidly changing environment,” the firm had announced back in October 2021.
“This structure also underscores the company's deep commitment to succeeding in all parts of the world, including its two top markets North America and Greater China.”
This was officially implemented in January 2022, but three years on the firm has now decided to reverse this by reintegrating Zone Greater China back into Zone AOA, and combining Zones North and South America to form Zone Americas, to take place starting January 1 2025.
“All three Zone heads will be based in Vevey, Switzerland and colocation will strengthen the connections across the executive leadership and provide greater alignment,” Freixe said.
“This will increase simplicity, speed up decision-making and strengthen the momentum behind global initiatives. We will continue to build on the strengths of our Market Heads to ensure consistent in-market execution."
Current Greater China region Executive Board member David Zhang will step down from the board, but remain Chairman and CEO of this region. The new Zone AOA will be led by Nestle EVP and current Zone AOA CEO Remy Ejel.
“We are facing the reality that consumer sentiment is soft and economic growth is buoyant in most parts of the world,” Freixe added.
“My focus is on ensuring our organisation is on its toes and sharpening our pens, to focus on core brands and innovations with the right amount of investment and also accelerate transformation particularly in terms of digitalisation.
“This is where I will put most of my energy, as the environment may not be supportive, but it is what it is and in today’s economy we shall look at it as: If the pie is not growing, we must work to grab a bigger share of the pie.”
