Nestle Global: looks for ways to boost stale growth as consumers snub unhealthy food Large food companies have long been among the world's most solid, with reassuringly consistent returns even in hard times. None would seem steadier than Nestle, based in the Swiss town of Vevey, on a lake near snowy peaks. For its 150th anniversary in 2016 it opened a new museum lled with corporate heirlooms: the rst written notes about a new product called milk chocolate, laid out in black cursive; an old tin of Nescaf, used by soldiers as a stimulant in the second world war; and an early can of Henri Nestl's infant formula, which in 1867 saved the life of a premature baby. It has come a long way since then. It sold goods worth nearly $90bn in 189 countries in 2015. Of the 30,000 cups of coffee sipped around the world each second, Nestle estimates, one- h are cups of Nescafe'. But the industry it presides over is in upheaval. On January 1", 2016 a new chief executive, Ulf Mark Schneider, took over. He is the rst outsider to get the top job since 1922, and his backgroundinrnning a health-care nn, not selling chocolate bars or frozen pizzasuggests the main source of worry for the business. More and more consumers are snubbing packaged food's sugar, salt and unpronounceable preservatives. Meanwhile, swarms of smaller nns, emboldened by the ease of peddling goods online, are touting supposedly healthier options. From 2011 to 2015 big sellers of consumer- packaged goods, mainly food and drink companies, lost three percentage points of market share in Americaa lot in the industry's contextaccording to a study by the Boston Consulting Group, a consultancy, and [R], a data provider. As super-sized companies swat at such tiny attackers, another foe is gaining goundr 36, a Brazilian private-equity rm, likes to buy big, slow-growing food and drinks companies and slash their costs. Targets have included Kra and Heinz, two giants which 30 helped merge into one group in 2015, as well as several of the world's biggest brewers. Other food companies are scrambling to make cuts of their own, lest they become 36's next meal. That has prompted a debate over whether such cuts wreck nns' growth prospects even further, or whether, in fact, they are best off wringing out prots and accepting that robust expansion is a thing of the past. Nestle is not immune to such pressures. In recent years it has often missed its goal of 5-6% sales growth. Excluding acquisitions, its numbers have not met investors' expectations for 11 of the past 17 quarters. In the most recent quarter, the rm registered organic sales growth of 3.2% . Changing consumer tastes explain some of these shortfalls So does a shifting retail landscape. Managing a giant portfolio of brands, from KitKat and Nespresso to DiGiorno pizza and Pin-ina dog food, has become harder. Mr. Schneider will have to master online ways to market and deliver its well-known brands. The rm needs to coax customers to pay more for premium products as ordinary ones get commoditized, and discounted by rms such as Germany's Lidl and Aldir The rm can still boast impressive staying powerits global market share across its entire range of products has remained near 20% for the past decade. Francois-Xavier Roger, Nestl's chief nancial ofcer, points out that the group's sales growth in the rst nine months of 20 16 was among the fastest of the top ten biggest food and drink companies. Yet a detailed examination of its position by Sanford C. Bernstein, a research rm, shows that when growth om acquisitions is excluded, it lost share in all but three of its top 20 product categories between 2007 and 2015. Some of its core otferings, such as bottled water and single-serve coffee, fared the worst. (Keurig, Nestl's arch-rival in coffee pods, slurped share in America.) Such results are likely to attract particular censure from investors because of Nestl's past heavy emphasis on growth and market share which sometimes came at the expense of lower prots, In 2015 its operating-prot margin was 15% , betterthan the 13% at Danone, a French competitor, but far below the 21% at Kraft-Heinz, Shareholders in the rm are waiting to see whether Mr. Schneider will shake things up. Some want him to sell off businesses that seem most at risk of long-term decline, such as frozen food, as shoppers look for fresher fare. Nestle history In 1867 pharmacist Henri Nestle of the small lake town of Vevey, Switzerland, developed a nutritious infant formula from coufs milk, wheat our, and a little sugar, to which he applied a unique drying process that retained most of the mixture's nutrients. Created for mothers and babies unable to breastfeed, the formula proved effective in curbing infant mortality due to malnutrition Nestle marketed the formula as Farine Lactic Nestle (Nestle's Milk Cereal) and used the symbol of a bird feeding babies in a nest (the name Nestle meant 'little nest' in German) as a trademark to give the company a clean, healthy, nurturing, and caring image. Sales soon expanded into other European countries, thereby giving the company an international orientation very early. In 1905 Nestle merged with its chief rival, the Anglo-Swiss Condensed Milk Company, ending years of erce competition. The combined rm grew rapidly through mergers, geographical expansion, and entry into new product categories including chocolate. By the early 1900s, Nestle operated milk and infant food processing plants in the United States (U S), Britain, Germany, and Spain. The rm began manufacturing in Ausu-alia in 1907 and soon established warehouses in Singapore, Hong Kong, and Bombay to supply the rapidly grong Asian markets, In 1920 Nestle opened a factory in Brazil, the rst in a series of Latin American processing facilities, As Nestle entered into new markets it worked to establish local supply chains, which oen meant organizing basic agricultural capabilities all the way back to the farm level. The company's 'milk district model,' rst introduced in Switzerland in the 1870s as a way to ensure adequate milk supplies, had been replicated and adapted for use in Latin America, the Caribbean, Asia, Africa, and most recently Inner Mongolia. Throughout the years Nestle constantly developed new products and improved and adapted existing ones to suit changing consumer tastes, In 1937, aer eight years of development, Nestle's RA'LD laboratories invented the 'Nescafe' process to manufacture premium quality soluble (instant) coffee. Initially created to help solve the Brazilian coffee industry's large coffee surplus, stcafe revolutionized coffee drinking around the world. The same drying process was used to make Nerrea (an instant tea) in the early 19405. The chocolate powder Nesquih was introduced in 1948, Aer World War II Nestle merged with Maggi, a large European producer of food enhancers and prepared foods such as soups. Numerous acquisitions followed in canned and frozen foods, bottled water, ice cream, and pet foods, Nestle encouraged managers of the acquired companies to stay, with new operations typically remaining intact and reporting to the Nestle counn'y managers in each market, Nestle also expanded beyond food with the 1974 purchase of a 25% interest in French cosmetim rm L'Oreal and the 1977 acquisition of Alcon Laboratories, a US. firm specializing in eye care products. The Maucherycars, 1930-1997 Seasoned Nestle manager Hehnut Maucher became CEO in 1980 at a critical time. After years of aertax prots in excess of 4 per cent, prots had declined between 1978 and 1981. Maucher undertook a radical programme of change within the once highly bureaucratic company. He shed several underperforming brands, slashed inefciencies, revived cash ows, reorganized top management, reinvigorated Nestle's culture of quality, emphasized the value of the Nestle brand umbrella, and refocused the rm's energies on remaining the world's leading branded food company. Maucher extended the reach of the company beyond its core of coffee, rrrilk, and chocolate- related products, to new comers of the globe and into new product categories Two primary objectives were to improve Nestle's market share in the US and to make Nestle the world leader in certain high growth market segments (eg, mineral waters and chocolate confectionery). The company's $3 billion takeover of the American food giant Carnation in 1985 was, at that time, one of the largest in the history of the food industry. The Brubeck era, 199 7-March 2008 Brabeck, another Nestle veteran, became CEO in June 1997 upon Maucher's retirement. As articulated in his inaugural speech, Brabeck's goal was to achieve worldwide sustainable competitiveness through four 'strategic pillars': (1) low cost, highly efcient operations; (2) renovation and innovation of the Nestle product line; (3) universal availability; and (4) improved communication with consumers through better branding. Together, these pillars would enable achievement of the 'Nestle Model,' a term used to describe the company's long-term objectives of organic growth between 5% and 6% each year; continued year-aeryear improvement in earnings before interest and tax (EBIT) margin; and improved capital management. Brabeck made a number of moves to improve the performance and market orientation of the CH.F60 billion company, The research and development (REID) programme was restructured to be more responsive to consumers and to better deliver the 'renovation and innovation' necessary for organic growth, Previously composed of small decentralized units spread all over the world, R&D efforts were shifted to a few large, resource intensive centers organized by product groups. Emphasis was put on looking for ways to reinvigorate old brands, such as nding multiple uses for them, An established brand such as Nesqur'k, for example, which was traditionally sold as a powder used in milk, was developed into syrup form and also into ready- to-drink varieties, Brabeck also launched a '60/40' preference rating system for products that required Nestle offerings to be preferred by 60% of participants in blind tests against direct competitors including other national brands and private labels, Products that failed to achieve the 60% level were reformulated, discontinued, or sold, In mid-2000 Braheck initiated GLOBE (Global Business Excellence), a comprehensive information system that ultimately would tie all of Nestle's businesses together under a common technology inastructure. First introduced in 2002, GwBE was designed to capture data (one of the rst steps was the standardization of data based on the same denitions and units), manage information, and create knowledge which could be shared among the company's many SBUs and geographies. GLOBE'S online real-time reports brought important insights into both the production and the selling sides of Nestle's businesses. For the rst time, managers could easily calculate total worldwide purchases of raw materials and the distribution of spending amongst suppliers. In addition, the rm could measure total worldwide sales to individual accounts, allowing for better customer management. GLOBE also allowed synchronization of data between manufacturing and retailers, leading to improved order fullment. And once tied into the GLOBE system, retailers could add new products to their store inventories with one 'click' of the mouse. Over time, the company had in some instances moved away from its basic agricultural and processing roots, For example, several cocoa and dairy processing plants were sold and ingredients were bought from outside suppliers. 'We sold businesses where we could not add value,' explained CFO James Singhr 'In those cases buying the ingredi-t [instead of processing it yourself] may not cost you more and at the same time may relieve you of the need to invest in facilities and to devote attention to those businesses, For example, we got out of cocoa roasting but we did not get out of chocolate.' Several major acquisitions during Brabeck's tenure solidied Nestle's position in key categories such as bottled water, coffee, ice cream, and infant formula, A Nestle manager explained that Brubeck 'acquired brands of great potential'. For example, the $10.3 billion purchase of Ralston-Purina in 2001 created a global platform for pet foods. Brabeck was known for his vocal dismissal of two management paradigms popular in the 19905: that all rms needed to undergo radical change to keep up and that rms should 'focus' in order to achieve operating efficiency, Instead, he championed a model of year-onyear growth even in the face of adverse external events, agile local businesses, and a strong company culture as 'the social glue that keeps everything together'. During Brabeck's 12-year tenure as CEO, sales grew 78% from CHP605 billion to CHI-7107.6 billion in 2007 while EBIT grew 142% (from CHF6,2 billion to CHI-'15 billion). Nestle's share price increased 323% from Cl-IF122r90 to CHF520r00 and shareholder returns during that period were 408% . Nestle's new vision: Beyond/00d to nutrition, health, and wellness Along with operational changes, Brabeck was instrumental in moving Nestle from a technology- and processing- driven food and beverage company towards a broader vision of nutrition, health, and wellness, 'It all started with a fundamental strategic decision,' recalled Singh. The CEO, the Executive Board, and the board of directors all agreed that Nestle should try to create a new industry We recognized that consumers were increasingly aware of the link between food, health, and personal well being. Our ultimate goal was to be recognized by consumers as 'the' nutrition, health, and wellness company and to deliver a competitive rerun-r to our shareholders at the same time.y Brabeck created a new Division of Nutrition that reported directly to the CEO. Three major acquisitions were made in the specialty nutrition area to establish a platform for growth: Jenny Craig (2006), a US chain of weight loss centers which allowed Nestle to enter into the area of weight management; Novartis Medical Nutrition (2007). which reinforced Nestle's position in healthcare nutrition; and Novartis's Gerber baby foods business (2007), which extended the company's leadership across key areas of infant nutrition. Singh explained how Nestle targeted strategic acquisitions, using the Novartis examples: 'We identied these as two objectives we wanted to accomplish. We believed they could he truly transformational to our business. We developed mutual value-added relationships with key executives at Novartis and waited for the appropriate time to execute} What should we eat? The new nutrition, health, and wellness vision was enabled by basic scientic research and state-of-the-art tools such as nutrigenomics - the study of the relationships between diet, genes, function, and health - to produce revolutionary new product ideas. This called for a changed role for R&D, which historically had focused on improvements in raw materials or processing technologies. \"'What should we eat?' is the big question,' explained Werner Bauer, executive vice president of innovation, technology, research and development. The answer seems to change every day. The problem is in the translation of basic science into specic diet and nutrition 4 recommendations, Over the last 10 years we have developed more specic understandings of the link between nutrition and health through nutrigenomics to replace the generalized knowledge we had before.' Basic research was conducted at the Nestle Research Center (NRC) in Switzerland, the biggest private facility for fundamental research on food, nutrition, and the link to health in the world. Overall, Nestle Research comprised the NRC and 23 Product Technology and R&D centers worldwide that were focused on particular products or geographies. Nestle also initiated a new model of 'open 'innovation' that encompassed more than 300 externalresearch collaborations spanning a global network of more than 5000 scientists and technologists in top universities, research establishments, and private rms. Internal and external R&D efforts were augmented with investments in companies working on novel technologies and product ideas. In 2007, Nestle committed to invest over CHFlrS billion over the next 10 years in start-up and growth-phase companies in the, areas of food, nutrition, health, and wellness, According to Bauer, the focus on science-based nutrition and the internal goal of fewer and bigger breakthrough innovations was causing R&D efforts to move towards a pharmaceutical model, based on patents to protect core technologies, clinical trials, claims development, and regulatory approvals, The ultimate goal of research was to create an innovation pipeline with projects in different phases at any given time with some in development or conceptualization, some in clinical or consumer trials, and others in their launch phase. Since many of the new products coming out of R&D had global applications, an 'innovation acceleration team' was created to support rapid product introductions. Composed of R&D and supply chain experts, the team's job was to act as a catalyst and execution specialist to coordinate product launches in multiple top priority markets, Prior to these teams, new products were introduced in markets only after the local country manager decided to add them to their portfolios. Product and brand parfolio Nestle's proth portfolio ranged ii'om baby food to coffee and ice cream to pet foods, About 70% of sales came from 29 'billionaire' brands; the umbrella Nestle brand covered 40% of group sales, While many brands were global, Nestle believed that there was no standard worldwide taste: product formulations could vary widely from country to country, or even within a country. The rm organized its more than 8,000 products into ve main business categories and two global divisions, Nestle main product categories included: (I)Powdered and liquid beverages. Nestle beverage products included roast, ground, and instant coffee, teas, water (run as a globally managed business, see section below), and other products such as chocolate and malt-based drinks. Billionaire brands in this group included Nescafe (the world's largest coffee brand, accounting for 23% of global coffee consumption), Milo, Nesquick, Nestea, and Nespresso - a proprietary pod-based, individual-cup coffee brewing system that had become Nestle's fastest growing product. (2)Milkpmdum and ice cream, The category included dairy products such as powdered and condensed milks, ice cream, and yogurts. It also included Cereal Partners Worldwide, Nestle's joint venture with General Mills for breakfast cereals outside North America, Billionaire brands in shelf-stable dairy included Nestle, Nido (the world's leading brand of powdered milk for one-to-six year olds), Coeemute, and Carnation. Billionaire ice cream brands of Nestle, Dreyer's, and 13st were augmented by premium brands such as Movenpick and Haagen-Dazs, Prepared foods and cooking aids. This division contained a wide variety, of product lines, 'om frozen foods (e,g., Stouffer's, Lean Cuisine, Hot Pockets), to soups, bouillon, and sauces (Maggi, Cross & Blackwell), to pasta and sauces (Buitoni), to delicatessen products and cold meats (Hem), (3) Confectionaq'. Nestle was the world's leading chocolate and confectionery company with approximately 8.1% global market share including Geroto in Brazil. Leading global brands such as Nestle, Crunch, and KirKrzt (except in the US where it was sold by Hershey) were complemented by strong local brands such as CailIer, Milky Bar, Baby Ruth, and Butterfmger. (4)PetCuM. With its 2001 acquisition of Ralston Purina, Nestle became the second Largest pet food company in the world with a 24.8% share by 2007. Billionaire pet food brands included Purina, Dog Chow, and Friskies. Nestle estimated the global dog and cat food market at $46 billion in 2007. The 60/40+ test was also applied to pet care products and Purina scientists carried out over 20 000 taste tests each year. (5)Phanmweutical. Nestle's non-food interests included majority ownership of Alcon and minority ownership of L'Oreal, the world's largest cosmetics company. Nestle also had two joint ventures with L'Oreal: dermatology- focused Galderma and Laboratoires inniov, focused on beauty-related nutritional supplements sold in pharmacies. In addition to product categories, there were two globally managed businesses in early 2008: (6)Nestle Waters. By 2007, Nestle Waters included 72 brands of bottled water sold worldwide. Billionaire brands included Nestle Pure Life, which was sold around the world, and Poland Spring. Water was produced at 100 factories in 38 countries. Almost 50% of water sales were in North America, 44% in Europe, and 7% in other regions, Pure Life (a puried, mineralized, bottled water) was a good example of Nestle's innovative research, (7)Nstle Nutrition. This stand-alone, globally led business unit was comprised of four businesses: infant nutrition; healthcare nutrition; performance nutrition; and weight loss. Nestle was the world leader in infant nutrition (over 70% of Nestle Nutrition sales in 2007); the world number two in healthcare nutrition; the world leader in science-based performance nutrition; and the North American leader in customized weight management. Billionaire nutrition brands included Nestle, NAN (infant formula), and Gerber (which was a multi-billionaire brand). Organization Although Nestle employed over 275 000 people and sold products in 130 countries, the Nestle organization was decentralized and relatively at, The CEO and 12 top managers formed the Executive Committee, which reported to the board of directors Forty-three reg'onal organizations reported to three zones (Zone Europe, Zone Americas, and Zone Asia, Oceania and Africa), each nm by a zone manager who was located at Nestle headquarters. They managed their zones by region, working with each regional and country manager to set revenue and profit goals. Country managers - called market heads - were given a large degree of autonomy in matters dealing directly with consumers, The company felt local management understood the cultural traits, tastes, and motivations of consumers, and could best translate that knowledge into products tailored to meet their needs, which in mm would lead to long-term consumer-product relationships. Nestle was considered a local company in many countries, remarked Corporate Communications Director Rudolph Ramsauer: 'The Nestle market head is very well respected. In smaller countries, they almost have ofcial status - like an ambassador would.' Nestle's leadership believed that, as a Swiss rm with a very small home market (less than 2% of sales were in Switzerland), the company was better positioned than competitors to understand the trends of the World. 'We have to think about the world food supply and international issues such as the WTO and bilateral trade agreements,' explained a Nestle manager, Page 6 of 12 'We sit here on our little lake in Switzerland and have to think beyond our boundaries, The distance means we [at headquarters] are not involved in the day-to-day details, and that gives us time to think about the right things. The oxygen is here to do that.' 'The job of headquarters is to be the platfomr for shaping, defining, thinking,' added Bulcke, \"There are no contract negotiations here at Vevey. That is all handled in the markets. Our job is to make sure that all of that energy is aligned and to provide guidance to where the journey is heading, Our people must walk in the same direction with the right tools and strategies} cum... I. IMAM g, E t i; _|L mm s cool-liar Nam-n mum r, mun-"I E 1- E s a comma awn-nu comprm. 1. (mm. Sewires iii rem-ars- I ma Nurmn I n. r rm. r... Eua move L huh! snl'cu Cur-rm don-near- Nestle's R&D spending had more than doubled since 1998, reaching CHFl.88 billion (approx, 175% of revenues) in 2007 with about 60% invested to support food, nutrition, health and wellner and 40% in pharmaceutical businesses, Nestles Research Center in Switzerland had a permanent staff of 700, including over 300 scientists. In addition, each of the 23 Product Technology Centers (PTCs) located around the world was responsible for category-specic innovation aligned with one or more of the Nestle SBUs and global businesses. To encourage information sharing, Nestle organized 20 to 25 R&D strategy conferences each year. The rm had also created a network of 'experts' -thousands of people around the World who volunteered to answer questions, R&D had a critical role to play in delivering the Nestli's model, explained Bauer, 'Given our internal growth targets, CHIF3 billion of new sales has to come from renovation or innovation each year,' he said, 'Therefore we must understand the global business strategy to see where R&D should he worldngi The goal is to identify the sweet spot of three elements: what is needed by the consumer, what is technically and scientically feasible, and what is commercially viable,' Prioritization was crucial given the numerous opportunities, Ten research projects that had the ability to he 'transformational' were selected each year and monitored at the corporate level. In 2007 Nestle operated 480 factories in 86 countries, About half of the factories were in developing countries and most of these produced for the local market. 'We don't open a factory in a cheap place to produce products to sell to an expensive place,' explained Jose Lopez, executive 7 vice president of operations. 'Our goal for food has always been local, affordable, and fresh That's good for the world} For example, over 90 per cent of Nestli products made in China were sold in China. To support its global operations, Nest14 spent about CHF13 billion a year on agricultural materials including dairy (51 per cent), coffee (15 per cent), sugar (9 per cent), and cocoa (8 per cent). Over 60 per cent of purchases were from emerging economies Bulcke takes over In April 2008 Bulcke replaced Brabeck as CEO, part of a carefully planned succession almost two years in the making, Like his predecessor, Bulcke was a Nestle veteran who had advanced through a series of increasingly challenging country assignments before moving to headquarters in Vevey. His postings included Peru, Ecuador, Chile, and several locations in Europe. Immediately prior to being appointed CEO, Bulcke was head of Nestle's largest business unit, Zone Americas The new CEO shared his predecessors philosophies of leadership and the importance of the Nestle culture in obtaining long-term performance: The Nestle model is one of steady growth and margin improvement. It is not management by surprise. This model is so inherent in our structure and culture that we don 't have major restructurings. We try to anticipate and be proactive so we don 't have to react, because then you end up overreacting. We don 't need short-term gimmicks that might jeopardize the long-term results. Bulcke did see a different path for the company over the coming years: Our future growth will come from internal growth, which is direrent from the past where we have had a number of important acquisitions, We have built an incredible foundation. Our top strength is our product and brand porq'olio. People use our products every day ofthelr lives, every minute of the day. In addition, R&D is now a fantastic platform and it is up to us to leverage it better: It must be aligned with our consumer platforms, to make sure we are a consumer ibiven company. Our third strength is our global presence. We have rime-tested expertise in every corner of the world. We know where to be how to work in that country. Finally, we have our people and our Nestle culture, which is strong in every pm of the world. My challenge is to drive growth om this asset base while being as e'icieni and as productive as possible Bulcke saw GLOBE as an important vehicle for continuous improvement. GLOBE would allow best practices to be identied and shared across plants and business units. This was crucial in enabling Nestle to shi from organization by country to organization by business. rBefore GLOBE, every market was like a small kingdom' explained Bulcke. 'Our world wasn't global. Products were adapted to every market. Today, our science-based platform requires us to generate demand differently. We are rolling out more products worldwide. Certain products need to be globally managed, For example, we don't do marketing for medical nutrition. Instead of communicating with the nal customer, we must inform doctors, pharmacies, and health professionals who recommend the product to patients, All of the professional communication is done centrally,V Growth platforms Four complementary platforms had been identied that could double the company's sales over the next 10 years: (1) health, nutrition, and wellness; (2) emerging markets; (3) out-of-home consumption; and (4) 'premiumization' of existing products. (1)1-Iealth, nutrition, and wellness. The nutrition, health, and wellness strategy continued to be implemented in all categories and regions. 'This must be rst,' remarked Bulcke. 'It will be Page 8 of 12 the mainstream of our business} Nutrition was a focal point for the rrn's R&D efforts, which were then useful in other businesses (2)Emerging markets. Nearly 90% of the world population was projected to live in developing and emerging countries in 2010. While over a third of Nestle's 2007 sales came from the developing world, Bulcke believed this gure could reach 40% to 50% over the next 10 years Nestle planned to reach 1 billion new consumers through a portfolio of 'popularly positioned products' (PPPs) designed to provide good nutrition at an affordable price on a daily basis to people at the base of the pyramid. (3)0ut-of-home consumption. Given the growing need for convenience and rising economic standards, consumers throughout the world were eating more meals in restaurants and other non-home settings. In mature economies, between 30% and 50% of consumer spending on food and beverages was for food prepared outside of the home Nestle estimated the size of the out-of-home market at $400 billion. 'It's a large but complicated market,' connnented Bulcke. 'There are many more actors that have relationships with consumers, Today we are the largest player in the sector with $7 billion in revenues. But that is from just being there, not from any concentrated actions, We need to crack the code.' Nestle Professional was being separated as a globally managed business in 2008, The unit ms initially concentrating on two areas: branded beverage solutions such as coffee and teas (where Nestle also provided the machines) and customized culinary solutions which had a nutritional focus. (4)Premiumization. Nestle managers recognized a growing super-premium sector and saw the opportunity to develop exclusive, high-quality versions of its existing products that would appeal to higher income consumers 'We see demand for premium products even in the developing world,' said Bulcke. 'Two years from now there will be more potential premium and luxury goods consumers in China than in the whole of Western Europe Our goal with these products is not to be everywhere. We don't need to be in every supermarket with the lowest price. This is about value, not volume' Along with the highest quality ingredients, premium and luxury products might include unique components (eg, the machine used to produce Nespresso), personalich services (e. g., a telephone or intemet help line), or distribution channels (e.g., 'Nespresso Comers' in department stores, stand-alone Nespresso Boutiques in major cities, or home delivery). Examples of Nestle premium and luxury brands included Movenpick and Hiiagen-Dazs in ice cream, Nespresso and Dolce Gusto in coffee, Perrier in water, NestleNoir and Perugina in chocolates, and Purina Pm Plan and Purina ONE in pet foods. Looking for ways to boost stale growth (January 2017) On June 27, 2016, Schneider was appointed Chief Executive Ofcer (CEO) of Nestle SA, replacing Paul Bulcke. He ofcially started his position on January 1, 2017. Schneider is the rst outsider to run Nestle since 1922. In recent years, Nestle Health Science has made several acquisitions. It acquired Vitao, which makes clinical nutritional products for people with genetic disorders; CM&D Pharma Ltd, a company that specializes in the development of products for patients with chronic conditions like kidney disease; and Prometheus Laboratories, a rm specializing in treatments for gastrointestinal diseases and cancer. It also holds a minority stake in Vital Foods, a New Zealandhased company that develops kiwifruit-based solutions for gastrointestinal conditions as of 2012. Another recent purchase included the Jenny Craig weight-loss program, for US$600 million. Nestle sold the Jenny Craig business unit to North Castle Farmers in 2013. In February 2013, Nestle Health Science bought Pamlab, which makes medical foods based on L- methylfolate targeting depression, diabetes, and memory loss. In February 2014, Nestle sold its PowerBar sports nutrition business to Post Holdings, Inc, Later, in November 2014, Nestle announced that it was exploring strategic options for its frozen food subsidiary, Davigel. Nestle announced in January 2017 that it was relocating its US. headquarters from Glendale, California, to Rosslgm, Virginia outside of Washington, DC, In March 2017, Nestle announced that they will lower the sugar content in Kit Kat, Yorkie and Aero chocolate bars by 10% by 2018, In July followed a similar announcement concerning the reduction of sugar content in its breakfast cereals in the UK. The company announced a $208 billion share buyback in June 2017, following the publication of a letter written by Third Point founder Daniel Loeb, Nestl's fourth-largest stakeholder with a $35 billion stake, explaining how the rm should change its business structure Consequently, the firm will reportedly focus investment on sectors such as coffee and pet care and will seek acquisitions in the consumer health-care industry, Food for life? For now, Nestl is deant. \"We started 150 years ago having a product that actuallythere's symbolism theresaved the life of a chil ,\" says Paul Bulcke, He and his colleagues say that investment in health and related innovation will produce strong growth for years to come. Mr, Schneider, who used to run Presenius, a German rm that offers kidney-dialysis products and services, will certainly emphasize that message Nestle differentiates itself from 36, with its keen focus on cuts. Mr. Roger says he respects what 36 does, but that \"they have a strategy which is very different from ours,\" Still, few observers would call Nestl a health company, Many of its products are perfectly healthy, including bottled water and coffee. Many are notmilk chocolate and ice cream, to name but two, And for now, the purest forms of Nestl's focus on health contribute relatively little to its sales. A business unit called Nestle Health Science, for example, sells nutritional products for medical needs, such as vitamin-packed drinks for the elderly and for cancer patients. It contributes less than 5% of revenue, The rm has a research institute devoted to studying food's role in the management and prevention of disease~for example, better understanding nutrition's ability to promote brain health. It may deliver growth but probably only in the long term. Nestle has also invested in young drugs firms, including one that is testing a treatment for ulcerative colitis. More immediately rewarding may be its efforts to make best-selling but unhealthy foods a bit more wholesome. In November the company said it had created hollow sugar crystals that taste sweet but contain fewer calories than the usual stuff It will begin to put the new ingredient in its chocolate in 2018. It is also proud of changes to the millions of frozen dinners it sells every week in America. Shoppers had been avoiding the 'ozen-food aisle, Nestl rst tried discounts, and then in 2015 introduced new versions of its Lean Cuisine products, stripping out unpalatable ingredients and replacing them with organic ones. At Stouffer's, another frozen brand, Nestle decided to target men with easy, protein-packed meals that are more nutritionally valuable. It workedits frozen- food sales in America grew faster. In November 2015, they were 6% above what they had been a year earlier, But Bernstein's Andrew Wood points out that the revival of frozen food now looks wobbly again, Nor is Nestle ignoring 36's strategy entirely: it is trying to trim expenses. \"We are very much in an investment position, not in a cost-cutting exercise,\" says Mr. Roger, \"but that doesn't mean that we don't want to be cost-efficient in what we do." One effort, which includes 10 Page 10 of 1 trimming waste at factories, is credited with saving about SFr1.Sbn (S l ,Sbn) a year. Last year Nestle announced organizational changes, such as consolidating procurement, which will save about SFr2bn each year from 2020. Whatever else Mr, Schneider has on the menu for Nestle, radical changes may be somewhat limited by the fact that so many of those who built it into what it is now are sticlu'ng around, Mr. Bulcke became the rm's chairman. The outgoing chairman, Peter Brabeck- Letmathe, a former Nestle chief executive, may become honorary chairman, Mr, Bulcke, for one, seems sure that the company should maintain its emphasis on the long term. He taps his hand on the table, rattling some Nespresso cups, as he insists that growth is still the key. Nestl gives a avor of the future (December 2020) Mr Schneider, a straight-talking German with an American passport and a fondness for quips, is the perfect foil for bossy hedge funds. He is not prone to panic. But nor is he complacent. He came from outside the food industry, so sees it with fresh eyes. He canied out what Martin Deboo of Je'eries, a bank, calls \"the chief-executive version of Blairisni\pandemic And Nestle is not immune to industry-wide problems, Growth is slowing in emerging markets as people there spend less on ingestible treats and more on digital goods Moreover, low incomes among the young will dampen their appetite for premium products. In a recent Zoom meeting held amid stockrnarket euphoria about the prospects for a covid-l9 vaccine, he was cautious. As a former healthcare executive used to handling cold chains, he expressed doubts about the ability to distribute vaccines at the required temperatures, especially in the developing world. The longer it takes to spread the vaccine, the higher public debts will pile up, potentially casting a \"long shadow" over the 20205. On top of that, he notes, a demographic challenge is looming with rising numbers of elderly requiring medical care \"I'm quite muted in my outlook,\" he admits. But Nestle, in more than 150 years of history, has survived worse. Questions 1. What type of organizational structure does Nestle take? Is this structure worldng well for Nestle? 2, What's Nestle's positioning in the market, Health company, Food company, Nutrition company, or else? How should Nestle communicate its positioning? 3, Which growth strategy does Nestle take, organic growth or acquisition-based growth? How do you evaluate the two growth strategies? . Is home-grown CFO better or an outside CEO working better for Nestle? The pros and cons of home-grown CEO',l . What's Nestle's business diversication strategy, product-related or -unrelated7 Is the diversication strategy working well? . What are those challenges that Nestle is currently facing? Your recommendations