Nestlé SA has suspended its goal of annual sales growth for at least the next three years, as the Swiss processed food giant struggles with the rest of the industry against extremely low inflation and rapid changes in taste Of consumers.
The global giants of consumer goods, once largely isolated from the vagaries of economic times, have sought to increase their sales to combat a series of pitfalls. The slow growth of sales in recent years has forced Procter & Gamble Co. to reduce costs and operations. A few days ago, the activist fund Trian Fund Management LP announced that it had acquired a stake in P & G, highlighting the urgency of a restructuring.
Unilever PLC, meanwhile, released a deceleration in underlying sales last month, an indicator that does not factor in the effects of the exchange rate and acquisitions. Kraft Heinz Co., meanwhile, said on Wednesday it sees more savings than previously projected in the face of declining revenue growth.
Each company faces different challenges in a number of markets and product categories. All of them, however, are affected by similar difficulties that are beyond their control: strong competition in many of their most important markets, violent changes in currencies that have affected their costs, difficulty in raising prices in an environment characterized by Low inflation and changing consumer tastes.
In the case of companies like Nestlé, which are more concentrated in packaged foods, consumers demand healthier products that have not been sales engines.
In the midst of these challenges, Nestlé CEO:
Nestlé CEO Mark Schneider announced Thursday that he has suspended the goal of organic sales growth – which does not include currency fluctuations, acquisitions and divestitures – of between 5% and 6% a year, which The company was not close to meeting in 2016 and other years. Milk maker Nido, instant coffee Nescafe and pet food Purina, among other brands, reported on Thursday that organic sales just jumped 3.2% last year, down from 4.2% in 2015.
This is the fourth consecutive year that the company has not met its sales target as well as the meager growth since Nestlé set the goal two decades ago.
Nestlé had become in recent years a kind of model that all consumer products companies sought to emulate because of their good performance after the financial crisis of 2008. In recent months, however, their action has been below Of those of other companies in the sector and last year registered a decrease of more than 2%, compared with a rise of 7.4% in the European consumer goods index of the Stoxx 600.
Schneider, who took office on January 1, said the company’s new, more flexible goal was to achieve organic growth of around 5% instead of the specific target of 5% to 6%. The new, more imprecise target, in any case, will only be considered from 2020. “It is a suspension of that model,” Schneider said in an interview. In the next three years, “we do not want to measure ourselves against that,” he explained.
The executive added that Nestle needs “time to address some of the deflationary trends we are looking at and we also need time to adjust to some of these very fundamental changes we have witnessed in the consumer goods industry.”
Schneider said that going shopping will not fix the situation. Nestlé is not looking for a major acquisition in the near future, he said, referring to the “fairly high valuations” in the sector. Instead, the company said it will deepen cost reductions, which “will greatly increase the costs of restructuring” in order to remain profitable.
Nestlé has moved on several fronts to adjust its product lines to the tastes of consumers. It has eliminated the sugar content and changed the advertising strategy of Nesquik, in addition to implementing new recipes in its frozen food subsidiary. The company has made major investments in nutrition and health sciences. The division, which contributed 17% of sales last year, remains small compared to traditional businesses such as beverages and prepared foods.
The appointment of Schneider – which comes from the German health firm Fresenius SE – as chief executive highlights the urgency of making changes. He is the first external executive to lead the group in almost a century and brings his extensive experience in the health sector, where Nestlé foresees its future. “In general, the share of these products over time will increase,” he said.
It is unlikely that there will be a marked improvement in 2017, however, a year in which Nestlé expects organic sales to increase by between 2% and 4%.
The company said Thursday that its sales amounted to 89.47 billion Swiss francs (about $ 89 billion), a slight increase over 2015 but slightly below analysts’ estimates.
Net profit, in turn, reached 8.5 billion francs, down from gains of 9.1 billion francs in 2015 and well below the 9.5 billion francs awaiting analysts. Last year’s profit was affected by an accounting charge of about 500,000 francs linked to local taxes.