Nestlé will boost advertising and marketing and trim costs by at least $2.8 billion by 2027 as it looks to drive growth under new chief executive Laurent Freixe, the company said on Tuesday.
The Swiss group will also carve out its water and premium drinks businesses into a standalone global unit.
Freixe took on the role in September when he replaced ousted Mark Schneider, who had disappointed investors for several quarters with weak sales volume growth.
Under Schneider, Nestlé gutted its marketing and advertising budget and invested less in innovation during the Covid-19 pandemic.
The repercussions of these decisions continue to weigh on the Swiss company’s revenue after shoppers switched to cheaper, better advertised or more innovative brands, eating into Nestlé’s market share.
Costs And Marketing
Nestlé – the owner of brands such as Nescafé and KitKat – said on Tuesday it aims to achieve cost savings of at least 2.5 billion Swiss francs ($2.8 billion) by 2027, in addition to rolling savings of around 1.2 billion Swiss francs.
It forecast medium-term organic sales growth to be more than 4% in a normal operating environment, and an underlying trading operation profit margin of 17%.
This is above the expected 2% organic sales growth for this year ending 31 December.
The company will increase investment advertising and marketing to 9% of total sales by 2025 to support growth, Nestlé said at its capital markets day event in Vevey, Switzerland.
The last time Nestlé spend this proportion of its sales on marketing was 2019.
Advertising and marketing expenses in 2023 were 7.7% of sales, an increase of 80 basis points from the previous year, according to Nestlé’s latest annual report released this year.
Vontobel analysts Jean-Phillipe Bertschy said on the changing focus, “It is definitely a first step in the right direction to restore sales growth. The additional cost savings is significant.”
'Fix, Rather Than Sell'
On Tuesday, Nestlé pushed back against the idea that its portfolio of more than 2.000 brands needs to be cut down.
Freixe said he wants to “fix, rather than sell the majority of” its underperforming business.
Finance chief Anna Manz added, “We don’t have a portfolio problem.”
Manz continued that the company wants to invest in organic growth.
Nestlé also said that it plans to carve out its water and premium beverages businesses into a global unit, starting 1 January 2025.
Bertschy said, “This is clearly a step to spin it off, maybe to private equity; all options on the table.”
Nestlé’s rival Unilever, which has also fielded criticism for having too many brands, announced in March that it planned to spin off its ice-cream business and has signalled its willingness to sell weaker brands.
Freixe has previously said that he wants to invest heavily in the company’s core brands like Nescafé and Maggi, which makes soups, sauces and noodles.
In a statement, Freixe said, “Our action plan will also improve the way we operate, making us more efficient, responsive and agile.
“This will allow us to deliver value for all our stakeholders.”
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