Nestlé, the world’s largest food maker, has witnessed a dramatic drop in its sales trajectory. In 2016, the company’s organic growth rate slowed to 3.2% - its lowest level in two decades. Although Nestlé noted that this still compares favourably with many of its peers, for time being at least, the Maggi-to-KitKat manufacturer was forced to abandon its so-called ‘Nestlé model’, which calls for organic growth of at least 5%.
Nestle does not, however, want to accept this lower level of growth for long. The company revealed yesterday that it wants to be delivering mid-single-digit underlying growth by 2020 with a strategic focus on food and beverages.
In order to improve its fortunes – particularly in stagnant markets like Europe – Nestlé management shared some key consumer trends that it now hopes to capitalise on.
1. Natural is king
Consumer expectations are “holistic, multi-dimensional and intertwined”, Patrice Bula, EVP of strategic business units, marketing and sales, told analysts. What binds these divergent consumer attitudes is an overwhelming trend towards “naturalness”.
Being relevant to a “new generation” of consumers means offering products that provide “clean recipes” made from natural ingredients that are traceable and authentic, he suggested.
This is a massive opportunity, Bula stressed. Citing figures from Euromonitor International, the executive noted that foods and beverages that are “naturally good for you” generate annual sales of €170.4bn (CHF195bn) and are growing at a rate of 3% annually.
Nestlé plans to shift its entire portfolio to a more natural footing. “The core strategy is to bring this new dimension in the… core of our core brands,” Bula explained.
“We believe our core brands – our billionaire brands, our local brands, our regional brands - have the authority to deliver this natural dimension.”
Where Nestlé wants to drill down into a “very specific” trend or channel, the company will launch new brands – sometimes under the umbrella of its existing core brands.
Finally, where the company identifies an opportunity to expand in the space it will look at M&A to take control of what it calls “born pure” brands, such as its recent acquisition of Sweet Earth Foods in the US.
“Organic is all about sourcing the right ingredient and the integrity of the supply chain,” Bula observed.
The organic market is valued at €16.6bn (CHF19bn) and is growing at a rate of 4% per annum, according to Euromonitor. Nestlé’s organic sales are growing at a considerably faster pace. Currently, organic sales are worth about €175m (CHF200m) to the Swiss group and it is witnessing a compound annual growth rate of approximately 13%.
This is being achieved by adding organic-certified SKUs to some of its largest brands, such as Buitoni pasta and sauces or Gerber baby food.
In this way, “integrating organic as part of our brand offer” is driving the growth of Nestlé’s blockbuster brands, Bula added.
Nestlé believes that gluten-free is not only a trend on the up – it is also a trend that is “likely to stay”.
Euromonitor values the global gluten-free market at CHF3.6bn and the sector has a growth rate of 12%. Nestlé’s gluten-free sales are reaching “close to” CHF500m in sales and growing at 9%.
The company believes it can steal share from the pure-play gluten-free players moving forward through a focus on product quality.
“With gluten-free the main issue for the consumer is taste. We have done a lot of work to win 60-40 in blind taste tests… We believe people. While there is no scientific evidence to show gluten-free will make you feel better… We see no reason why we should not offer this in our dough and pasta business and also in cereal.”
Lactose-free is also experiencing a “revival” and Nestlé is adding to its brands, such as Häagen-Dazs ice cream to reflect this. Nestlé’s lactose-free sales are currently growing at 20%.
4. Reduced sugar
However, while some areas of the free-form category are witnessing stellar growth, overall global free-from and ‘reduced’ sales are down 1%, Euromonitor data suggests. Bula attributed this to contradictory consumer attitudes to sugar reduction.
While people should be eating less sugar – and Nestlé has committed to bringing down the level of sugar in its products in line with WHO targets – they are less keen on artificial sweeteners, which fly in the face of demand for natural ingredients.
Here, too, Nestlé believes it has the answer. The group is rolling out its “breakthrough”, “all-natural” proprietary technology: a sugar that is structured differently so that it is faster dissolving, essentially delivering more sweetness for less sugar content. This will offer a 30% sugar reduction and products should hit the market in the next 12- to 18-months.
The company is also introducing products that are less sweet, Bula said. “These products have a lower sugar profile, a lower sweetness profile, than we have had before. This is what we believe we have to do to help children develop less of a sweet [tooth].”
5. High protein
Once the preserve of body builders, Nestlé has noted with interest that high protein has gained mass appeal beyond its predominantly male target audience.
Responding to this, in Europe the company rolled out high protein Fitness granola in 2016. Other markets, such as Australia, have seen the introduction of high protein Nesquik and Milo options, while the US business has introduced high protein FitKitchen bowls.
The next frontier for high protein is ice cream, Bula predicted. “What we will do next year is ice cream with high protein [content], we will be this ready next year.”
According to Bula’s assessment, plant-based products appeal to three consumer groupings: flexitarian, vegetarian and vegan. Nestlé is most interested in courting the former because it represents the most people but, Bula noted, all of these consumer groups are on the rise.
As Nestlé works to extend its presence in this sphere, the company is leveraging innovation in its core brands. It has introduced items such as Coffeemate made from almond milk and dairy-free ice cream.
The company is in the process of rolling out the Garden Gourment snack and centre plate brand across Europe, while Herta is offering what Bula termed “meat analog” products in the region.
“We want to bring a vegetarian offer to consumers in Europe and the western world and ride on this trend that we believe is here to stay and amplify.”