“Over the last few years, we have done a lot of work to position our portfolio for sustainable mid single-digit growth” in the range of 4-6%, Nestle SA CFO Francois-Xavier Roger told investors at the Consumer Analyst Group of New York’s annual meeting late last week.
While he acknowledged this is less than the “exceptional” 7.5% jump delivered in fiscal 2021, he noted it is in line with the steady year-over-year increases delivered since 2017 when organic sales grew 2.4% followed by 3% the next year and 3.5% and 3.6% in 2019 and 2020.
He explained that a key factor in the company’s transformation and market share gains has been reshaping Nestle’s portfolio to focus on fast-growing categories within food, beverage and nutritional health, including coffee, pet care, health science and plant-based, which now represent more than half of the company’s sales compared to a third in 2021, and an even greater portion of the underlying trading operating profit.
“We have also significantly shifted our portfolio towards premium products, where we see faster growth, higher margins and better protection from commoditization,” Roger said, noting that today premium products represent 35% of Nestle’s sales versus 11% in 2012.
Mergers, acquisitions and divestitures have played a significant role in reshaping Nestle’s portfolio, including a steady stream of more than 85 transactions in the past five years to account for about 20% of the company’s business.
These include heavy-hitters in plant-based like Sweet Earth, coffee brands including Blue Bottle Coffee and Starbucks, and functional beverages and ingredients, including Vital Proteins.
Other “significant” deals include the transformation of the company’s global water business, including the sale of mainstream waters in North America and acquiring Essentia functional water.
“We also continue to build Nestle Health Sciences into the leading global nutrition and health platform through targeted acquisitions, including core brands of Bountiful Company in [vitamins, minerals and supplements]and Nuun in functional hydration,” Roger noted.
Acquired businesses since 2017 have grown on average 18% and contributed 80 basis points to the company’s organic growth.
“Acquisitions and divestitures have also supported our margin expansion, contributing around 30% of our progress since 2017,” Roger said.
Innovation and premiumization are central to growth
Nestle’s portfolio “evolution” is not due only to M&A and divestitures, “but also through significant developments in our existing business from innovation to premiumization,” Roger said, noting there has been a “major shift” in how the company approaches innovation.
He explained: “We have significantly reduced the time to market to capture consumer trends faster. To translate science into products more quickly, we use enhanced prototyping capabilities in our R&D centers and we fund fast-track projects.”
Last year alone, Nestle fast-tracked more than 60 projects that resulted in launches in less than a year, he said.
When it comes to innovation, Nestle is focused on premiumization and offering new benefits as well as affordable options. Adding more plant-based options is another focus resulting in more offerings through existing brands, such as Stouffer’s, and “born-pure brands” like Garden Gourmet.
‘Data and technology are a key driver to accelerate growth’
The last major lever that Nestle has used to reshape its portfolio is digitalization which Roger explains “plays many roles, both in winning where our consumers and shoppers are, but importantly in enabling a sustainability transformation with technology for speed and scale.”
For example, focusing on digitalization has helped the company expand its ecommerce business to about 14% of sales in 2021 compared to only 3% in 2012.
Through these efforts, Nestle’s portfolio is more sharply focused and better positioned to deliver higher sales than pre-pandemic sustainably for years to come, Roger concluded.