Nestlé Eyes Premiumisation, Direct To Consumer Sales For Growth Analysis

By Steve Wynne-Jones
Share this article
Nestlé Eyes Premiumisation, Direct To Consumer Sales For Growth Analysis

Nestlé famously hasn’t posted a full year loss since 1922 - an indication of the world’s biggest food company’s ability to navigate through financial crises, world wars and countless government upheavals.

But that hasn’t stopped the business from occasionally disappointing.

This morning, Nestlé posted relatively lukewarm full year results, with reported sales rising by 0.4% to CHF 89.8 billion, and underlying profit rising 4.6% to CHF 3.55 billion.

However, reported net profit for the year stood at CHF 7.18 billion, a drop of 16% on the CHF 8.53 billion the company posted last year.

Its Europe, Middle East and North Africa business posted a 5.1% decline in reported sales growth, while the Americas was up 1.2% and Asia/Oceania up 2.0%.


Commenting, Mark Schneider said that while organic sales growth was within the company’s “guided range”, it fell “below our expectations, in particular due to weak sales development towards the end of the year. Sales growth in Europe and Asia was encouraging while North America and Brazil continued to see a challenging environment.”

Cutting Costs

Unsurprisingly, attention has turned to areas in which Nestlé can cut further costs from its operations, such as a potential sale for its Gerber Life Insurance business, which it acquired from Novartis in 2007, as well as the question of offloading its L’Oréal stake.

On the latter, Nestlé has said it will not extend its shareholder agreement with the business past this March, and does not intend to increase its 23% stake in the beauty business, a sign that some analysts believe indicates that Nestlé may be looking to exit.

The company has not confirmed whether this is or is not the case.


At the same time, Nestlé has a couple of tricks up its sleeve, with which it intends to spearhead growth.

Embracing Premiumisation

Nestlé CEO Mark Schneider has in the past stated that he believes the best defence is a good offence, and the company has made moves to embrace premiumisation as a means to counter sluggish growth in some categories.

According to its full-year results, premium products such as Nespresso and its Les Recettes De L'Atelier chocolate brand, now account for 21% of the group’s sales, up from 16% in 2014 and 11% in 2012.

Speaking to reporters this morning, Francois Xavier-Roger, Nestlé’s chief financial officer said, “We define premium products, depending on the category, as products with a price premium of 20% to 30% on the mainstream products in the category. The contribution of premium products almost doubled in the last five years.


“Premium products are important because they generate growth, and they contribute to margin improvement - we have a margin with premium products which is on average around 300 basis points better than the average of our products.”

Direct To Consumer

Nestlé also appears to more eager to bypass traditional retail channels in its quest for growth, with direct-to-consumer sales as a percentage of group sales, now standing at 7.9%, up from 6.6% in 2015.

As well as Nespresso outlets, Xavier-Roger also pointed to the introduction of standalone KitKat stores in Asia and Australia, noting that in Japan, direct-to-consumer sales are as high as 14%. Across its global water business, 15% of sales are now direct-to-consumer.

He said that DTC sales enable Nestlé to “better manage our brand, control the entire value chain and accelerate innovation”.


What this means for the group’s relationship with the retail sector remains to be seen.

Mergers & Acquisitions

Following its acquisition of vitamin firm Atrium Innovations last year, Nestlé has also not ruled out further M&A activity, but as Schneider confirmed in a call with reporters, the company sees a “sweet spot” more in the acquisition of small to medium sized businesses, something it expects to continue this year.

He added, however, that the company will “not rule out” larger acquisitions, should they present themselves.

Nestlé has proven itself adept in the past of navigating out of a tight corner, and while the spotlight will inevitably be on the company following its most recent set of results; there’s little reason to suspect why history won’t repeat itself, even if, initially, the road ahead seems a little bumpy.

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.