As consumer habits continue to trend towards eating healthier and shopping online, Nestlé’s new CEO will have to think outside the box.
150-year-old Swiss food giant Nestlé welcomed a new Chief Executive, Ulf Mark Schneider, on January 1. In hiring a CEO, the company went a decidedly different way this time around: Schneider is the first outsider to take the job since 1922. Further, his background is not in food or consumer goods, but healthcare. He is the former CEO of German firm Fresenius, which provides kidney dialysis products and services.
Nestlé’s choice of chief hints at one of its biggest concerns in adapting to the industry’s current upheaval. As consumers increasingly look for healthier fare, they are finding it with a host of small firms, many selling online. Big CPG companies lost three percentage points of market share in the US from 2011 to 2015, according to the Boston Consulting Group. Nestlé has often missed its goal of 5-6% sales growth, reporting only 3.2% in the most recent quarter.
To keep Nestlé competitive, Schneider will need to devise new ways to market and deliver its vast portfolio of brands and products. The company will also need to sway consumers from increasingly popular discount stores, such as Germany’s Aldi supermarket chain.
Another threat to large firms in the CPG sector is 3G, the Brazilian private equity firm behind the merger of Kraft and Heinz in 2015. It has been targeting big, slow-growing food and drinks companies, buying them out and drastically cutting costs. This has made cost-cutting a priority at many firms looking to shore up their defences.
For the moment at least, Nestlé is putting the emphasis on longer-term investment strategies, according to The Economist. Outgoing Chief Executive Paul Bulcke and his colleagues contend that “investment in health and related innovation will produce strong growth for years to come”. The choice of Schneider as CEO underscores this belief.
At present the company only dabbles in healthcare-related investments; for example its Nestlé Health Science business unit, which sells nutritional products, contributes less than 5% of revenue. Nestlé also has a research institute, and it has invested in young drugs firms. However, none of these is expected to yield growth in the near term. Efforts to make its current offerings healthier, such as its creation of a “new sugar” announced last year, could be a better bet.
Regardless of what form change will take at Nestlé, Schneider will likely run into difficulty bringing about anything radical as long as the old guard remains. Outgoing CEO Bulcke is expected to become Chairman – and he remains steadfast in the belief that the company should keep its emphasis on the long term.