Nestle revamps infant foods operation to spur growth

Nestle, the world’s largest packaged food firm, said it would reorganise its infant nutrition business to improve performance, five months after the new CEO listed the category as one of its priorities for growth.

The Swiss maker of Gerber baby food and Illuma formula will appoint regional managers for the business to address local trends faster. Rival Unilever took a similar step, with business heads for different countries.

The changes come as global consumer goods groups like Nestle, Unilever and Procter & Gamble are under intense investor pressure to boost profit margins as sales slow from people migrating to smaller, independent brands.

Infant nutrition is a key battleground for Nestle and its rivals Danone and Reckitt Benckiser, which bought Enfamil infant formula maker Mead Johnson.

Big established brands still retain consumer trust that they have lost in other areas of packaged food, particularly in China, a major focus for future growth due to growing affluence and a policy to allow two children per family instead of one.

Nestle has come under pressure to shift gear from activist shareholder Third Point, which in June revealed a $3.5bn (€2.98bn) stake. Nestle has satisfied some demands, such as by buying back shares and setting a margin target.

Nestle said it would manage some areas of infant nutrition globally via a “strategic business unit” for innovation, quality management, compliance and global manufacturing capacity.

But it scrapped the role of a global nutrition head to be replaced by three regional business heads. Current Nutrition head Heiko Schipper leaves at the end of 2017, to lead Bayer’s consumer health unit.

Nestle already manages most of its businesses regionally, with the exception of a few areas, such as bottled water, Nespresso, Nestle Health Science and Nestle Skin Health.

“The new organisation will allow Nestle’s infant nutrition business to deliver accelerated organic growth and realize further efficiency gains,” Nestle said.

Nestle is the world’s biggest infant formula maker, with about 22% of the market last year, according to Euromonitor. It is also the leader in the key Chinese market, which is changing rapidly due to the rise of “mum and baby shops” and new federal regulations that go into effect in 2018.

The market has temporarily slowed before implementation of the new rules as wholesalers and retailers reduce stocks, but Danone said strong sales in China contributed to a 4.7% rise in underlying third-quarter like-for-like sales. Nestle shares are up about 15% this year.

Reuters


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