Dive Brief:
- Nestlé is planning changes to its organizational structure and executive board as the Hot Pockets and Tombstone manufacturer struggles with slowing sales growth. Among other changes, the food and beverage maker plans to reduce the size of its executive board, merge its Latin America and North America units, and combine its Greater China segment with its Asia, Oceania and Africa zone.
- Laurent Freixe, who took over as Nestlé’s CEO in September, said “a leaner Executive Board structure and close collaboration of the leadership team at the headquarters will increase simplicity, speed up decision-making and strengthen the momentum behind global initiatives.”
- The changes come as Switzerland-based Nestlé cut its sales guidance for the full year to 2%, compared to a previous forecast of at least 3%, and warned of sluggish consumer demand. Growth of 2% would be the lowest annual rate since at least the turn of the century, Bloomberg noted. Nestlé previously lowered its organic sales growth target in July.
Dive Insight:
Food and beverage companies have felt the impact as cash-strapped consumers cut back on spending, but it has been particularly hard at Nestlé.
In an interview with The Wall Street Journal, Freixe said Nestlé would offer more discounts and cut prices to attract shoppers to its products, which include Lean Cuisine, Nespresso and Blue Bottle coffee. He said consumers everywhere are aware of high prices, but it’s especially evident in the U.S.
“Consumer demand has weakened in recent months, and we expect the demand environment to remain soft,” Freixe said in a statement.
In North America, which accounts for more than a quarter of Nestlé’s sales, organic growth declined 0.3% for the nine-month period to 18.5 billion Swiss francs ($21.4 billion). The packaged goods company said competition was particularly “intense” in frozen food. Nestlé posted market share gains in the region in pet food and coffee, with losses in frozen pizza and coffee creamers.
In the third quarter, Nestlé reported that pricing in North America was negative, with the promotional environment returning to pre-Covid levels as companies seek ways to attract and retain shoppers.
The decision by the newly appointed CEO to overhaul Nestlé’s structure shows he’s wasting little time in making changes at the global food company. Improving decision-making and streamlining the business should make it easier for the company to respond quickly to challenges.
A major selling point in selecting Freixe was his position as a company insider who knew its portfolio and what changes needed to be made. Still, with consumers buying less, competitors cutting prices and other global challenges weighing on its business, he will have his hands full in righting the food giant.
After pulling back on innovation, Nestlé has stepped up spending on its core portfolio and launched new products aimed at consumer trends, including a line of food for consumers using GLP-1 drugs. Nestlé, which in recent years has sold water, ice cream and confections businesses in the U.S., is reviewing its portfolio, Freixe told analysts. This raises the possibility of further sales of slower-growing or non-core businesses.
