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Wednesday, 18 January 2017

Nestlé holds 20% of the global market, but has grown slower it wants

Acquisitions such as the Bonjorno buyout in Egypt announced yesterday could be a key feature of Nestlé’s business model going forward as the global giant looks to make up for having missed its global growth targets. The Economistnotes that Nestlé has been missing its sales growth targets of 5-6% in the past few years. This is part of a bigger trend as “changing consumer tastes explain some of these shortfalls. So does a shifting retail landscape.” In other words, Nestlé’s vast portfolio of products has become harder to manage. The company still holds 20% of the global market across the whole range of its products, but The Economist poses questions about how new CEO Ulf Mark Schneider, who took office on 1 January, will deal with slow growth concerns. “He is the first outsider to get the top job since 1922, and his background—running a healthcare firm, not selling chocolate bars or frozen pizza—suggests the main source of worry for the business.”

A threatening trend is manifested by companies like Brazilian private equity firm 3G which buys slow-growing food and drinks companies and cuts their costs, as it did with the merger of Kraft and Heinz in 2015. However, Nestlé differentiates itself from this business model. “We are very much in an investment position, not in a cost-cutting exercise,” says François-Xavier Roger, Nestlé’s chief financial officer, “but that doesn’t mean that we don’t want to be cost-efficient in what we do.”

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