Nestle CEO says size matters even as focus narrows

Thu Jun 19, 2014 1:14pm EDT
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By Martinne Geller

PARIS (Reuters) - Nestle NESN.VX is trimming its huge range of businesses and pushing deeper into niche medical products to improve returns, but the food and beverage giant still likes its heft.

The world's largest consumer goods firm, with nearly $103 billion in sales, has benefited from its diversity, with products ranging from Gerber baby food and Nescafe coffee to Kit Kat chocolate and Maggi soups.

But last year Nestle missed its long-term forecast for sales growth of 5 to 6 percent. And many analysts think that even with investments in faster-growing areas like medical nutrition and dermatology, Nestle is just too big to move the needle.

Its market value of $248 billion is 15 percent larger than the No. 2 consumer products firm, Procter & Gamble (PG.N: Quote), and compared with other food makers, Nestle is 86 percent bigger than its nearest rival Unilever (ULVR.L: Quote), according to Thomson Reuters data.

In an interview with Reuters this week, CEO Paul Bulcke defended the company's structure, saying it allows Nestle to scale up functions such as research and development that aid the entire group. Size works well, he said, as long as the front end of the businesses can operate independently.

"That’s the capability of a company to be very central in certain dimensions and decentralised in others," Bulcke said. For example, research at its health sciences unit, which makes nutritional products for sick people, could help the food division, he said, such as by improving the process of iron fortification, used in baby food and in stock cubes in Africa.

"There is quite a lot of gravity that keeps it together," he said on the sidelines of the annual summit of the Consumer Goods Forum, a network of some 400 retailers and big brands from 70 countries.

Bulcke said Nestle's R&D budget is increasing with its expansion into dermatology products but he declined to say by how much. “It’s more intensive ... It is definitely moving quite dramatically," he said.   Continued...

Nestle CEO Paul Bulcke gestures during his company's news conference in New York October 22, 2010.  REUTERS/Brendan McDermid