Nestle’s next challenge: Sating human appetites as much as pets

Published 18 Feb,2021 via Bloomberg News Service (Global Editions) - Nestle SA had an easier time selling food for pets than for people in 2020. To meet his promises for faster overall growth, Chief Executive Officer Mark Schneider needs to focus more on human appetites this year.

Sales of pet food surged 10% in 2020, the fastest in more than a decade, as stuck-at-home consumers adopted more cats and dogs. While that helped overall revenue accelerate, Schneider has yet to reach the mid-single-digit growth rates the company enjoyed five years ago. The stock fell as much as 1% Thursday, bringing its decline over the past year to 7.2%.

The world’s largest food company has struggled to get sales of chocolate to accelerate, and Nestle’s bottled-water revenue has plunged, suffering from lockdowns and social-distancing measures. The company this week sold underperforming U.S. water brands such as Poland Spring for $4.3 billion. Schneider said Nestle will focus more on premium products, which now make up almost a third of its total sales.

Schneider said sales growth will probably accelerate this year and could exceed 4%.

“Exceeding that bar in 2021 is not a slam dunk,” Schneider said on a call with journalists. “This is something we’re going to have to work hard for.”

Pet food is outperforming after Nestle consistently built up its market share over the past two decades, Schneider said. In most countries where statistics are available, Nestle is the biggest or second-biggest player, accounting for 20% to 30% of pet food sold.

Schneider said the business ticks all the boxes that Nestle wants to work on, such as premiumization, nutrition science and digital opportunities, but signaled not to expect big M&A.

“Expect solid organic performance, solid investments in capacity to deliver and also the occasional tuck-under acquisition here and there to advance our market position -- that’s our game plan,” Schneider said on a video conference.

China Weakness

Another weak point Schneider needs to address is China, the company’s second-largest market, where revenue declined on weaker demand for infant formula.

One area Nestle had more success in is frozen convenience meals, as the pandemic spurred demand for DiGiorno pizzas and Hot Pockets sandwiches, brands that had been underperforming in the past.

After the sale of U.S. and Canada bottled water brands to private equity firm One Rock Capital Partners, Nestle plans to focus on faster-growing high-end brands like Perrier and San Pellegrino.

This year, Nestle will put more emphasis on acquisitions in general, though it would be wrong to declare an end to potential divestments, Schneider said.

“We have a pipeline, and we’re interested in balancing the buying and selling in a much better way,” the CEO said.

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