A logo of the food giant Nestlé
VEVEY (Reuters) -Nestlé will step up investment in advertising and marketing, further cut costs, split its water and premium drinks businesses to drive growth under new Chief Executive Laurent Freixe, said Tuesday the food giant.
Nestlé has been facing a slowdown in its sales for several months while price increases made in recent years in the face of the inflationary crisis have affected volumes. In July, general manager Mark Schneider was dismissed and immediately replaced by Laurent Freixe.
The group, which is holding an investor day in Vevey, Switzerland, on Tuesday, forecasts savings of at least 2.5 billion Swiss francs (2.67 billion euros) by the end of 2027, in addition to cost reductions already underway of around 1.2 billion francs.
In the medium term, Nestlé expects organic growth of more than 4% in a normal operating environment and an underlying profit margin of 17%. These figures compare to organic sales growth of around 2% expected for the fiscal year ending December 31.
Investments in advertising and marketing will be increased to 9% of total sales by the end of 2025 to support growth, the group said.
Advertising and marketing spending represented 7.7% of sales in 2023.
“This is undoubtedly a first step in the right direction to restore sales growth,” said Jean-Philippe Bertschy, an analyst at Vontobel, adding that the additional savings were significant.
INVESTMENT IN LEADING BRANDS
Nestlé also said on Tuesday that its water and premium drinks business would be spun off to become a standalone subsidiary from January 1, 2025.
“Our action plan will also improve the way we do business, making us more efficient, more responsive and more agile. We will thus be able to offer value to all our stakeholders,” said Laurent Freixe, managing director, in a press release.
Laurent Freixe, who has extensive experience at Nestlé, has made it his mission to regain market share and increase sales volumes in a difficult context and after the group reduced its marketing and advertising budget and has invested less in innovation during the COVID-19 pandemic.
The repercussions continue to weigh on the Swiss group’s turnover as consumers have turned to cheaper, better advertised or more differentiated brands.
Laurent Freixe said on Tuesday that the group wanted to invest heavily in its flagship brands, such as Nescafe and Maggi instant soups.
Nestlé told Reuters last week that its KitKat brand had signed a global sponsorship deal with Formula 1 and that the chocolate-covered biscuit brand’s marketing budget had been increased by almost 20% this year.
“For our brands to establish themselves on the market, we must invest,” declared Laurent Freixe.
(Report by Richa Naidu; French version Diana Mandiá; edited by Augustin Turpin)
