By Richa Naidu
VEVEY (Reuters) -Nestle will boost advertising and marketing, trim costs by at least $2.8 billion by 2027 and carve out its water and premium drinks businesses into a standalone global unit as it looks to drive growth under its new chief, the company said on Tuesday.
CEO Laurent Freixe, who has worked with the company for nearly 40 years, took the reins in September, replacing ousted Mark Schneider who had disappointed investors for several quarters with weak sales volume growth. Under Schneider, Nestle (NS:) gutted its marketing and advertising budget and invested less in innovation during the cost-heavy COVID-19 pandemic.
The repercussions continue to weigh on the Swiss company’s revenue after shoppers switched to cheaper, better advertised or more differentiated brands, eating into Nestle’s market share.
The world’s biggest food company said on Tuesday it aims to achieve cost savings of at least 2.5 billion Swiss francs ($2.83 billion) by 2027, in addition to rolling savings of around 1.2 billion Swiss francs.
Nestle forecast medium-term organic sales growth to be more than 4% in a normal operating environment, and an underlying trading operation profit margin of 17%. That compares to organic sales growth of about 2% expected for the year ending Dec. 31.
The company will increase its investment in advertising and marketing to 9% of total sales by 2025 to support growth, Nestle said at its capital markets day event in Vevey.
Advertising and marketing expenses in 2023 were 7.7% of sales, an increase of 80 basis points from the year before, according to Nestle’s latest annual report released this year.
“It is definitely a first step in the right direction to restore sales growth,” Vontobel analyst Jean-Philippe Bertschy said. “The additional cost savings is significant.”
Nestle also said that it plans to carve out its water and premium beverages businesses into a global unit starting Jan. 1, 2025.
“This is clearly a step to spin it off, maybe to private equity; all options on the table,” Bertschy said.
Freixe has said that he wants to invest heavily in the company’s core brands like Nescafe and Maggi, which makes soups, sauces and noodles.
“Our action plan will also improve the way we operate, making us more efficient, responsive and agile,” Freixe said in a statement. “This will allow us to deliver value for all our stakeholders.”
Nestle told Reuters last week its KitKat brand had signed a global sponsorship deal with Formula 1, and that the marketing budget for the chocolate wafer biscuit brand was raised nearly 20% this year.
“For our brands to win in the market, we need to invest,” Freixe said on Tuesday. “We will generate the resources we need through efficiencies and growth leverage.”
($1 = 0.8835 Swiss francs)
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