Nestlé CEO Philipp Navratil took the helm at the Swiss giant with the world’s largest food maker facing intense scrutiny – and, four months on, that has only gotten worse in the opening week of the year.
The company is battling to contain the fall-out of an international recall of infant formula that has spread across dozens of markets and will have the market again questioning the company’s decision-making and communication.
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Nestlé, which has faced criticism over its infant-formula and baby-food business on a number of occasions over the years, has had to recall products from more than 60 countries because of a “quality issue” with an ingredient.
The company first put out a recall notice in December for specific batches of its Nan stage 1 formula in Europe as a precautionary measure following the detection of the Bacillus cereus bacteria.
However, the recall has been widened with formula also pulled from countries across Asia, the Americas and the Middle East.
“Following the detection of a quality issue with an ingredient provided by a leading supplier, Nestlé has undertaken testing of all arachidonic acid oil and corresponding oil mixes used in the production of its potentially affected infant nutrition products. No illnesses have been confirmed in connection with the products involved to date,” Nestlé says.
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By GlobalDataHowever, the SMA brand owner has faced accusations it delayed recalls and released information gradually. Meanwhile, industry analysts are already calculating the possible impact on Nestlé’s sales, with the situation likely to be at the top of the list of questions Navratil and CFO Anna Manz receives when the company publishes its 2025 financial results next month.
Consumer advocacy group Foodwatch, which says the oil was used in “around ten” Nestlé factories in Europe, argues the company “cannot be trusted”.
“Foodwatch has learned that contaminated peanut oil was used by around ten Nestlé factories producing infant formula in Europe, including in France. The group was aware of this at least since early December,” Foodwatch said in a statement yesterday (8 January).
“It is inexplicable that Nestlé delayed recalling products intended for babies and chose to release information piecemeal, nearly a month after becoming aware of the bacterial contamination. This is further proof that this multinational’s traceability is unreliable and that Nestlé cannot be trusted.”
Just Food has put those comments to Nestlé.
“As Nestle knew about the contamination since at least December 9, how come the massive recalls concerning over 60 countries only happen this week?” a Foodwatch spokesperson told Just Food. “Only a few countries were informer in December as [EU food-alert system] RASFF shows. “The important info is also that over ten Nestle factories have used the problematic ingredient. Again, then why wait almost a month to inform consumers?
Analysts at Jefferies have calculated the risk to Nestlé’s sales could amount to around SFr1.2bn ($1.5bn). That equates to 1.3% of the Swiss giant’s total sales but it will still frustrate Navratil, who will see the situation as a headache he doesn’t need as he settles in after only a matter of months in the hot seat.
Nestlé has said the product recall represents “significantly less than 0.5% of annual sales”.
David Hayes, an equity analyst covering Nestlé at Jefferies, said the revenue generated from the original sales of the products will remain unchanged but adds: “We expect the costs arising from the recall – refunds, replacements, logistics – to be treated as expenses within COGS, we think in Q1. The lost sales due to longer term consumer concern on the brand safety could weigh on sales and associated profit this year.”
Hayes says the impact from recalls on shopper behaviour does vary by market. Citing a “false alarm” recall of Danone’s Dumex brand in China in 2013, he notes the episode cost the French giant around €800m ($931.2m) in lost sales.
“When Abbott recalled some of its Similac brand in 2010 and in 2022 in the US, the brand market share recovery was achieved within about a year,” he explains.
Food safety is critical in any market but history shows shoppers in China can be particularly sensitive. The concerns back in 2013 over whether Dumex formula contained an ingredient that could cause botulism turned out to be unfounded but the scare came just five years after the high-profile melamine scandal that hit the reputation of the sector.
Bloomberg said yesterday officials in China are urging Nestlé to speed up efforts to recall formula sold in the country.
“If we were to assume all the impacted brands in China – circa SFr385m – were to never recover and the rest of the global sales of the brands took a year to linearly recover, we estimate that the total lost sales risk in 2026 could be circa 80 basis points.
“This assumes the broader brand equities are damaged in every market, beyond the sales directly affected/recalled. We would currently see this as representing a worst-case scenario for the sales impact at this time.”
With Nestlé still reeling from the scandal that led to the ousting of Navratil’s predecessor and facing a lot of work to restore investor confidence about its financial performance, one of the biggest recalls seen in the food industry in recent years could hardly have come at a worse time.
