The recent failure of LC1 Go! in Europe has put a severe dent in Nestlé’s ambitions to expand its foods into ‘the fields of nutrition and consumer well-being.’ Dr Michael Heasman and Julian Mellentin explain that the failure is symptomatic of the company’s inability to get to grips with the business of food, health and nutrition.
Nestlé‘s probiotic strategy looks to be in tatters after its flagship LC1 Go! (a probiotic fermented milk drink targeted at digestive health) was withdrawn in both France and the UK – two of Europe’s three biggest food markets. Yet just two years ago Nestlé’s annual management report was describing Go! as an innovation “strengthening Nestlé’s position in Europe” and pinning its future functional food strategy on success in probiotics. It is a strategy which now looks more like wishful thinking than market reality.
Go deeper with GlobalData
LC1 Go!, a dairy drink, fermented with Nestlé’s La1 probiotic culture, offered digestive health benefits, and was sold in 80ml bottles. The brand is a variant of the company’s LC1 eating yoghurt, first launched in France in 1994. Go! was launched in 1998 in belated response to the success of fermented milk drinks – sold in “little bottles” of, for example, 65ml – made by Japanese company Yakult and French dairy giant Danone.
While LC1 yoghurt became a success in France, at one stage commanding 25% of the French probiotic yoghurt market, LC1 Go! has never fulfilled expectations. By March 2000, two years after launch, Go! commanded just a 3% share of 
the French probiotic drink market. Danone’s Actimel dominates with an 87% share. Yakult, by contrast, which entered France in a limited basis in 1999, selling only in two regions has already taken a 3% share – and growing.
Go! performed poorly in the UK, achieving just a 5% share of a US$60m category in 2000. Rivals Yakult and Danone boast shares of 56% and 39% respectively.
In France the giant Carrefour supermarket group was the first to de-list Go! and the product has now been withdrawn completely. In the UK it is no-longer listed with Tesco and Sainsbury – the UK’s two-biggest retail chains – and its complete disappearance from UK supermarket shelves is expected soon.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataNestlé fails twice in UK
Nestle has been further embarrassed in the UK by the failure of the LC1 set eating yoghurt, which was also recently withdrawn from sale. This isn’t the first time that Nestle has failed with LC1 in the UK. The first attempt to introduce LC1 yoghurt was made in 1996, but it was withdrawn a year later after disappointing sales.
Failure of the brand cannot be blamed on price. The yoghurt is priced at a premium of around 25% to “regular” yoghurts, a similar premium to other probiotics, while Go! is sold at a discount to rival Yakult. One reason may be the Nestlé brand itself, which consumers associate primarily with ice cream and indulgent dairy desserts – hardly the basis on which to build a health-based brand.
More significantly the failure is an indictment of Nestlé’s marketing strategy. The company has spent millions of dollars on print and TV advertising in both France and the UK. Nestlé invested heavily in marketing its LC1 functional brand
just as if it were any other kind of food – ignoring the now-ample evidence that successful functional products require a more complex and subtle approach. Yakult, for example, says that less than 50% of its sales result from “traditional” advertising activities, the balance comes from its highly successful strategy of communicating directly with consumers – often face-to-face – providing interested consumers with educational materials about digestive health, such as its “Guide to the Gut“, of which it has distributed 350,000 copies in the UK alone.
Market history
The European “little bottle” market in which LC1 Go! competes did not exist in 1995. Its inception came with the advent of Japan’s Yakult Honsha, whose 65ml milk drink, based on L. casei Shirota and sold in packs of seven, had been on the market in Japan since 1955. Yakult launched in the Netherlands, Belgium, the UK and regionally in Germany and five years later is selling over 600,000 bottles a day in those countries, thought to be worth around US$80m annually. Around the world Yakult sells over 26m bottles every day in 18 countries.
Rival Danone was quick to see the potential of the concept and in 1995 year brought out its competing Actimel product, which is thought to have total sales of around US$180m in France, Italy, Spain, Germany and the UK. Actimel is a 100g drinking yoghurt based on L. casei Immunitass, a probiotic developed by Danone’s own R&D centre.
Nestlé was late to market – in 1998 – compared to its rivals. LC1 GO! is sold in 80ml bottles in packs of six, and based on Nestlé’s own probiotic, L. johnsonii La1. Although LC1 Go! has done well in Italy and Germany, where Nestle is a credible dairy brand for consumers, it has disappointed elsewhere. Even in Nestle’s Swiss “home” market it has barely scraped a 5% share against smaller rivals.
Nestlé failing in functional foods
As the world’s biggest food company Nestlé has the potential to be the world’s most-successful functional food company. The company’s stated goal is in fact to focus on expanding “in the fields of nutrition and consumer well-being,” to quote CEO Peter Brabeck, speaking at the company’s recent announcement of its third-quarter results. The company even has a Nutrition division reporting directly to the CEO. Yet Nestle’s performance in the marketplace underscores the huge gap between the picture presented to the financial community and the reality. In fact Nestlé is at risk of becoming one of the “also-rans” of functional foods.
In Europe its only functional brand of any significance is LC1 and the company has apparently been unable to sustain or build on its early success.
In North America Nestlé has gone as far as an abortive test-market of an LC1 supplement – yet rivals Danone and Yakult, to name but two, are pressing ahead with their probiotic strategies. Nestle may find itself left behind in the US probiotic market, just as it has been in Europe.
In fact the only major brand in Nestlé’s functional portfolio is one which it didn’t even develop itself – the Power Bar energy bars business, acquired earlier this year for a rumoured US$350m (Nestlé would not disclose the price tag).
And although Nestlé-branded breakfast cereals like Cheerios, carrying a “heart health” claim based on whole grains, are doing well in Europe, even this nutrition marketing is not a Nestlé creation, but has been adopted wholesale from the company’s breakfast cereal partner, General Mills, which successfully pioneered the whole-grains and-heart-health strategy in the US.
Nestlé has a core competence in food science – its R&D centres in Switzerland and elsewhere have an impressive international reputation and are a galaxy of skilled food developers. The difficulty appears to come in translating ideas from the lab to the market. Insiders say that one of the company’s main problems is the “disconnect” which exists between R&D and marketing, a product of an organisational structure which sees marketers focused on the short-term in their immediate patches. The failure of LC1 Go also reveals that few of Nestlé’s marketers have learnt about the new challenges and skills required in nutrition marketing. Until they do, the R&D function’s excellent NPD work is likely to go to waste with the company witnessing many more failures.
Nestle is as far as it has ever been from its goal of becoming a force in functional foods. It can either buy its way into brands – as it did with the Power Bars acquisition – or it can give its marketing function a long-overdue culture and skills overhaul. With health and nutrition marketing the agenda-setting driver for the food industry for the coming decade, if not longer, Nestlé needs to do something. It current inability to get to grips with the business of food, health and nutrition is something which should give the company’s shareholders pause for thought.
| THE LC1 STORY – A SNAPSHOT The functional yogurt LC1 resulted from Nestlé’s desire to capitalise on its huge base of knowledge and experience with lactic acid bacteria. From 1989 the Nestlé R & D centre in Lausanne spent five years identifying health-promoting strains of bacteria within its collection of bacteria used in the manufacture of fermented milk products. From this development work they were able to identify a strain with scientifically demonstrable probiotic benefits, which they called Lactobacillus johnsonii, but branded as LC1. France first success for LC1 Nestlé successfully transformed the French probiotic category. Launched in September 1994, Nestle LC1 was an immediate success and had a dramatic impact on the French probiotic market and on Danone, whose share fell from 70% to 60%. LC1 succeeded immediately for three reasons:
Between 1994 and 1996 the segment grew at around 15% per annum, driven by the combined FF100m (US$16m) marketing communications spending by the three leading brands. Marketing Bio became Danone’s single biggest investment. Nestlé spent around US$8m on LC1 and for their money conquered an 11% share of the probiotic sector within a year from launch. The war which waged between Nestlé and Danone in press and TV advertising stimulated consumer interest and even benefited Besnier (now called Lactalis), whose B’A had by the end of 1996 taken a 19% share. By 1997 Nestle LC1 was sitting on an estimated 25% share of the 100,000kg French probiotic yoghurt business, equivalent to 12% of the total French market by volume. LC1 in Germany Launched in Germany in 1995 LC1 rapidly became the dominant brand. LC1 benefited from the fact that Nestle, as a Swiss company which had been selling milk in Germany for eighty years, was a very reputable brand in Germany and was associated with quality dairy products. LC1 Go! Was added to Nestle’s German portfolio in 1998 and has been notably more successful there than in France or the UK. Nestle subsequently rolled out the LC1 yoghurt brand to Spain, Switzerland, Portugal, Italy, Australia and Brazil. |
 |  |
 | |
(c) 2001 The Centre for Food & Health Studies. All rights reserved.
By Dr Michael Heasman and Julian Mellentin of the Centre for Food and Health Studies.
As well as editing a monthly newsletter on the functional food business, Michael and Julian recently published a book entitled: “The Functional Foods Revolution: Healthy People, Healthy Profits?” This is available through just-food.com in both paperback and hardback. For further details visit:
The Functional Foods Revolution: Healthy People, Healthy Profits? (Hardback)
The Functional Foods Revolution: Healthy People, Healthy Profits? (Paperback)
The Centre publishes New Nutrition Business, the long-established international journal on food and health, which is read in 40 countries.
