Nestlé has achieved record levels of growth and profits for the year 2000. It’s a creditable achievement, outstripping the low growth in the food industry. The company has successfully abandoned unprofitable sectors to focus on value added solutions, avoiding the trap of continual price cuts. But although Nestlé’s in a good position, given the fears of global slowdown it will be hard pressed to better its 2000 results this year.
Although the food industry experienced slow growth at 2.5% last year, Nestlé aimed to beat this by achieving real internal growth of 4%. In fact, Nestlé even managed to outdo this target by 0.4%. To compete in these times of slowing industry growth and increasing retailer power, Nestlé has, like Unilever, aligned its strategy to focus on core strengths and increase efficiencies in its cost base. However, whereas Unilever has gone to town on buying and selling its dream ‘core brands’ portfolio, Nestlé has tended to concentrate on growing organically in core markets.
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Expanding into fast growing emerging markets such as Eastern Europe and parts of Asia has helped push strong earnings. At the same time, growth in Western markets has been driven by a move out of the less profitable agribusiness sector to concentrate on higher margin ‘value-added’ business such as nutrition and well-being products. Focusing exclusively on value-added solutions is part of Nestlé’s strategy for achieving profitable long-term growth. It prompted one of its rare ventures into acquisitions with the takeover of Ralston Purina earlier this year, to take fuller advantage of the fast growing pet food market.
Tapping into these consumer trends has enabled Nestlé to meet the growing demands of its retail customers. The Swiss firm has added value to its retail proposition through consumer-led innovation, rather than getting caught in the trap of continually offering lower priced products.
Funding this ‘value-added innovation’ strategy requires continual investment and although Nestlé has vast resources available, it has not neglected to increase cost savings. Improving operational efficiency and lowering production costs through better supply-chain management better ensures that Nestlé strategy remains profitable in the long term. Nestlé aims to improve on its record performance in 2001. However, fears of slowing economies and the need to absorb the cost of Ralston Purina will make the 2000 results a hard feat to beat.
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