Nestlé sales grew at their slowest rate in more than two decades last year as US consumers shied away from mainstream packaged food in favour of supermarket own-brands or premium health products.
Organic revenues at the KitKat to Nespresso maker missed analysts’ forecasts to rise 2.4 per cent in 2017, as Mark Schneider, chief executive, served up a cautious outlook. Pre-tax profit fell to SFr9.5bn, down from SFr12.5bn in 2016.
Echoing statements from Mondelez International and Hershey, the packaged foods groups, Nestlé said its sales growth in the US was “slightly negative” because of weak demand for a product range including Stouffer’s ready meals and Häagen-Dazs ice cream.
“There was a pattern we saw through the whole of 2017 with the entire food and beverage sector, that people either become prone to buy economy, house label or private brands, or if they do open their pockets it has to be for a truly differentiated product with a very strong identity and high perceived value,” Mr Schneider said.
“The entire industry . . . has been a little slow to recognise it, but we have it firmly in our sights now.”
Nestle’s shares fell 2.6 per cent to 75 Swiss francs.
Mr Schneider, the first outsider to run Nestlé since 1922, is striving to reshape its sprawling portfolio of brands to focus on high-growth areas. He expects organic revenues to grow at 2-4 per cent in 2018, which is below Nestle’s usual rate of 5 per cent or more. He is targeting a return to mid-single-digit growth by 2020 as the company buys more high-growth businesses.
Nestle’s lacklustre results came after Mr Schneider bowed to pressure from Dan Loeb, the US activist investor, to jettison underperforming and non-core brands and return more cash to investors.
The activist swooped on Nestlé last year, arguing it had too many brands and had failed to adapt to changing consumer tastes.
Nestlé sold its US confectionery unit to Ferrero last month for $2.8bn. It has just purchased a majority stake in Terrafertil, the organic, vegan snack company. Last September it bought Sweet Earth, a Californian maker of meat protein substitutes such as seitan and plant-based ready meals that it calls “artisan bowls”.
“The food and beverage industry has been having problems in the US,” said Jean-Philippe Bertschy, head of European equities at Vontobel Asset Management. “US consumers are looking for novelty, innovation, organic and natural,” he said. The trend was driven by millennials who were “less loyal to food brands”.
Mr Bertschy said the problems Nestlé was having in North America were being experienced by its rivals. At Mondelez, North American organic sales fell 2.4 per cent in 2017. Revenues at Hershey, the company behind Reese’s Peanut Butter Cups, fell in the fourth quarter as customers gravitated towards healthier snacks.
Nestlé also conceded it would not raise its ownership stake in L’Oreal, having had an opportunity to do so after the death last year of Liliane Bettencourt, matriarch of the French group’s founding family.
Mr Loeb has urged the company to sell the 23 per cent investment in L’Oreal, which it has held since 1974. Jean-Paul Agon, the French company’s chief executive, said last week that L’Oreal was ready to buy the stake.
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