Why Nestlé Is Confident Its Portfolio Overhaul Has Primed It For Success

North America CEO Steve Presley said the CPG is in a stronger position despite an unpredictable environment after turning over 40% of its U.S. business to focus on faster-growing, trendier offerings.

As Nestlé grapples with inflation, the lingering effects of COVID-19 and supply chain headaches, the head of its North American operations said a portfolio overhaul has put the company in a prime position.

“We’re quite confident on where we are in North America,” Steve Presley, CEO of Nestlé’s North American business, said in an interview. “Our position is really around our strong brands and their connection to consumers. ... And that sets us up for success.”

During the first half of 2022, Nestlé posted organic growth in North America of 9.6% and recorded market share gains in categories such as coffee, creamers and premium water. The company’s portfolio, which includes Lean Cuisine, DiGiorno, Sweet Earth, Essentia water and Coffee mate, has at least one product in 97% of American households.

It wasn’t long ago that Nestlé struggled in the U.S. to make some of its core brands more relevant to variable consumer tastes and preferences, Presley said.

The U.S., which is now responsible for $25.5 billion, or 28% of Nestlé’s global sales, was historically a “drag” on the company’s overall growth, he noted. From 2014 to 2017, sales growth in the U.S. was nearly flat at 0.5%. But since then, the pace has meaningfully accelerated to 2.8% from 2018 to 2020 and +6% in 2021.

"We're not done,” Presley told reporters at a recent media day event. “We want to win the categories. We want to continue to grow. We want to continue to accelerate. You have to move with speed.”

In the last few years, Nestlé has undertaken a broad transformation and turned over 40% of its portfolio in the U.S., jettisoning more than $10 billion in revenue from slow-growing brands or categories where it wasn't a top-tier player. Nestlé has divested its iconic confections segment, including brands like Crunch, Baby Ruth and Butterfinger, its ice cream businesses and the majority of its North American bottled waters operation.

Presley said Nestlé is likely done with major divestitures — though he didn’t rule out a sale of a smaller brand or business. The repositioning of Nestlé’s portfolio has left the company with a leading position in 70% of the categories in which it operates.

In the place of these divested brands, it has bulked up on faster-growing categories like plant-based with Sweet Earth, premium and functional beverages in Essentia water, and coffee through the purchase of Blue Bottle and a $7.15 billion deal with Starbucks to sell the chain’s coffee beans and drinks in grocery stores and other outlets around the world.

It’s also doubled down on health and wellness through a slew of deals, like by taking majority stakes in Vital Proteins and Orgain, a maker of protein powders, shakes and bars, and purchasing hydration brand Nuun and nutritional supplement provider The Bountiful Co.

Nestlé remains on the lookout for businesses to add to its portfolio where the company doesn’t have a major presence or where there is white space within a category it already operates.

“We want to continue to grow our presence in North America, and we want to continue to expand whether through acquisition [or] through organic growth,” he added.

A big part of increasing Nestlé’s relevance has come not only through acquisitions but also innovation.

Nestlé’s billion-dollar Coffee mate brand, for example, has entered plant based with oat and almond varieties and debuted a Natural Bliss extension with only five ingredients geared toward a consumer looking for natural offerings. Its Starbucks line has debuted a creamer, which serves as a complement to its coffee and a way to keep people within the brand.

In food, Nestlé has introduced a frozen line called Life Cuisine that caters to consumers looking for low-carb, high-protein, meatless and gluten-free meals. DiGiorno, the top frozen pizza brand, has rolled out stuffed bites tailored toward the snacking crowd.

Presley downplayed the impact inflation is having on the company’s business, noting segments like creamers, coffee and even pizza — categories where Nestlé is the leader based on market share — have offerings that span from premium to value propositions.

During the first half of the year, Nestlé increased prices across its portfolio in North America by 9.8%. So far, Nestlé hasn't noticed a meaningful shift in consumers trading down due to price, Presley said — though the company is actively bracing for it to occur if financial conditions worsen. When shoppers do trade down, Presley said, it's often because the company is not able to meet demand as a result of ongoing supply chain challenges.

“As consumers become more financially fragile, you'll see some trade down,” Presley said. The breadth of Nestlé’s portfolio allows it to keep those consumers within its brands.

In the case of coffee, for example, Nestlé has Blue Bottle and Nespresso in premium, Starbucks in the middle-to-upper end and Nescafe, which is popular among lower-income customers. In pizza, the CPG sells California Pizza Kitchen and DiGiorno in premium, Jack’s in the middle tier and Tombstone in value.

“Consumers are diverse, and so our portfolio has to win across the category,” Presley said.

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