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Nestle SA, the titan of the food industry, is undergoing significant changes under the stewardship of newly appointed Chief Executive Officer Laurent Freixe. In a bold move aimed at revitalizing the company, Nestle has announced plans to separate its influential water brands into a separate entity. This strategic shake-up could pave the way for a future sale or spinoff of the division, illustrating a fresh approach to tackle slowing organic growth within its portfolio.
Brands such as Perrier, known globally for their prestige, and Acqua Panna will form the core of the newly envisaged standalone unit. This decision comes at a critical junction for Nestle, as its water business recently grappled with contamination issues and supply constraints, contributing to a modest revenue share of less than 4%. The transition to a dedicated global unit, led by Muriel Lienau, the current head of Nestle Waters in Europe, is scheduled to commence at the beginning of the next year.
The restructure reflects a broader assessment of Nestle’s extensive portfolio under Freixe’s leadership following the departure of former CEO Mark Schneider. Freixe has taken a decisive stance on steering the conglomerate towards strengthening core brands while exploring strategic options rather than resorting to disposals. For instance, despite challenges in the U.S. frozen foods sector, Freixe has committed to revitalizing these segments as opposed to selling them.
Moreover, the roadmap laid out by Freixe involves ramping up marketing efforts, with a planned increase in advertising and marketing investment to 9% of sales by 2025. This is part of a broader initiative to reclaim market share that was eroded during periods of high inflation when prices were raised.
Financially, Nestle has adjusted its projections under Freixe’s directive, now anticipating a trading operating margin of at least 17% over the medium term, a slight dip from previous targets. Furthermore, the company has declared an ambitious cost-saving target of at least 2.5 billion Swiss francs by 2027 to fund these new initiatives.
Nevertheless, the announcement has led to a dip in Nestle shares, which fell by 2% in Swiss trading, marking a more than 20% decline this year. This reaction underscores the market’s mixed reception to Freixe’s strategies amidst challenging global economic conditions.
Nestle's approach underlines a crucial strategic pivot intended to optimize its brand portfolio and improve operational efficiencies. As the plans unfold, industry observers and stakeholders will be keenly watching how these initiatives resonate within the competitive landscape and contribute to Nestle’s overarching goal of sustainable long-term growth.