CEO Laurent Freixe, who has been with the company for 40 years, took over in September after the departure of Mark Schneider, whose tenure had disappointed investors due to sluggish sales volume growth. During Schneider's leadership, Nestle significantly cut its marketing and advertising expenditures and reduced investment in innovation amid the financially challenging COVID-19 pandemic.
These decisions have had lasting effects on the Swiss company's revenue, as consumers have shifted towards more affordable, better-promoted, or innovative brands, impacting Nestle's market share.
The company, which owns well-known brands such as Nescafe, KitKat, and Milo, stated that it aims to achieve cost savings of at least 2.5 billion Swiss francs ($2.83 billion) by 2027, in addition to ongoing savings of approximately 1.2 billion Swiss francs. This target significantly exceeds the 800 million euros that smaller competitor Unilever committed to saving earlier this year.
Nestle projects medium-term organic sales growth to exceed 4% in a stable operating environment, with an underlying trading operating profit margin of 17%. This contrasts with an anticipated organic sales growth of around 2% for the year ending December 31.
To support its growth strategy, the company plans to increase its investment in advertising and marketing to 9% of total sales by 2025, as stated during its capital markets day event in Vevey, Switzerland.
The last time Nestle allocated this percentage of its sales to marketing was in 2019. In 2023, advertising and marketing expenses accounted for 7.7% of sales, reflecting an increase of 80 basis points from the previous year, according to Nestle's latest annual report.
Vontobel analyst Jean-Philippe Bertschy remarked, "This marks a significant initial step towards revitalizing sales growth. The potential for additional cost savings is considerable."
On Tuesday, Nestle rejected the notion that its extensive portfolio of over 2,000 brands requires reduction. Freixe expressed his intention to "improve, rather than divest, the majority of" its underperforming segments.
"We do not face a portfolio issue," stated finance chief Anna Manz, emphasizing the company's commitment to investing in organic growth.
Additionally, Nestle announced plans to establish a global unit for its water and premium beverages divisions, effective January 1, 2025.
Bertschy noted, "This clearly indicates a move towards a potential spin-off, possibly involving private equity; all options remain under consideration." Competitor Unilever, which has also faced scrutiny for its extensive brand portfolio, revealed in March its intention to separate its ice cream business and has indicated a readiness to divest weaker brands.
Freixe has previously stated his desire to make substantial investments in the company's flagship brands, such as Nescafe and Maggi, known for its soups, sauces, and noodles.
"Our action plan will enhance our operational efficiency, responsiveness, and agility," Freixe stated. "This will enable us to create value for all our stakeholders."