Nestlé, more marketing and ad hoc investments to boost sales

On that occasion, as always happens in such contexts, many numbers, projects and forecasts were put forward. However, within the many presentations and tables, a first front jumped out: the focus on product innovation. The company, which invests heavily in R&D, aims to concentrate its efforts. To this end, six priorities have been selected at group level in 2025. In general: these are 'bets', which - it is the company's indication - may not all turn into billionaire brands. And yet, they each have the potential to reach at least CHF 100 million in revenue. An example? Sinergity. That is: the project in infant nutrition aimed at replicating the benefits of breast milk with the combination of probiotics and HMOs (human milk oligosaccharides).

More. Focus - in a broad sense - does not mean lower outlays. Nestlé intends to increase advertising and marketing expenditure to 9% of revenues by the end of 2025. The increase is significant: it implies, on the one hand, growth of 130 basis points compared to 7.7 per cent in 2023; and, on the other hand, a rise of 70 basis points compared to the Ubs estimate that sees this accounting item settling at around 8.3 per cent in 2024. Here too - however - the approach is: polarisation in intervention. A concentration which is, above all, on the most important brands and the areas offering the greatest potential for expansion. In this sense, one may recall the recent partnership between one of Nestlé's most relevant brands (KitKat) and the world of Formula 1. The agreement will be operational next year, making the famous bars the official chocolate of the 'circus'. However, at the same time as disbursements, the multinational is also pushing for operational efficiency and savings. It is precisely with regard to the latter front that the group is already making savings of around one billion Swiss francs per year. The novelty? The commitment to achieve at least CHF 2.5 billion in incremental savings by the end of 2027. A goal which, among other things, will be achieved through interventions in procurement, commercial investments and large-scale operational efficiencies.

Yes, large scale. The Swiss multinational - among the drivers of the business - relies on three global product segments: Powdered & Liquid beverages, Petcare and Nutrition & Health Science. Belonging to the first area are brands such as Nescafé. The second, on the other hand, concerns the pet world with brands such as Purina. Finally, the third segment includes brands such as Boost, Garden of Life (supplements) or Vitaflo (specialised medical foods). These are three segments - essentially coinciding with what the group calls global platforms - whose weight in turnover has increased over the years. In 2013, according to Ubs, they were worth around 47% of revenues. At the end of the first nine months of 2024, their incidence stood at 64%.

Well: the company aims to strongly support these activities. Not only that. The desire - together with the spin-off of the water business - is also to 'unearth' further unexpressed potential in the remaining part of the business, which consists of more local and regional platforms. Without forgetting, moreover, to intervene where brands are underperforming. An example? The world of Nespresso in Western Europe or the coffee creamer business in the US, which need intervention in order to return to proper growth.

An expansion which - here is a further point of the Swiss multinational's strategy - should, more generally, be facilitated by the very computerisation and digitisation of business operations.

Here the target - along with exposure to e-commerce, which is now worth 18.5% of sales - is, on the one hand, to become totally 'digital end-to-end'; and, on the other, to take full advantage of new technologies such as artificial intelligence. The aim? For example: to better manage production and supply - perhaps through the analysis of internal company and consumer big data - according to changing customer demand.

So far, the suggestions on some of the strategies and programmes for relaunching revenues and business. The saver, however, turns his eyes to the income statement. The company published sales figures for the first nine months of 2024. The reported turnover was CHF 67.2 billion, down 2.4 per cent compared to the same period in 2023. The contraction was mainly the result of the effect of currency exchange rates. So-called organic revenue (excluding currencies and M&A) was up by 2%. A trend, the latter, which saw price leverage have a positive impact of 1.6%, while real internal growth (Rig) was 0.5%. Rig, on closer inspection, is important, as it captures growth from volume and product mix alone. Well: Nestlé emphasises that the indicator was weighed down by weak consumer demand and a certain 'hesitation' towards global brands (in the wake of the same geopolitical tensions). Thus - precisely - there is a push on investment in advertising and marketing. A commitment which, by 2025, should lead to a rise in turnover (compared to 2024) and instead - precisely because of the higher investments - a lower trading profit margin. In contrast, in the medium term, Nestlé's goal is to achieve - under normal market conditions - organic growth of 4% (or more). The trading operating profit margin, for its part, is expected to settle at 17% (or more). In short: the effort of the group - which recently announced an internal reorganisation (among others, the merger of South and North America in the Americas area and the inclusion of Greater China in the Asia, Oceania and Africa area) - is to accelerate sales and reach a certain margin level. The market, for now, seems to be standing at the window. The proof? The consensus photographed by the Bloomberg terminal. As of 6/12/2024, analysts, for the most part, have a 'hold' rating (50 per cent). The 'buy' rating stands at 46.4%, while the 'sell' rating is 3.6%.

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