Nestlé will Reduce $2.8B and Split Water Business.

Nestlé, one of the world’s largest food and beverage companies, is making significant moves to streamline operations and address recent challenges. In a bid to cut at least $2.8 billion in costs by 2027, Nestlé plans to invest these savings into other parts of its business.

Along with the cost-cutting initiative, the company also announced the separation of its water and premium beverages division, which includes popular brands like Perrier and Sanpellegrino, into a standalone business starting in 2025.

This move comes as the company faces financial challenges, as higher prices and changing consumer behaviors have caused a dip in demand for some of its products. Let’s examine Nestlé’s recent developments and what they mean for the company’s future.

Nestlé’s Plan for Cost-Cutting and Restructuring

Nestlé, known for products like Lean Cuisine, Nespresso, and Hot Pockets, focuses on cutting costs while strengthening its advertising and marketing strategies. The company aims to increase sales and market share by targeting key brands with growth potential.

With a portfolio of over 2,000 brands, Nestlé will now focus on improving efficiency and performance by implementing cost-saving measures across the business.

The company will invest the savings from these cuts into areas of its business that it sees as having high growth potential. By rethinking its operations and product lines, Nestlé aims to ensure that its most popular and profitable products remain strong in a competitive marketplace.

Separating the Water Business

In a bold move, Nestlé announced it would separate its water and premium beverages division into its independent unit by 2025. This business, which represents about 4% of the company’s global sales, includes iconic water brands like Perrier and Sanpellegrino.

Despite the popularity of these brands, the water division has struggled to maintain consistent growth in recent years.

This separation is seen as a way for Nestlé to evaluate the strategy for this business more effectively and explore potential partnership or sale opportunities.

The decision reflects the company’s ongoing effort to focus on faster-growing and more innovative sectors, such as coffee, pet food, and health and wellness.

Challenges and New Leadership

Nestlé’s new CEO, Laurent Freixe, who took over the role in September, is already making his mark. With nearly four decades of experience at the company, Freixe is leading a shift to reduce complexity and improve organizational decision-making.

Nestlé has faced various challenges, including rising prices and reduced consumer spending, which have affected its frozen food and other product sales.

Nestlé’s financial outlook has been impacted, especially in North America, where the company saw a slight decline in organic growth. As a result, Nestlé lowered its sales guidance for the year, forecasting only a 2% growth rate — the lowest annual increase since at least the beginning of the 21st century.

A Focus on Innovation and Quality

Despite the current challenges, Freixe is determined to steer the company back toward growth. He has emphasized that Nestlé will continue to invest in its core brands while focusing on higher-quality execution and fewer, more considerable innovations with the potential for significant success.

This shift in focus means that Nestlé will concentrate on fewer innovations with a higher likelihood of success instead of introducing hundreds of new products each year.

Nestlé currently introduces over 1,000 innovations and product updates annually. However, the company plans to refine this process, ensuring product development efforts are more strategic and aligned with market needs.

Strategic Changes for Long-Term Growth

Nestlé’s approach includes:

• Managing its underperforming brands more systematically.
• Diagnosing issues quickly.
• Implementing targeted actions to address any weaknesses.

Rather than divesting its underperforming businesses, the company intends to “fix” them by improving their performance and market appeal.

While Nestlé has historically sold off slow-growth businesses, such as its U.S. chocolate business and North American bottled water brands, it has also focused on acquiring faster-growing segments.

For example, the company has expanded into the pet food, coffee, and health sectors through strategic acquisitions and new brand launches, such as Vital Pursuit, which targets consumers interested in GLP-1 treatments for weight management.

The Future of Nestlé’s Water Business

The restructuring of Nestlé’s water and premium beverages division is a significant part of the company’s transformation. By creating a separate unit for these products, Nestlé is looking closer at its performance in the water market.

While the company hasn’t ruled out a potential sale of this business, it will more likely pursue partnerships or joint ventures to enhance its value.

This move follows a similar strategy Nestlé employed when it sold its ice cream business in 2020 and its North American bottled water business in 2021. These divestitures show that Nestlé is not afraid to offload slower-growing businesses if it helps refocus its resources on areas with better growth prospects.

Nestlé’s Focus on Faster-Growing Sectors

Nestlé is committed to enhancing its position in fast-growing markets such as coffee, nutrition, health, and wellness. The company’s diverse portfolio and strategic acquisitions reflect its effort to meet evolving consumer preferences.

As people become more health-conscious and environmentally aware, Nestlé is positioning itself to tap into these changing trends.

The company also invests in innovations targeting niche markets, such as weight management. Brands like Vital Pursuit aim to cater to the growing demand for health-conscious, functional food products, showcasing Nestlé’s commitment to staying ahead of trends.

Conclusion

Nestlé’s cost-cutting initiative, separation of its water business, and a renewed focus on innovation and market growth highlight its approach to overcoming challenges. Under the leadership of CEO Laurent Freixe, Nestlé aims to streamline its operations, fix underperforming areas, and strategically invest in its most promising businesses.

By making these adjustments, Nestlé hopes to achieve long-term growth while maintaining its position as a food and beverage industry leader.

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