By Richa Naidu
VEVEY (Reuters) –
Nestle (NS:NEST) will boost advertising and marketing, trim costs by at least $2.8 billion by 2027, and carve out its water and premium drinks businesses into a standalone global unit, as it looks to drive growth under new chief Laurent Freixe, the company said on Tuesday.
The world’s biggest food company aims to achieve cost savings of at least 2.5 billion Swiss francs ($2.83 billion) by 2027, in addition to rolling savings of around 1.2 billion Swiss francs.
Nestle forecast medium-term organic sales growth to be more than 4% in a normal operating environment, and an underlying trading operation profit margin of 17%. That compares to organic sales growth of about 2% expected for the year ending Dec. 31.
The Swiss food giant will increase its investment in advertising and marketing to 9% of its total sales by 2025 to support growth, the company said at its capital markets day event in Vevey.
Advertising and marketing expenses in 2023 were 7.7% of its sales, an increase of 80 basis points from the year before, according to Nestle’s most recent annual report released this year.
Nestle also said on Tuesday that it plans to carve out its water and premium beverages businesses into a global unit starting Jan. 1, 2025.
“Our action plan will also improve the way we operate, making us more efficient, responsive and agile,” Freixe said in a statement. “This will allow us to deliver value for all our stakeholders.”
Freixe, who has worked with the company for nearly 40 years, took the CEO job in September, replacing an ousted Mark Schneider who had disappointed investors for months with weak sales volume growth. Under Schneider, Nestle gutted its marketing and advertising budget and invested less in innovation during the cost-heavy COVID-19 pandemic.
The repercussions continue to weigh on the company’s revenue, after shoppers switched to cheaper, better advertised or more differentiated brands, eating into Nestle’s market share.
Now, Freixe has said that he wants to invest heavily in the company’s core brands like Nescafe and Maggi, which makes soups, sauces and noodles.
Nestle told Reuters last week that its KitKat brand had signed a global sponsorship deal with Formula 1, and that the marketing budget for the chocolate wafer biscuit brand had been increased by nearly 20% this year.
“For our brands to win in the market, we need to invest,” Freixe said on Tuesday. “We will generate the resources we need through efficiencies and growth leverage.”
($1 = 0.8835 Swiss francs)