Nestle plans to combine key R&D units

LONDON (Reuters) – Food giant Nestle plans to combine its scientific research operations into a single unit in an attempt to speed up development of new products at a time when competition from smaller rivals is intensifying.

The world’s biggest packaged food maker, with brands including Nescafe coffee and Perrier water, has been struggling with slowing sales growth for years. Now it is also under pressure from activist shareholder Daniel Loeb to increase investor returns.

To better compete, the Swiss company told Reuters it would merge its Nestle Research Center and Nestle Institute of Health Sciences (NIHS) into one organization called Nestle Research.

The new entity will continue to be based in Lausanne, Switzerland and will employ around 800 people.

The reorganization, effective July 1, will not involve job cuts or the closure of facilities, a spokesman said.

By linking the “blue-sky” research done at NIHS with the more commercially focused Research Center, it hopes to accelerate the translation of scientific discoveries into marketable products.

It also hopes this will help it compete with smaller, nimbler rivals who have been eating away at the market share of Nestle and other big firms like Danone, Unilever, Kraft Heinz and Kellogg.

Nestle Chief Technology Officer Stefan Palzer acknowledged earlier this month that his company had to keep pace with rising demand for goods that are organic, gluten-free or vegan.

“Big trends are embraced by smaller companies a bit more actively than the big companies,” Palzer told Reuters before Nestle’s streamlining plans had been finalized.

“We are adjusting our portfolio, doing many innovations and renovations to make the portfolio more relevant and to address those trends, but smaller companies are more agile.”

In the US – the world’s biggest packaged food market – small challenger brands could account for 15 percent of a $464 billion sector in a decade’s time, up from about five percent last year, Bernstein Research predicted last year.

The combination of research units is the latest move by Palzer aimed at speeding up development and ensuring research efforts are commercially viable.

Palzer, who took over Nestle’s innovation and research and development operations in January, is also supplementing long-term research projects with incremental product launches made faster by experimenting with new ideas more quickly.