Nestle’s ‘quiet man’ CEO moves to ease its sweet tooth
Eyeing growth from healthier businesses, Mark Schneider put some treats up for sale
Nestle’s new chief executive officer is putting the world’s biggest food company on a diet, moving to shed its U.S. confectionery arm as he seeks growth from healthier and more profitable businesses.
Half a year after taking the helm at the Vevey, Switzerland-based company, Mark Schneider put brands such as Butterfinger and BabyRuth up for sale last week. Nestle’s shares rose as analysts said the move signalled that the new chief, with a background in health care, was serious about transforming a company wrestling with the slow growth of the packaged food industry.
“Looks like the start of a new era for Nestle,” wrote Jean-Philippe Bertschy, an analyst at Bank Vontobel. He said the move to divest a unit whose brands also include Gobstopper and LaffyTaffy raises the possibility of strategic reviews of other underperforming businesses, such as the Herta processed-meat brand, U.S. frozen foods, ice cream or pizza. The review spearheaded by Schneider marks a departure from the approach of his predecessor as CEO, Paul Bulcke, who talked about selling ailing businesses, but mostly clung to such units in the hopes of revamping them. Food companies are under pressure to reduce costs after Kraft Heinz’s unsuccessful bid for Unilever earlier this year showed that even the largest players could become targets. Chocolate makers especially are grappling with weak U.S. consumption as Americans increasingly turn their backs on sugar.
Schneider, who took over at Nestle this year after leading Germany’s Fresenius, is the first outsider to be given the Nestle CEO job in almost a century. He has said he aims to boost the company’s health strategy as well as focus on the businesses that are growing fastest, such as coffee and pet food. The review of the U.S. confectionery business, which had 900 million francs (about $1.2 billion Canadian) in 2016, is his first major strategic move at his new employer and hints at other changes.
“Quiet man Mark Schneider is continuing to make waves,” wrote Martin Deboo, an analyst at Jefferies. “We doubt this will be the end of portfolio moves.”
Nestle says it remains committed to its global chocolate business, which includes KitKat. The company acquired several of the brands being sold in 1990 from RJR Nabisco Inc. A sale could fetch 1.35 billion to 1.5 billion francs, estimates Alain Oberhuber, an analyst at MainFirst Bank AG. Deboo said private-equity firms would be interested, along with industry giants such as Mondelez International Inc., which failed in a bid to acquire Hershey Co. last year. While the U.S. brands no longer fit with the healthier image Schneider wants to project, they’re also a drag on earnings. The operating margin of Nestle’s confectionery business was 13.7 per cent last year, the secondlowest of its seven product categories.
The business has been losing market share in North America every year since 2013, falling to a distant No. 4 in 2014, when it was surpassed by Lindt & Spruengli AG with its acquisition of Russell Stover. Hershey Co. and Mars Inc. together control more than half of the market.
Nestle has been investing heavily in a health-science unit since 2011 and has said it aims to make a $10 billion business out of it, trying to develop food-related products to prevent ailments such as obesity, metabolic problems and Alzheimer’s disease.