Nestle plays catch-up
Solon – At Nestle’s $50 million (R613 million) research centre outside Cleveland, food technicians and packaging experts set out three years ago to remake its frozen food lineup and appeal more to busy, health-conscious adults in their 20s and 30s.
Nestle may have got the menu right, but its timing was off. When young consumers came back to the frozen food aisle last year, the company’s supply chain wasn’t ready. The result: it lost market share to rivals.
Jeff Hamilton, who heads Nestle’s US food business, said the company did not have the manufacturing capacity ready to meet extra demand for its Stouffer’s Fit Kitchen and Lean Cuisine meals. He described it as “sudden, significant and beyond our expectations”.
To catch up, Nestle recently increased capacity at several of its US factories, including making adjustments to its plants and adding a new line in its factory in Jonesboro, Arkansas, Hamilton said. “That doesn’t mean we’re not close to the edge, but we’re one step ahead from where we were.”
Investors have long pressed Nestle to improve the performance of its frozen food business, leading the company to bring consultants, focus groups and international chefs to its Ohio research facility to overhaul its menu.
Much of its effort revolved around a pitch to millennials, the young adult demographic that executives believed would purchase frozen meals if they were offered healthier, more modern choices at the right price.
So when demand began rising a year ago, it should have offered Nestle a chance to quickly quiet critics. Instead, it marked a missed opportunity.
After several flat years, US frozen food sales rose 1.4% in the last year, according to Nielsen, the market research firm. Yet since September, retailers have sold fewer Nestle frozen entrees than the prior year, hitting a low point in January when Nestle volumes were 5% down from last year, according to Bernstein analysts. Nestle’s retail sales have started to pick up, but are still well below last year’s levels, Bernstein said.
Thomas Russo, whose firm Gardner Russo & Gardner has a stake of more than $1 billion, believed Nestle would deliver on the frozen food business, despite recent supply chain issues, adding: “It’s conceivable they’ve taken their eye off the ball temporarily.” – Reuters