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Food manufacturers are on the corporate equivalent of the Paleo diet — going back to older, simpler formulas in a bid to emerge slimmer and stronger.
Unilever spun off its ice cream arm as a separate listing at the tail-end of last year, having disposed of tea and spreads as part of a plan to quit 10 business lines. Swiss rival Nestlé on Thursday collapsed its multipronged business down to four units, and said it would exit some categories. Ice cream, again, is among those getting the chop.
Nestlé’s shares have wilted over the past four years. Its turnaround plan will not undo that slide, but is a step in the right direction. In particular, ditching its water and premium beverages business is a wise bet. The unit is small at just 4 per cent of group sales and its operating profitability is about half what the whole group manages. The catch is that this will limit how much a buyer is prepared to pay.
The touted simplification, moreover, needs to be put in context. Consumer goods multinationals are, organisationally, pretty complex beasts. They like to embrace intricate management matrices, split along geographic as well as category lines. Hence Nestlé retains its regional zones while merging some businesses along vaguely thematic lines — for example, putting vitamins into the division that also includes baby milk.
That particular change suggests a status downgrade for Nestlé’s 15-year-old, formerly standalone Health Science unit, which makes up about 7 per cent of revenue. Although its profitability is close to that of the group overall, sales have been falling and analysts don’t expect its top line to surpass 2022 numbers until 2028. It may take even longer now that Nestlé is reviving plans to dispose of various vitamin and supplement businesses.
The to-ing and fro-ing over the years reflects one of the bigger problems for Nestlé: turnover at the top. Philipp Navratil is Nestlé’s third boss in 18 months. Two CEOs ago, Mark Schneider, with a background in healthcare, steered the $5.7bn acquisition of vitamins maker Bountiful; four years later, his successor put it up for review — but was himself out of the job a couple of months later.
It would be perfectly rational for Navratil to proceed cautiously, after so much change. He also has to contend with an uncertain economy and changing dietary dynamics due to the rising use of weight-loss drugs such as Wegovy and Zepbound. Making modest changes now raises the odds that he will be granted time to build on them.
louise.lucas@ft.com
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