Nestlé, the global packaged goods giant, has unveiled plans to cut $2.8 billion in costs by 2027, redirecting the savings to bolster its core operations. The company also announced it will establish its water and premium beverages business as a standalone unit in 2025, signalling potential strategic shifts.
Key Announcements
- Cost Reductions: Nestlé aims to streamline operations and reinvest savings into advertising and marketing for its flagship brands like Lean Cuisine and Nespresso to drive growth.
- Water Business Restructure: The unit, which includes brands like Perrier and Sanpellegrino and represents less than 4% of global sales, will operate independently from 2025. Nestlé is exploring partnerships or strategic adjustments for the segment.
- Focus on Underperformers: The company plans to address underperformance in certain businesses through targeted improvements rather than divestment, a shift from its previous strategy.
Under new CEO Laurent Freixe, Nestlé is tackling declining consumer demand amid higher prices and reduced marketing. The company recently lowered its 2024 sales growth forecast to 2%, marking its slowest pace in decades. Freixe, a 38-year Nestlé veteran, has emphasized prioritizing fewer but larger innovation projects with significant market potential, aiming to rejuvenate the company’s 158-year-old legacy.
The decision to separate its water and premium beverages segment mirrors Nestlé’s past strategy of restructuring slower-growing units, such as its 2020 ice cream business divestment. While the standalone model allows flexibility, it could pave the way for partial or complete divestiture.
Nestlé has a history of shedding slower-growth categories, including selling its U.S. chocolate business for $2.8 billion in 2018 and its North American bottled water unit for $4.3 billion in 2021. Meanwhile, the company has expanded into high-growth areas such as coffee, pet food, and health and wellness through acquisitions and new brand launches.
Freixe affirmed Nestlé’s commitment to its diverse portfolio, stating, “We need to be more systematic in managing underperformance,” but clarified that most businesses would be fixed rather than sold.
This strategic overhaul aims to maintain Nestlé’s market leadership by addressing current challenges while positioning for future growth.