Can Nestlé Reshape Its Future with $2.8 Billion Cut?

In the world of consumer goods, even giants like Nestlé aren’t immune to setbacks. Under the leadership of new CEO Laurent Freixe, the company has unveiled a bold plan to regain its competitive edge by doubling down on its top-performing “billionaire brands” and restructuring operations to cut $2.8 billion in costs by 2027. For professionals, Nestlé’s moves provide a fascinating case study in restructuring, cost management, and brand optimization. 

Resetting Goals and Streamlining Operations

Freixe, a 40-year Nestlé veteran, took over as CEO in September with a clear mission: to revive the company’s sluggish growth and restore investor confidence. As part of his “action plan,” Freixe has reduced Nestlé’s profit margin target to 17% from the previously ambitious 17.5%-18.5%. The company’s full-year organic sales growth forecast was also slashed to 2%—the lowest in two decades—down from earlier predictions of 4%. 

Nestlé’s restructuring includes consolidating operations, such as merging its North and Latin America units into one reporting group, with leadership based at the Swiss headquarters. The Greater China region will now fall under a larger Asia, Oceania, and Africa division, aiming for a leaner, more agile organizational model. “A smaller, nimbler structure will provide better teamwork and alignment,” Freixe stated. 

The company also announced plans to separate its underperforming European bottled water business by January 2025, exploring potential partnerships or a spin-off to private equity—a strategy similar to rival Unilever’s recent moves with its ice cream division. 

A $2.8 Billion Savings Drive

Freixe’s cost-cutting initiative focuses on operational efficiencies, strategic reallocation of resources and advertising and marketing budgets. Budgets were gutted during the pandemic, will be increased to 9% of total sales by 2025, returning to pre-pandemic levels. This increased spending is expected to support the growth of Nestlé’s “billionaire brands,” such as KitKat, Nescafé, and Purina, which generate over $1 billion in annual sales each. 

The company has also set its sights on organic growth, opting to “fix rather than sell” underperforming brands. “We don’t have a portfolio problem,” CFO Anna Manz emphasized. Instead, Nestlé plans to invest heavily in its core offerings while leveraging cost savings to boost profitability. 

Challenges and Opportunities in a Competitive Market

Nestlé’s restructuring comes after a tough few years marked by operational mishaps, including a botched IT integration and a water purification scandal in France. These missteps, coupled with inflation and shifting consumer preferences, have led to disappointing sales and a 22% drop in share price since the start of the year. 

Freixe acknowledged the challenges but insisted that Nestlé is far from broken. “There is nothing wrong with the categories or the brands,” he said, emphasizing the company’s potential for growth. Nestlé plans to capitalize on trends in pet care, health and wellness, and nutrition, particularly as demand grows for products complementing weight-loss medications. 

Despite setbacks, Nestlé’s global footprint and strong brand portfolio remain key advantages. With operations in 188 countries and a diversified product lineup, the company is well-positioned to rebound. Analysts like Jean-Philippe Bertschy of Vontobel view the new strategy as “a step in the right direction,” highlighting the significance of the additional cost savings. 

What CFOs Can Learn from Nestlé’s Big Moves

Nestlé’s turnaround strategy offers valuable insights for professionals. The company’s emphasis on cost efficiency, brand prioritization, and strategic investment illustrates how financial restructuring can drive growth in a challenging market. Key takeaways include: 

• Cost Optimization: Freixe’s plan to cut $2.8 billion underscores the importance of identifying and eliminating inefficiencies while reallocating resources to high-impact areas like marketing and innovation. 
• Brand Focus: Nestlé’s decision to double down on its “billionaire brands” demonstrates the value of concentrating investments on top-performing assets to maximize returns. 
• Agile Restructuring: By streamlining its geographic divisions and spinning off underperforming units, Nestlé is positioning itself to adapt quickly to market changes. 
• Sustainability: The company’s shift toward health and wellness categories aligns with long-term consumer trends, offering a blueprint for balancing profitability with social responsibility.

Nestlé’s Future Outlook

Freixe’s vision for Nestlé is clear: focus on growth, invest in high-performing brands, and streamline operations for efficiency. The company’s medium-term goal of achieving over 4% organic sales growth in a stable environment reflects its commitment to long-term success. 

The next few years will be crucial as Nestlé implements its action plan and navigates a competitive consumer market. For finance professionals, the company’s strategy offers a front-row seat to the complexities of corporate restructuring and the opportunities it presents for driving sustainable growth. As Freixe aptly put it, “Nestlé is up and running, and we’ll make sure all this potential is realized.” Liked this dose of insights? 🚀 Subscribe to our weekly newsletter, and let’s keep the good vibes (and knowledge) rolling! 📬 Here’s to a new friendship and fresh updates every week!