Nestlé prioritises "value creation"

VEVEY: Nestlé, the packaged food group, believes a strategy based on "value creation" will be essential to prospering in Europe during the on-going financial crisis.

The Swiss multinational logged organic sales growth of 2.3% in Europe in its last reporting quarter. While figures in Germany were flat, sales rose in troubled markets like Greece, Italy, Portugal and Spain.

"A crisis creates uncertainty," Paul Bulcke, Nestlé's chief executive, told the Wall Street Journal. "Consumer confidence is down. So that's certainly a challenge … At the same time, I do believe that every situation has opportunities."

Europe's economic travails have hit many firms, with Thomson Reuters' research among 85 members of the S&P500 index reporting that 20 of them explicitly named the region as a reason their next quarterly earnings would fall.

But although Bulcke suggested an improvement in the fiscal climate was unlikely to be immediately forthcoming, he added that some tactics were clearly working in the company's favour.

"In a crisis, normally we speak about the consumer trading down," Bulcke said. "And yet I do believe we are in the value creation business not in the price business per se, so if you create the right value for the consumer, he values that."

As an example of the organisation's success in this area, Bulcke pointed to Nescafé Dulce Gusto coffee pods, which offer a "moment of quality consumption" at home that people are willing to pay extra for.

Nestlé has revealed that sales of Dulce Gusto have reached CHF600. Pablo Zuanic, of Liberum Capital, argued 85% of this activity is drawn from Europe, with demand growing by roughly 60% in 2012.

GfK, the insights provider, also estimated that the combination of Nescafé Dulce Gusto and Nespresso delivered Nestlé a 43% share of the European coffee machine market at the close of 2011.

"The European consumer values value, and if we can't create products that gives him a 'value moment' then we can't grow," Bulcke said.

In a further indication of this trend, the firm has enabled shoppers in Switzerland and Liechtenstein to order personalised chocolates from its "super-premium" Maison Cailler line on the web.

Nestlé also recently purchased the nutrition brands owned by Pfizer, the healthcare group, for $11.8bn, citing the presence of high-end brands in its portfolio as one key influence behind this decision.

Data sourced from Wall Street Journal; additional content by Warc staff, 10 July 2012

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