Market cap

* For banks, enterprise value is substituted with market cap. Source: Bloomberg Finance L.P.

Performance of the brand

Nestlé is the largest food and beverages firm in the world. It offers branded beverages, dairy products, ice-creams, packaged food and pharmaceuticals. The company operates in Europe, the Americas, as well as Asia and Africa.

One weakness often assigned to Nestlé by market researchers is the company’s limited presence in the emerging markets. In 2010, Nestlé only gained about 1/3 of its revenue from emerging markets, compared with 40% for Groupe Danone, and around 50% for Unilever. Although the company still lags behind here, it is making up for lost ground. On July 11^th 2011, Nestlé confirmed it was to acquire 60% of Hsu Fu Chi, one of China’s largest producers of confectionary and baked goods. Provided the deal is approved by regulators and shareholders, it will mark one of the largest foreign acquisitions ever in China – a country in which the confectionary market alone is estimated to be worth more than $9bn a year.

Whilst confectionary makes up a substantial portion of Nestlé’s revenue, the company’s top priority is its health and wellness operations, and it is continuing with its plan to be the world’s leading firm in the sector. Although some have dismissed this repositioning as a marketing stunt – an effort to make people feel better about eating foods that they shouldn’t – there is a sound commercial logic to the plan.

“Functional foods” – foodstuffs that have been modified by manufacturers to provide health benefits – are growing far more rapidly than food sales as a whole. At the same time, Nestlé needs new sources of growth. Its bottled water operations (which account for around 10% of the business) are falling in developed countries, and customers set back by the recession are trading down on traditional packaged food, opting for unbranded products instead.

Functional foods could well be the right direction. A 2008 study at the Harvard Business School found that between 2004 and 2007, sales of Nestlé’s products containing functional ingredients increased by 23.7% per year, compared with 6.2% for its ordinary foods. That trend is continuing, but competition in the sector is heating up. Coca Cola and Pepsi are fierce competitors, as are Danone.

Moreover, Nestlé is still heavily involved in high-fat/high-sugar sectors such as confectionary, and this brings the credibility of Nestlé's endeavours into question. When Danone decided to focus on health and wellness, it divested all of its business lines associated with unhealthy products, such as its global biscuits operations. Nestlé has done no such thing.

Currently, Nestlé's presence in functional yoghurts (the most profitable functional food market) is weak. It's LC1 brand has struggled to gain any ground on Danone's Activia and Actimel brands.

However, it is perhaps worthwhile remembering that Nestlé have always played a long game. Take Nespresso, an instant espresso made from a little capsule of coffee. Nestlé started working on the project in 1970, and it wasn't until 1986 that Nespresso was finally brought to market. When it was, the business lost money for a decade, but Nespresso is now one of Nestlé's fastest growing businesses.

Nestlé have the R&D capabilities, the financial muscle, and a strong enough position to become a leader in health and wellness, but it will take some time before they are.

 

Last changed September 5, 2011

League tables

Nestlé appears in the following brand league tables:

Rank 41 in the Global 500 2012.
Rank 33 in the Global 500 2011.
Rank 33 in the Global 500 2011.
Rank 66 in the Global 500 2010.
Rank 61 in the Global 500 2009.
Rank 87 in the Global 500 2008.
Rank 128 in the Global 250 2007.