Strategy

Girl stretching after having Garden of Life

We aim to offer a portfolio of products and services that evolve with consumer demands.

We strive to create products that are right for consumers and that contribute to public health and a sound environment. It's good business.
This guides the choices we make today and shapes our portfolio for tomorrow - whether through product evolution, innovation, acquisition or partnership.

 

Our strategy: The choices we make

We focus our energy and resources where unlocking the power of food can make the greatest difference to the lives of people and pets, protect and enhance the environment and generate significant value for our shareholders and other stakeholders alike. This is why we:

  • Apply our expertise in nutrition, health and wellness - developed over more than 150 years - to help people, families and pets live happier, healthier lives.
  • Meet the needs of the modern consumer with healthy, delicious, convenient products for conscious, time-constrained lifestyles.
  • Bring affordable, safe and high-quality nutrition everywhere to everyone, regardless of their income level.
  • Bring distinctive, premium innovations to market fueled by creative exploration, consumer insights, pioneering nutrition science and culinary excellence.
  • Advance our sustainability agenda to enhance the health of the planet, drive societal progress and support a sustainable food system, particularly in terms of:
    • Packaging and delivering our products in ways that are safe and protect the environment.
    • Offering more plant-based food and beverage options to enable us to be the consumers' preferred choice as they diversify their diets.

 

Our value creation model

Our long-term value creation model is based on the balanced pursuit of resource efficient top- and bottom-line growth as well as improved capital efficiency. We create value by:

  • Fueling growth through continuous innovation.
  • Improving operational efficiency.
  • Allocating our resources and capital with discipline and clear priorities, including through acquisitions and divestitures.

 

Ensuring sustained mid single-digit organic sales growth

Our success is built on maintaining a diversified portfolio, both in terms of geography and category. Our ability to adapt to changing environments and to nourish our high-quality global, regional and local brands contribute to long-term financial performance. Our objective is to achieve sustained mid single-digit organic sales growth through a combination of rapid innovation, portfolio management and market share gains.

Investing in high-growth categories and regions with high-growth potential
We compete in attractive and growing categories and prioritize investments to stay relevant and win in every segment and market in which we operate. To grow, we work by:

  • Leveraging digital technologies to enhance our ability to identify emerging consumer needs and business model opportunities.
  • Continuously bringing meaningful, differentiated innovation to market fast.
  • Collaborating with customers across the retail landscape to adapt our product portfolio and channel strategies.
  • Expanding category-focused ecosystems and services that increase consumer engagement and loyalty through personalization.
  • Building capacity to meet future demand.

We accelerate growth by investing behind strategic drivers such as:

  • High-growth categories of coffee, pet care, nutrition, water and nutritional health science. Together, these represented 63% of sales and grew by 3.8% in 2020.
  • High-growth platforms, such as plant-based food and ready-to-drink beverages. In 2020, vegetarian and plant-based food offerings continued to see strong double-digit growth.
  • Trusted brands, such as Maggi, Milo and Nido. 34 of our brands generate over CHF 1 billion each in annual sales at retail level.
  • Regions with high-growth potential. In 2020, emerging markets represented 41% of sales and grew by 3.4%.
  • Digital marketing and e-commerce. In 2020, our e-commerce sales represented 12.8% of sales and grew by 48.4%, and digital as a % of total media spend increased to 47%.
  • Direct-to-consumer. In 2020, direct-to-consumer businesses represented 8.6% of sales and grew by 12%.
  • Premiumization. In 2020, our premium offerings represented 30% of sales and grew by 9.5%.
  • Affordable and accessible offerings. Sales of affordable, accessible products, many nutrient-fortified, grew by 8.1% and accounted for 18.8% of emerging market sales in 2020.

Fixing underperforming businesses
We take decisive action to restore growth and profitability when businesses underperform. In 2020, we:

  • Initiated a turnaround plan for our Wyeth infant nutrition business in China.
  • Relaunched our modern, healthy frozen food range, with upgraded offerings for Lean Cuisine and the introduction of new brand, Life Cuisine.
  • Took the decision to sharpen our water focus on iconic international, premium mineral and functional brands, while exploring strategic options for parts of the Waters business in North America.

Managing our portfolio
We focus on categories and geographies with attractive dynamics where Nestlé has an ability to win. Since 2017, we have completed or announced more than 75 transactions (acquisitions and divestitures) with annual sales equivalent to around 18% of 2017 Group sales. In 2020, we:

  • Completed the divestment of the U.S. ice cream business to Froneri and the sale of 60% of our stake in Herta to create a joint venture with Casa Tarradellas.
  • Sold the Yinlu peanut milk and canned rice porridge businesses in China.
  • Continued to build Nestlé Health Science into a nutritional powerhouse through a combination of strong organic growth and targeted acquisitions. Examples include: Zenpep, Vital Proteins, IM HealthScience and Aimmune Therapeutics.
  • Acquired Lily's Kitchen, a leading producer of premium wet and dry natural foods for dogs and cats.
  • Expanded our presence in direct-to-consumer meal delivery services through the acquisition of Freshly in the United States, and a majority stake in Mindful Chef in the United Kingdom.

Generating continued moderate margin improvement

We fuel our growth agenda through disciplined cost management, improving operational efficiency at all levels of the business. In combination with sales growth, this approach enables us to free up resources for re-investment in product innovation, brand building and sustainability initiatives, while creating value for our shareholders.

Reducing costs and enhancing operational efficiency
We continued to adapt our organization to be more agile, flexible and digitalized. We made solid progress on our structural savings program across all areas of manufacturing, procurement and administration. By the end of 2020, we achieved CHF 2.8 billion in savings, exceeding our target of CHF 2.0-2.5 billion gross savings for the period from 2016 to 2020. In manufacturing we continued to upgrade our operational footprint. Between 2016 and 2020, we reduced our fixed factory overheads by 6% per annum in Swiss francs. In procurement, increased global buying combined with specification reduction helped us reduce costs and complexity. Global buying through our three purchasing hubs increased from 61% in 2019 to 63% in 2020. In administration, we continued to simplify and standardize processes. The penetration of our shared service centers increased for the fifth consecutive year.

Allocating capital prudently and improving capital efficiency

Our priorities are to invest in the long-term growth and development of our business, while increasing shareholder returns and creating shared value. We take a disciplined approach to capital allocation, with prudent financial policies designed to strike the right balance between growth, returns and flexible access to financial markets. In combination with our operating performance, this has allowed us to increase our Return on Invested Capital (ROIC) by 240 bps, from 12.3% in 2019 to 14.7% in 2020.

Investing in growth drivers
Investing for the long term takes the form of R&D investment, brand support and capital expenditure to support organic profitable growth. We allocate these resources discerningly, focusing on projects with the highest potential to create economic profit. Working capital maintained its downward trend. Our five-quarter average working capital in % of sales reached 0% at the end of 2020, -60 bps versus 2019, marking nine consecutive years of improvement. This reduction came even as the company increased inventory levels materially to meet elevated demand.

Exercising discipline in portfolio management
We are disciplined when it comes to mergers and acquisitions in order to protect our ROIC. We have clear governance in place, with precise accountability and targets. Prospects must have a good strategic and cultural fit with our organization and offer attractive financial returns. We look for creative ways to approach deals and build partnerships that enhance our optionality.

Returning cash to shareholders
We have demonstrated our strong commitment to maintaining a high level of reinvestment into the business while at the same time continually increasing capital returns to shareholders. We do this by increasing our dividend year after year. Based on our 2020 performance, the Board of Directors has proposed a dividend increase of 5 centimes to CHF 2.75 per share to be paid in April 2021. This will be our 26th consecutive annual dividend increase. As a result of our strong free cash flow generation and business disposals, we continued to return excess cash to shareholders through share buybacks. Share repurchases amounted to CHF 6.8 billion in 2020, as part of our three-year CHF 20 billion buyback program that started in January 2020. Over the last 15 years, Nestlé has returned CHF 163.7 billion to shareholders, of which CHF 72.5 billion has been in the form of share repurchases. Over the same period, the number of shares outstanding has been reduced by 26.8%.

Creating Shared Value: The way we operate

We build for the long term, act with focus and combine global resources with local know-how to create value for both society and our shareholders at a meaningful scale. We do so because we believe that business should act as a force for good. We have made bold commitments to achieve net zero greenhouse gas emissions by 2050 and make 100% of our packaging recyclable or reusable by 2025. We will continue to advance our sustainability agenda and create new business opportunities by ensuring Nestlé brands speak to our purpose.

To do so we will continue working with our partners to:

  • Enable people and families to lead healthier, happier lives by continuously improving the nutritional profile of our products.
  • Build supply chain resilience by improving livelihoods and being a responsible partner to the communities directly connected to our business activities.
  • Steward resources for future generations by enhancing the environmental performance of our operations and scaling up nature-based solutions to regenerate our biosphere.
  • Support the development of more circular economy solutions.

To ensure these efforts are self-sustaining, we aim to continue to maximize long-term value creation by achieving sustained mid single-digit organic growth, delivering continued moderate margin improvement and allocating capital prudently.