At the Vevey-based headquarters of the world’s largest chocolate manufacturer, what was on offer went far beyond Kit-Kats – emblematic of the changes in Nestlé, the largest food manufacturer in the world. Its 2007 sales of $108bn dwarf the gross domestic product of oil-rich Kazakhstan.

Chairman Peter Brabeck was much more intent on talking about what the company calls “wellness and nutrition”, code for higher-margin, higher-growth products that play to the fashion for health and diet. But surely the nutritional claims for products such as Enviga, a carbonated green tea with caffeine, don’t bear too close an examination? A Nestlé-funded study shows that subjects who drank Enviga burned up to 100 calories daily.


Rise of nutrition

Mr Brabeck, a 40-year veteran of Nestlé, who in mid-April gave up his CEO role, notes on a wider basis that moderation is key – for instance, he says, one gram of salt has no ill effects but 100 grammes will.

He says that he cannot forecast how large a percentage of sales the wellness and nutrition part of the business will be in five years. It is about 12%, rising to 17% when foods with nutritional claims are included. But he notes that “just because of mathematics”, it will be helped by disposals of units such as the dry pasta business, which is in the process of being sold. Nestlé dedicates one-quarter of its research budget to wellness and nutrition, evidence of its strategic importance.

However, even as the food industry moves into this sphere in a search for profits and to pre-empt heavy-handed regulation from developed world governments intent on finding a scapegoat for the worrying rise in obesity and its related diseases, it looks likely to be hit by increased activism from consumer groups such as the Center for Science in the Public Interest.

The American non-governmental organisation (NGO), which has been effective in targeting companies such as Kellogg’s and Kraft, is alleging fraudulent claims in the marketing and labelling of Enviga in a lawsuit. Mr Brabeck says that he deals with every accusation and letter from an NGO – part of the job in a company that is present in every country.

He says, rather proudly, that former US vice-president Al Gore told him that he once drove around in a car with a Boycott Nestlé bumper sticker on it, in response to the infamous scandal about Nestlé’s marketing of baby formula in Africa in the late 1970s, but the environmental campaigner now includes the company’s shares in his ethical fund.

Powerful position

Nestlé bestrides the world, with 8000 brands and 1.2 billion of its products sold daily. It is so powerful that even during the baby milk boycott it quadrupled sales, according to the company. Only 20% of its turnover is sold through the 10 largest retailers in the world – many other food manufacturing companies complain that their margins have been beaten down by companies such as Wal-Mart and Tesco.

Finally, it has such world-class brands – Nescafé coffee, Perrier water, Purina pet food, among others – that it has been able to pass on more of the increased cost of raw materials to consumers than many competitors. It also uses its clout as the largest buyer of green coffee and cocoa in the world to negotiate lower prices, as well as being R&D-savvy; for instance, its use of Robusta beans instead of Arabica in coffee is still achieving the same cup quality, notes Mr Brabeck.

All of the emphasis on health does not mean that chocolate is unimportant for the company. In March, it established an R&D facility called the Chocolate Centre of Excellence for top-end chocolates. But where Mr Brabeck is concerned, Kit-Kat is not on the radar screen: “The amount of sugar eliminated [from our products] over the years is hundreds of thousands of tonnes.”

In his 11 years as CEO, Mr Brabeck has accelerated the pace of innovation. Some 20% of all products are now improved annually. But it is not just the marketing spin of a flavoured Perrier. It is also about iodising Maggi cooking cubes in Africa – because this helps to prevent goiters – and substituting healthier olive oil for palm oil in them, he points out. “It is, without doubt, the food industry’s responsibility to change the offer we have today in certain parts of the world.”

He has stepped back from the day-to-day business – insisting that in his continuing role as chairman he will not interfere with how new CEO Paul Bulcke runs the company – on a high.

Exceeding expectations

Looking at Nestlé’s first quarter sales and profit figures, its 2008 earnings may well see the same organic growth as last year, 7.4%, much higher than the 141-year-old company’s long-term target of 5% to 6%, analysts believe.

In May, the company announced the (much anticipated) disposal of its 77% stake in Alcon, an eye-care business, to pharmaceutical group Novartis in a two-stage transaction worth $39bn between 2008 and 2011. Speculation is rife that it will use the bulk of the cash to take control of cosmetics company L’Oréal, in which it has a 29% holding, when a shareholder pact expires, because this would fit with its strategy.

Alcon was bought for $100m in 1977 when conglomerates were in fashion and the company needed the profits boost from a high-growth industry. In a February research report, Morgan Stanley, which has a “buy” on the stock and a price target of CHF550 ($527), noted that Nestlé no longer needed to rely on earnings from Alcon to deliver good results – implying kudos to Mr Brabeck’s strategy during his time in the executive suite of the multinational.

On the day of the interview, 82 nationalities were present in the Swiss headquarters. Women were also around but absent from the 14-strong executive board. Mr Brabeck was jeered by women at a 2006 conference when he admitted this. He says that the problem lies with criterion for top managers to have had international experience and the company is working on the issue. Perhaps Indian-born Indira Nooyi, the female CEO of competitor Pepsico, might be able to give Nestlé a few tips.

Mr Brabeck is not afraid to take unpopular positions, be it on genetic engineering (for) or alternative energy targets (against). “If we really want to achieve what politicians say – if we want to supply 20% of Europe’s and the US’s energy through biofuels or renewable energy – you won’t have enough to feed the world,” he states categorically. He is not surprised at the current social unrest and food riots.

As for the environmental impact of bottled water, he is refreshingly dismissive of campaigns to encourage people to drink tap water instead, noting that it takes up to four litres of water to make a carbonated drink which might be drunk in its place, that London loses 30% of its water through leakage, that Nestlé’s water division uses 0.0009% of the water withdrawn by mankind, and a host of other numbers.

The statistics and the corporate message only come to an end when talking about the prospects for Latin America, where Mr Brabeck spent 17 years. Now that he has a bit more time on his hands, perhaps the continent could benefit from his expertise. n

Karina Robinson is the senior editor of The Banker. This article has been adapted from her monthly column.



Headquarters: Vevey, Switzerland

Other offices: 13 locations

Turnover (2007): CHF107.55bn ($103.08bn)

Employees worldwide: 7000

Established: 1867

Leading brands: Nescafé, Kit-Kat, Ski, Carnation, Buitoni, Perrier, Purina and Herta