6 May 2008 - Paul Bulcke, Nestle's new CEO since April 2008, in a recent speech, praised his predecessor, Peter Brabeck-Letmathe, for the extraordinary growth Nestle enjoyed under his leadership.
With a view to continue Brabeck-Letmathe’s work, Bulcke said that he has been entrusted with a company where everything is “in place”, and he is ready to continue and expand on what has been achieved so far.
“In opting to focus on nutrition, health and wellness, you have, Mr Chairman, laid the foundations for solid growth and exceptional financial results”, said Bulcke at last month’s 141st Annual General Meeting.
|
He stressed the fact that, as Nestle’s, new CEO, he has no intention of changing the group’s strategy.
“We are heading in the right direction, one that will open the door to huge potential for development – for many years into the future. I have no plans to alter our chosen course. It is clear, however, that there is still room for improvement. We can become more efficient across all our operations, and in every country in which we do business. Accelerate the implementation of decisions, insist on uncompromising quality, everywhere and at all times, make our system more disciplined and more flexible, keep our eyes open and firmly fixed on a changing world – all this will be part of the scope of my job, and that of the Group management”, he said in a speech. |
Paul Bulcke - Nestle SA CEO |
BULCKE’S OBJECTIVES
In an interview with the French financial press, he said that he would rely on Nestle’s competitive strong points as well as its wide range of branded products.
He told French reporters that Nestle can be considered as the only company which caters for the consumer from cradle to grave, with products for infants, and for people with illnesses.
He reminded them that Nestle fully takes advantage from its research and development system, in which it injects1.9 billion Swiss francs per year. He also pointed out that the group has a network of 28 centres across the world and team of 5,000 researchers. Their work is used by 280 application groups who are responsible for putting in place all Nestle’s innovations.
Bulcke also commented: “Our strength also comes from our long-established global presence. Nestle is present in over 100 countries. We have been in Brazil for 85 years. It gives us knowledge of the countries and of the consumers in general. We have 481 production units, half of which are in developing nations. Another major asset is our workforce and our Swiss culture, relying on quality, honesty and pragmatism. Our workers are concerned by the group. Moreover, those who retire have on average worked 27 years”.
In the interview, Bulcke disclosed his three objectives for the group: To be known as the leader in nutrition, health and wellness; achieve sustained financial results; and be trusted by all parts of the group: employees, shareholders, the public in general, and the countries in which Nestle is present.
More specifically in financial terms, the CEO said that turnover and operating profit growth must increase each year, and return on investment must also rise progressively.
During the AGM, Bulcke outlined Nestle’s key strengths and highlighted the main areas for future company growth.
“Firstly, we have very strong brands, and a vast range of products to meet the needs of every age group at any time. Second, Nestle manages an unrivalled system of research and development. Third, our operations have been at a global level for decades, and we have acquired an in-depth knowledge of our markets. Finally, and this is the most important factor, we can count on competent, motivated employees who fully embrace our strong corporate culture”.
Bulcke sees a flagship role played, and to be played, by Nestle Nutrition due to its whole range of value-added products.
With annual sales of 2 billion Swiss francs, Nespresso is Nestle’s branch with the best growth rate. Bulcke also quickly mentioned Mövenpick, as a core part of the group’s high quality focus.
In the interview, he said that Nestle wants to develop a large portfolio of products in the nutrition, health and wellness areas, according to a method named “60/40 +“ – an idea, he says, that when tasting blindfolded, 60% of the tasters or more prefer Nestle’s products - The “+” symbol relating to Nestle’s nutritional advantage over competitors during the production process.
He also considers emerging and developing nations with their growing populations and purchasing power as prime markets for Nestle.
He predicts that Nestle can reach 1 billion more consumers in the next 10 years thanks to tailored offerings for those regions, in which the company has launched “PPP” (Products with Popular Prices), like in Africa.
In developing countries, Bulcke said that his group has a long-term strategy and that his company will not make a decision which could endanger it.
He told reporters that Nestle has several ways of reacting to current pressures. For instance, he said that the company can change its recipes and play with productivity. Every year Nestle changes its recipes for 20% of its products, which means that every 5 years the composition of the entire portfolio is changed, but strengthened in its healthy, nutritional and wellness image in order to remain the leader, said the CEO. He added that his company will never neglect quality.
Bulcke, meanwhile, pointed towards the potential of the eating out-of-home market, which is currently enjoying steady growth.
Eating outside home represents a market of 400 billion Swiss francs, as more than half of the developed country consumer’s food expenditure is outdoors - a very important target for Nestle, said Bulcke who went on to say that he aims to double Nestle’s current annual turnover of 7 billion Swiss francs by 2015-2016 thanks to this market.
He disclosed that, to cash in on this market, Nestle will place drink vending machines wherever possible.
And finally, he expressed satisfaction towards the success of Nespresso, which is considered as Nestle’s well-appreciated high-end or even luxury brand.
With annual sales of 2 billion Swiss francs, Nespresso is Nestle’s branch with the best growth rate. Bulcke also quickly mentioned Mövenpick, as a core part of the group’s high quality focus.
FOOD INFLATION
When asked about today’s food prices, Bulcke replied that the situation should stabilise.
The hike in agricultural raw material costs was violent, however Nestle’s global branches allowed the group to anticipate inflation, He believes that prices reacted to growing demand in China, drought in Australasia and the biofuels boom. Consequently, offer did not follow demand.
The CEO argued that the situation will become normal again in 2008 and he notices that milk prices have already started to fall. Meanwhile, the biofuels debate will become more balanced.
Bulcke told the financial press that companies do not have a direct responsibility in price increases. As for Nestle, he claims that his group did not drastically increase prices as the situation had been anticipated. Moreover, the percentage of raw material in the company’s production costs dropped significantly as priority was given to value-added products.
Bulcke estimated Nestle’s current raw material costs at about 20%, and expects that they will rise by about 2 billion Swiss francs. However, he stressed the fact that Nestle is maintaining its growth objectives and margins.
FUTURE CHALLENGES
When asked about tomorrow’s challenges, Bulcke replied that he will remain vigilant concerning the emergence of new global players. He said that there are many food companies that are strong in the developing world that we don’t yet know. These companies are able to recruit the best young talent in Universities and possess great innovation capacity and marketing tools. Their factories are extremely modern. They are Argentine, Brazilian, Chilean, Peruvian… The Chinese open an R&D centre each day, added Bulcke.
Finally, when asked about future acquisitions by Nestle, the CEO replied by saying that his group will not miss a good opportunity, however, he stressed the fact that Nestle does not have any acquisition projects at the moment.
More recently, FLEXNEWS reported that US drugmaker Bristol-Myers Squibb was planning to file a registration statement by year-end to sell approximately 10% and no more than 20% of its Mead Johnson Nutritionals baby formula food business to the public through an IPO. Bristol-Myers had tentatively approached PepsiCo, Danone, Nestle, Kraft and H.J. Heinz.
On this issue, Bulcke told the reporters that Nestle is interested in “everything that has a strategical meaning”.