The Swiss food giant is under massive pressure from shareholders to alter its corporate recipe. The U.S. activist Third Point LLC urges the food maker to boost its earnings amid product demand weakening.
Nestle to make big changes
On Sunday, investor activist Daniel S. Loeb unveiled nearly $3.5 billion of its stock at Nestle and even declared his hopes for the company to make big changes. Loeb would like the food giant to sell its stake in L’Oreal since it is unaligned with the food production of the company.
Loeb is also urging the company to examine its portfolio with 2,000 brands at present and decide on selling off the brands that do not add value to the company.
Traditional brands under intense pressure
Nestle along with other food giants is experiencing problems since people nowadays have a different taste when it comes to food. People also have a different way of discovering and buying the foods they like. The other food makers are starting to sell their classic brands, yet Nestle is still found to be struggling to make the necessary adjustments.
Increase shareholders returns
Loeb admitted his desire to increase shareholders profit and that is the main reason he advises Nestle to sell its L’Oreal stake. As per him, it can “dramatically improve both the growth profile and earnings of the company.”
Different buying strategies
As it is evident in today’s market, the period where traditional grocery stores can determine which brands can make it or not in the competition. Nestle and other food makers can no longer depend on this particular strategy to secure victory.
A big chunk of the population nowadays is buying their groceries online. The age where a company must rule the shelves to be successful is no longer applicable.
“Traditionally, consumer-product companies bought fast-moving little brands and pushed them through their vast sales forces and onto retail shelves. But that distribution mechanism isn’t what it used to be,” said Jonathan Feeney (ConsumerEdge investment analyst).
Nestle and its action plans
Nestle is starting to pursue its action plans. It got rid of carrageenan agent from its ice creams and has invested in Freshly to discover a new way into people’s homes once again.
It even plans to sell its US confectionery business which includes Crunch and Raisinets and would focus more on flavored popcorn, coconut chips and other healthy snacks. However, analysts still believe that its confectionery business can generate more than $3 billion in sales. Its last year’s sales were $922 million.
Nestle and its comeback
Third Point wrote in a letter, “Nestle has fallen behind over the past decade in an environment where growth has slowed due to changes in people’s tastes and shopping habits, as well as an influx of new competition from smaller, local brands. While its peers have adapted to the lower-growth world, Nestle has remained stuck in its old ways.”
A statement released by Nestle says, “As always, we keep an open dialogue with all of our shareholders, and we remain committed to executing our strategy and creating long-term shareholder value. Beyond that, we have no specific comment.”
Reports reveal that Nestle’s CEO, Mark Schneider, is feeling pressure from activist investors and pledges to improve the company, work towards its growth though it might need to cut its costs a bit. It is evident that Nestle is trying to meet the expectations of its investors with the number of steps it tries to pursue for the recovery of the company. Analysts say that, "Previous management was not too open to listen to critics," he said. "Now with Mr. Schneider, one of his top priorities was to improve shareholder communication and investor relations. I think he's listening carefully to what investors are saying." Today, stocks of Nestle traded at $84.75 down by 1.05% from its previous close.
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