Nestlé's Market Wars

By Benady, Alex | Chief Executive (U.S.), April 2005 | Go to article overview

Nestlé's Market Wars


Benady, Alex, Chief Executive (U.S.)


The food giant is drawing on local expertise to put marketing at the heart of its global growth strategy.

Peter Brabeck's office in Nestles headquarters in Vevey, a small town in French-speaking Switzerland, overlooks the glassy waters of Lake Geneva and the snow-topped peaks of the Haute-Savoie Alps. It is a fitting setting for the CEO- and chairman-designate of the world's largest food company. But it also seems a world away from the outcry that erupted in Britain recently over Nestle's decision to alter the packaging of its popular Smartics candies.

After 67 years of being packaged in cardboard tubes, the M&M-like coated chocolates are to be sold in a hexagon-shaped box. It is part of a revamp that, if successful, could extend across the globe. A similar outcry came in 1999 when Nestlé reinvented the Kit Kat chocolate bar by giving it a chunkier shape.

Hullabaloo over candy packaging? It's true. Consumer attachment to the way a product looks on shelves underlines the significance of brand identity and marketing to Nestlé. Indeed, Brabeek, 61, is standing in for Ed Marra, the company's senior marketer, who is on long-term disability leave. The fact that the task is delegated upwards is an indication of how central marketing and brands are to Nestle, which boasts about 8,000 products with up to 20,000 variants and an annual marketing budget of $2.5 billion. "We are a branded consumer-goods company," says Brabeek. "Marketing is important because it is the engine of growth and brands play a key role in this."

The Nestlé empire is so vast that, were it a country, its sales last year of $65.5 billion would make it the 67th largest economy in the world-about the size of Syria. Its work force numbers 250,000, and it has production facilities in 80 countries.

Spurred by the $57 billion purchase of Gillette by Procter & Gamble, there is a widespread view that branded goods groups, such as Nestlé, will lose in confrontations with large retailers such as WalMart. Brabeck argues against a shift among some food producers toward becoming suppliers for big retailers by making ownlabel and private-label items. "Private label is, for me, the expression of the industry's failure to create value," he says.

For Brabeck, the growth of groups such as Wal-Mart, Carrefour and Tesco has helped both sides, as well as consumers, by cutting the complexity of distribution, one of the biggest costs in the business.

With such an enormous product portfolio, Nestlé uses six umbrella brands: Nestlé, which accounts for 40 percent of the business, Purina pet foods, Maggi, Nescafe, Nestea, and Buitoni. Brabeck, himself a former marketer, confesses that in the past he was frustrated by the peripheral role played by marketing and the lack of accountability that arises in "matrix organizations" where managers with other responsibilities overlap with local market management. "We had marketing to one side," he says. "It was responsible for some innovation, but it wasn't responsible for country [performance]. For too long, marketing was just one part of the business."

Brabeck addressed this problem by making his head of marketing responsible for the company's seven strategic business units - dairy, confectionery, beverages, ice cream, food, pet care and food services. These units establish global business strategy and are also responsible for research and development, production expertise and systems control. Out of this comes a regional strategy, which is in turn the starting point for local market business strategies. This means, he says, that not only docs marketing thinking permeate the business, but business thinking permeates marketing. "The marketer has a much broader range of responsibilities. For instance, he has to sign off on every new factory opened because he has to assure me of global capacity utilization and return on investment," he says.

Brabeck stresses there will be no upheavals with his taking on the additional role of chairman in April, although it does buck the worldwide trend in corporate governance that increasingly splits the roles of chairman and CEO. …

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