Nestlé, the world’s largest food manufacturer, has faced significant challenges in maintaining its organic growth. The company’s new CEO, Laurent Freixe, recently revised the projected growth figure for 2024 to approximately 2%, down from the previous estimate of “at least 3%” set by his predecessor, Mark Schneider, in July. This marks a significant drop from the initial expectation of around 4%, a target set earlier in the fiscal year. Such low growth levels haven’t been seen at Nestlé since 2017 when the company reported an organic growth of 2.4%. Should Nestlé’s performance drop further, analysts and investors may need to look back to the early 2000s for similarly low growth figures.
This reduction in growth underscores the tough landscape Freixe, a nearly 40-year Nestlé veteran, is now navigating as the company’s new leader. Having taken over as CEO on September 1, 2024, Freixe faces a complex set of challenges, many of which stem from external economic conditions rather than internal mismanagement.
A Legacy of Growth, Now in Decline
For years, Nestlé has maintained a reputation for consistent and strong growth. In 2010, the company reported an organic growth rate of 6.2%, and the average growth over the previous decade stood at 6.3%. These figures are a stark contrast to the much lower growth rates Nestlé has seen in recent years. Since 2017, when the company’s organic growth fell to 2.4%, the food giant has struggled to regain momentum amid shifting global market dynamics.
Freixe’s predecessor, Mark Schneider, took over the reins of the company in 2017 and was able to stabilize growth in a challenging environment. His leadership saw Nestlé achieve respectable figures despite various headwinds, such as increased competition and changing consumer preferences. However, the difficulties faced by both Freixe and Schneider are not entirely of their own making.
The Challenges: Inflation, Pricing, and Consumer Demand
A major factor contributing to Nestlé’s current slowdown is the softening consumer demand, which has been exacerbated by inflationary pressures over the past two years. Global cost inflation has affected all food manufacturers, and Nestlé is no exception. Rising input costs, particularly for raw materials and logistics, have forced the company to increase prices. However, despite these price increases, Nestlé’s organic growth has been relatively modest.
In the first nine months of the 2024 fiscal year, Nestlé implemented a 1.6% price increase. This increase followed what Freixe described as “unprecedented” price hikes over the previous two years. While these measures helped to offset some of the cost pressures, they have not been enough to stimulate significant growth, particularly in a global economy characterized by weakened consumer purchasing power.
Consumers have become more price-sensitive, and many are opting for lower-cost alternatives or reducing their overall spending on premium products. This shift in consumer behavior, coupled with cost pressures, has made it difficult for Nestlé to achieve the high growth rates it once enjoyed. Even though the company has worked hard to maintain its market position, these external factors continue to pose a significant challenge.
Freixe’s Vision: Stability Amid Turbulence
Laurent Freixe is no stranger to Nestlé or the complexities of the global food industry. Having spent nearly 40 years at the company, he has held various leadership positions across different regions, most recently as the CEO of Nestlé’s Zone Americas. His deep understanding of the company’s operations and the broader industry equips him well for his current role. However, he is inheriting a company facing unprecedented challenges.
Freixe has expressed optimism about Nestlé’s ability to weather these challenges. In his prepared remarks, he noted that despite the difficult environment, the company has delivered steady organic sales growth, with positive internal growth metrics. He emphasized that while consumer demand has softened, Nestlé remains committed to innovation, sustainability, and providing value to its consumers.
One area where Nestlé has shown resilience is in its ability to adapt to changing consumer preferences. The company has made significant investments in plant-based products, health and wellness offerings, and digital transformation. These initiatives are designed to align with emerging consumer trends and position Nestlé for future growth.
Future Outlook: Cautious Optimism
Looking ahead, the road to recovery for Nestlé may be slow and uneven. The global economic landscape remains uncertain, with inflationary pressures still present, albeit to a lesser degree than in the previous two years. Freixe’s leadership will likely focus on navigating these external challenges while leveraging Nestlé’s core strengths to maintain stability.
Key to Nestlé’s future success will be its ability to balance price increases with consumer demand. If inflation continues to ease, there may be room for Nestlé to moderate its pricing strategy, which could help boost sales volumes. Additionally, the company’s investments in innovation and digital transformation will play a crucial role in differentiating its product offerings and maintaining its competitive edge.
Freixe’s track record suggests that he is well-equipped to lead Nestlé through this turbulent period. His experience in managing Nestlé’s operations in diverse markets gives him valuable insight into the challenges and opportunities that lie ahead. While the 2% growth target for 2024 may seem modest, it reflects a realistic assessment of the current market conditions and the hurdles that the company must overcome.
Conclusion
Nestlé’s reduced growth projections for 2024 mark a challenging start for CEO Laurent Freixe. However, the company remains a global leader in the food industry, with a strong brand and a history of innovation. As inflationary pressures begin to subside and consumer demand stabilizes, Nestlé is well-positioned to return to higher growth levels in the future.
Freixe’s leadership will be critical in navigating the complex economic landscape and steering Nestlé toward a more prosperous future. While the challenges are significant, Nestlé’s commitment to delivering value to its consumers, combined with its adaptability and resilience, provides reason for cautious optimism.