LONDON/ZURICH (Reuters) - Nestle NESN.S, the world's largest packaged food firm, said on Wednesday it would reorganize its infant nutrition business to improve performance, five months after the new CEO listed the category as one of its priorities for growth.
The Swiss maker of Gerber baby food and Illuma formula will appoint regional managers for the business to address local trends faster. Rival Unilever ULVR.L took a similar step, with business heads for different countries.
The changes come as global consumer goods groups like Nestle, Unilever and Procter & Gamble PG.N are under intense investor pressure to boost profit margins as sales slow from people migrating to smaller, independent brands.
Infant nutrition is a key battleground for Nestle and its rivals Danone DANO.PA and Reckitt Benckiser RB.L, which bought Enfamil infant formula maker Mead Johnson.
Big established brands still retain consumer trust that they have lost in other areas of packaged food, particularly in China, a major focus for future growth due to growing affluence and a policy to allow two children per family instead of one.
Nestle has come under pressure to shift gear from activist shareholder Third Point, which in June revealed a $3.5 billion stake. Nestle has satisfied some demands, such as by buying back shares and setting a margin target.
Nestle said it would manage some areas of infant nutrition globally via a “strategic business unit” for innovation, quality management, compliance and global manufacturing capacity.
But it scrapped the role of a global nutrition head to be replaced by three regional business heads. Current Nutrition head Heiko Schipper leaves at the end of 2017, to lead Bayer AG's BAYGn.DE consumer health unit.
Nestle already manages most of its businesses regionally, with the exception of a few areas, such as bottled water, Nespresso, Nestle Health Science and Nestle Skin Health.
“The new organization will allow Nestle’s infant nutrition business to deliver accelerated organic growth and realize further efficiency gains,” Nestle said.
“The more agile and efficient structure will enable Nestle to respond faster to rapidly changing local consumer preferences, evolving regulation, and customer and channel demand for tailor-made solutions.”
GROWTH IN CHINA
Nestle is the world’s biggest infant formula maker, with about 22 percent of the market last year, according to Euromonitor. It is also the leader in the key Chinese market, which is changing rapidly due to the rise of “mum and baby shops” and new federal regulations that go into effect in 2018.
The market has temporarily slowed before implementation of the new rules as wholesalers and retailers reduce stocks, but Danone said strong sales in China contributed to a 4.7 percent rise in underlying third-quarter like-for-like sales.
Nestle Chief Executive told investors in September that China’s two-child policy taking effect and a stronger focus on quality would help Nestle in China. “We are reasonably optimistic when it comes to 2018, 2019,” he said.
Schneider said in June he would focus the company’s capital spending on particular high-growth categories including coffee, petcare, bottled water and infant nutrition.
The company also said Stefan Catsicas, its chief technology officer, was leaving “to pursue entrepreneurial and venture capital activities outside Nestle”. He will be replaced by Stefan Palzer at the start of the year.
Stefan Palzer has been head of the Nestle Research Center since 2016.
Nestle shares, up about 15 percent this year, were down slightly at 83.85 Swiss francs at 0908 GMT.
Reporting by Martinne Geller; Editing by Jason Neely and Edmund Blair
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