A Shift in Strategy
Nestlé, the world’s largest food company, is ramping up its innovation efforts after acknowledging that it has devoted “less energy” to it in recent years due to heightened inflation. CEO Mark Schneider admitted that the business, along with the rest of the industry, had slowed down its innovation efforts as supply chain shortages and inflation hit FMCG businesses.
The Impact of Inflation on Innovation
Schneider explained that during this challenging period, businesses were grappling with how to keep supply chains running, focus scarce resources on core SKUs, and keep shelves stocked. As a result, less energy was devoted to innovation and renovation. This slowdown in innovation may have inadvertently helped private label competition, leading to a loss in market share for brands owned by companies like Nestlé.
The Role of Innovation in Regaining Market Share
As Nestlé attempts to regain its market share and grow sales volumes, Schneider emphasized the need for consistent execution of innovation. The company is leveraging its innovation to create “new category opportunities”. This innovation is supported by increased advertising and promotional spending, aimed at fuelling growth and supporting stronger consumer engagement.
Driving Growth Through Volume
During the recent years of heightened inflation, pricing was Nestlé’s key driver of sales growth. However, the company has now shifted its focus to drive growth through volume, or what it calls “real internal growth”.
Performance in Q1 2024
In the first quarter of 2024, the company experienced a “slow start”, with organic sales growth of 1.4% year over year, generating CHF 22.1bn (£19.36bn) in sales. Pricing contributed 3.4% growth, while real internal growth declined by 2%. Despite this slow start, Schneider expressed optimism about the future, expecting to see “a strong rebound” in real internal growth in the next quarter.
The Importance of Marketing
Schneider noted that the company’s focus on marketing was a reaction to the slow start to the year. He stated, “This is not about forward-looking marketing spend that we will initiate now. We’ve been essentially on the accelerator since Q2 last year.”
A Nuanced Approach to Pricing
On the topic of pricing, Schneider echoed some of what rival Unilever said in its most recent results. Both companies have committed to focusing on their most profitable brands. For Unilever, these are its “power brands”, and for Nestlé, its “Billionaire” brands. Schneider commented that pricing going forward will have to be a lot more nuanced than in the past, indicating that Nestlé will continue to “moderately” increase prices even as inflation begins to ease.
Conclusion: A Renewed Focus on Innovation
Nestlé’s renewed focus on innovation, backed by increased advertising and promotional spending, signals a strategic shift in the company’s approach to tackling the challenges posed by inflation and market competition. As the company navigates these challenges, its commitment to innovation and a nuanced approach to pricing will be key factors in driving its growth.
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