Nestlé S.A. - Reemphasis on Core Food Area in Later 1990s

Reemphasis on Core Food Area in Later 1990s

As the 1990s continued, Nestlé recommitted itself to its core food products area, never having been able to grow its health-care and cosmetics sectors into significant parts of the overall business. The company sold off some of its health and beauty interests, retaining Alcon and the minority holding in L'Oréal—it still hoped to gain full control of the latter, which was privately controlled. Nestlé made other divestments as well, including Wine World Estates, a group of northern California wineries (sold in 1995); canned beans and pasta operations in Canada, a fresh meat business in Germany, and cold meat operations in Sweden (1996); Contadina canned tomato products in the United States, Sarotti chocolate and Dany sandwiches in Germany, and Locatelli brand cheeses in Italy (1997); and Libby's canned meat products, which were sold to International Home Foods for $126 million in 1998.

Acquisitions in the mid-to-late 1990s centered around mineral water, ice cream, and pet foods. In 1993 Nestlé purchased mineral water brands in the United States (Deer Park and Utopia) and Italy (Vera and San Bernardo), as well as ice cream brands in Italy, the Philippines, and South Africa. Added in 1994 were the Alpo pet food company in the United States and Warnke ice creams in Germany; the company also gained a majority stake in chocolate maker Goplana S.A. in Poland. Still further expansion of the ice cream sector came in 1995 with the purchase of Conelsa, the leader in the Spanish market; the chilled dairy products division of Pacific Dunlop in Australia; and Dolce S.A.E., the leading maker of ice cream in Egypt. That year Nestlé also acquired Ortega, a leading brand of Mexican food products in the United States. In 1997 Nestlé entered the Canadian ice cream market through the purchase of Ault and Dairy World, giving the company a 40 percent market share. In early 1998 Nestlé took full control of the San Pellegrino mineral water group and acquired Klim milk powders and Cremora coffee creamers from Borden Brands International. Also in 1998 the company secured the number two position in the European pet food market, trailing only Mars, through the £715 million ($1.2 billion) purchase of the Spillers pet food business of Dalgety PLC.

Despite all of this activity, Nestlé's acquisition pace slowed during the late 1990s as the company shifted toward organic growth starting in 1996. The numerous acquisitions had enabled Nestlé to gain a presence in various product areas in various countries. The company now had fewer countries and products that it wished to add to its portfolio. Other reasons for the shift to organic growth included the increasing price of acquisitions and antitrust concerns. Meanwhile, in June 1997 Peter Brabeck-Letmathe was named chief executive, taking over the day-today management of Nestlé from Maucher. In September 1998 Nestlé announced that Maucher would retire as chairman by the spring of 2000, being replaced by Rainer Gut, then chairman of the Credit Suisse Group.

Nestlé's aggressive marketing of infant formula once again became an issue in 1997 when a report called Cracking the Code was issued by the Interagency Group on Breastfeeding Monitoring (IGBM), which had conducted research in Bangladesh, Poland, South Africa, and Thailand. The IGBM concluded that several companies, including Nestlé, were in violation of the World Health Organization's International Code of Marketing of Breastmilk Substitutes, which had been adopted in 1981. According to the report Nestlé's code violations included supplying pregnant women and health workers with materials that promoted formula feeding but did not emphasize the superiority of breast-feeding over formula, and distributing free samples. Nestlé countered by calling the report biased and flawed, and by eliciting a response critical of Cracking the Code from an independent marketing research consultant.

At the dawn of the 21st century, Nestlé had about 500 factories in more than 78 countries, boasted sales exceeding CHF 70 billion, and was the undisputed leader in the food industry worldwide. Its portfolio included more than 8,500 brands. The company had set a goal of achieving 4 percent underlying sales growth each year, but failed to meet this target for 1998, largely because of economic downturns in southeast Asia, Latin America, and Eastern Europe.