Business | General
Challenge of simplicity
New Nestle chief takes over at the company's best of times but maintaining continuity of growth remains a tough task.
- By Jonathan Sibun, The Telegraph Group Limited,London 2008
- Published: 00:33 May 15, 2008
Few chief executives will have been greeted with a welcome present like the one Paul Bulcke received when he took the top job at Nestle a little over a month ago.
While Nestle staples such as a Kit Kat or a jar of Nescafe might have suited the Belgian-born 54-year-old, chief executive and chairman Peter Brabeck chose to give his successor a more valuable bounty.
One of Brabeck's last actions before giving up the chief executive position was agreeing to sell Nestle's majority stake in eye-care business Alcon to Novartis in a deal worth as much as $39 billion (Dh143.44 billion). As welcome presents go, a pot of money that size wasn't to be sneezed at.
Bulcke steps into the breach at a time of rude health for Nestle. The Swiss food giant has skated imperiously over any problems in the global economy, continuing to outperform analysts' expectations. In March, the company said it had enjoyed "outstanding organic growth" in the first two months of the year and forecast that annual sales would rise 7.5 per cent in 2008.
On the face of it, Bulcke is taking the top job at the best of times, but with success comes pressure. Any slowdown in growth will quickly have analysts pointing fingers. With commodity inflation rampant and signs that the slowdown in the US economy is spreading further afield, the pressure is likely to grow.
Bulcke - ebullient and relaxed during his first interview with a UK newspaper - seems ready for the challenge as he espouses a philosophy that success is "10 per cent inspiration and 90 per cent perspiration". That belief might suggest Bulcke needs to put in less work than Thomas Edison - the inventor who famously put the perspiration level at 99 per cent - but the message is clear.
Simple philosophy
For the CEO of the world's largest food company, which employs some 280,000 people, life should be simple. "I like action. What you have to do, you do," he says. "If it looks simple that is good, because if it is not, then it doesn't work."
Bulcke's "simple" philosophy rests on leveraging the company's four key strengths and driving growth in four further areas. He names Nestle's product portfolio, which boasts 29 brands with sales of over Sfr1 billion (Dh3.48 billion), research and development, in which Nestle is investing Sfr2 billion, global presence, and workforce. At the same time, Nestle is pushing growth in nutrition, emerging markets, premium products and the out-of-home market.
Continuity is a watchword for Bulcke, who has minimised change on taking the top job. The company's focus on growing its nutrition business is just one example.
"The vision of Nestle is to be the leading nutrition, health and wellness company in the world," Bulcke says. "When you have a good vision you don't change it dramatically each year. If you spoke about nutrition 100 years ago, it was about feeding people. If you speak about nutrition today, it is to feed the people with fewer calories. The vision has to evolve over time."
That push is being driven, Bulcke says, by turning Nestle from a 'commoditised, raw materials-based food and beverages company to an added-value, science-inspired nutrition, health and wellness company".
The language might be flowery but the strategy - with a focus on fast-growing, high- margin products - is sensible, say analysts. The company is focusing resources on Nestle Nutrition, set up two years ago to target people with specific nutritional needs, from babies to athletes. Nestle's recent partnership with Boost Juice, Australia's leading juice and smoothie business, is the latest example of its nutrition push.
The out-of-home market is equally enticing. Nestle is already the global market's leading supplier of products to coffee chains, hotels, restaurants and other food retailers, with annual sales of Sfr7 billion, but Bulcke hopes to double that within eight years.
Beverage sales through vending machines and branded meals will be the focus, markets Bulcke claims are worth a combined Sfr400 billion. A new global division will drive that growth.
Bulcke is equally ambitious when it comes to growth in emerging markets. More than a third of the Swiss company's sales come from the developing world, but Bulcke believes that could reach 50 per cent over the next 10 years as Nestle reaches one billion more consumers. With operations in "almost every country" and the rise of a middle-class, emerging markets consumer able to buy Nestle's products daily, that ambition seems well placed.
Competition
Bulcke believes Nestle and other global companies are under pressure to develop their emerging market businesses faster, for fear of being overtaken by domestic rivals.
"We have been talking about the developing world for many years - the difference now is that it is developing," he says. "Historically they have been trying to catch up. Now we have companies with aspirations to lead the world."
Bulcke is well aware of the rise of the developing world as it has, in part, driven the greatest challenge facing food companies this year, namely commodity cost inflation. The price of milk, a staple in Nestle's chocolate and other dairy products, has soared together with wheat, barley, metals and a host of other raw materials.
Nestle's boss believes prices will normalise, claiming that there is no "economical reason why the price of a product doubles in two months". But he believes the age of cheap commodities is over. "We will have to learn to live with more honest prices," he says.
Part of Nestle's success in recent months has been driven by its ability to cut costs, reformulate products and pass on price increases early - its size means it can adopt a more aggressive approach with retailers than many of its smaller rivals can afford to - but despite signs that some commodity cost pressures could be easing, Nestle is not out of the woods.
As Bulcke waits for cost pressures to ease, analysts expect him to spend his welcome present. Describing it as a "luxury problem", Bulcke refuses to be drawn on a possible acquisition of French cosmetics group L'Oreal. Nestle already owns a 30 per cent stake and Bulcke says only it is "something on which we have to give answers at the right time, and now is not the right time".
As Nestle's ebullient new boss settles in to life at the Swiss giant, it is not a bad problem to have.
PROFILE
Paul Bulcke
Position: Chief executive, Nestle
Nationality: Belgian
First job: Financial department, Scottex
Family: Married with three children
Hobbies: Sailing, studying for his private pilot's licence
Share this article
More from Business General
More from Business
Popular in Business
-
Global Village
A world of fun
Revamped layout featuring four cultures to greet visitors this season
Business Editor's choice
-
Deflating the financial bubble
Aggressive adoption of quantitative easing has boosted world markets
-
Remittances to India unabated
Transfers of money from the UAE to the Philippines are also normal
-
Blending culture with commerce
Visitor numbers have increased almost 500% since event's inception in 1996
