Nestlé To Cut Costs By $2.8bn In 2027

Nestlé Group under its new CEO, Laurent Freixe plans to significantly increase advertising and marketing spending, achieve at least $2.8bn in cost savings by 2027, and establish its water and premium drinks businesses as a standalone global unit, the Swiss multinational announced during its capital markets day on Tuesday.

Freixe, a 40-year veteran of the world’s largest food company, replaced Mark Schneider, who was ousted following investor dissatisfaction over weak sales volume growth.

Under Schneider’s leadership, Nestlé had curtailed marketing budgets and innovation investments during the COVID-19 pandemic, decisions that left the company struggling to compete against more innovative and better-advertised rivals.

According to the group’s statement, Nestlé, whose brands include Nescafé, KitKat, and Milo, revealed plans to increase its advertising and marketing expenditure to 9 per cent of total sales by 2025. This marks a return to the company’s 2019 levels, compared to 7.7 per cent of sales in 2023. The increased investment aims to regain market share and fuel growth.

In addition to ramping up marketing efforts, Nestlé has set a goal of achieving 2.5bn Swiss francs ($2.83bn) in cost savings by 2027, supplementing the rolling savings of around 1.2bn Swiss francs.

Nestlé is targeting medium-term organic sales growth of over 4 per cent in normal operating conditions, with an underlying trading profit margin of 17 per cent. This forecast contrasts with the approximately 2 per cent organic sales growth expected for 2024.

As part of its restructuring, the company will separate its water and premium beverages businesses into a global unit by January 1, 2025. While Nestlé has not committed to divestment, analysts, including Jean-Philippe Bertschy of Vontobel, believe the move could pave the way for a spin-off or private equity sale.

Freixe emphasized a commitment to strengthening Nestlé’s core brands, such as Nescafé and Maggi, and improving underperforming segments. “We don’t have a portfolio problem,” stated CFO Anna Manz, dismissing the notion of cutting down the company’s more than 2,000 brands. “Our focus is on fixing, rather than selling, the majority of these businesses.”

Analysts have welcomed the renewed focus on growth, with Bertschy describing the marketing push and cost-saving initiatives as a “first step in the right direction.” Nestlé’s strategy mirrors broader industry trends, as rivals like Unilever have also announced plans to streamline portfolios and divest weaker brands.

Freixe expressed confidence in the company’s roadmap, stating, “Our action plan will improve the way we operate, making us more efficient, responsive, and agile. This will allow us to deliver value for all our stakeholders.”