Nestle Stock- Nestlé’s Strategy Shift: Cost Cuts and Marketing Investment for Growth

Nestle Stock– Nestlé SA (SIX: NESN) has unveiled a bold plan to accelerate its growth by reorganizing its water and premium drinks divisions into a separate global unit, while also committing to increase its spending on advertising and marketing. At the same time, the company aims to cut costs by at least 2.8 billion Swiss francs (approximately $2.83 billion) by 2027. These moves come under the leadership of Laurent Freixe, who took over as CEO in September following Mark Schneider’s departure after disappointing sales performance.

Nestlé’s Plans for Growth Amid Organizational Shifts

Nestlé’s recent announcement marks a significant shift in its strategy as it focuses on achieving higher organic sales growth and improving overall market performance. Under the new leadership of Freixe, Nestlé aims to grow its organic sales by over 4% under normal operating conditions, significantly improving its underlying trading profit margin to 17%. In contrast, the company anticipates organic sales growth of only about 2% for 2023.

The company’s aggressive move to streamline operations involves cutting costs, with plans to save at least 2.8 billion Swiss francs by 2027. This reduction is in addition to ongoing savings of approximately 1.2 billion Swiss francs, which Nestlé is already implementing. These actions are expected to help reinvigorate growth after a period of stagnation under the previous CEO Mark Schneider, who scaled back investments in marketing and innovation during the COVID-19 pandemic. As a result, Nestlé lost market share to more affordable and innovative competitors.

Nestlé’s decision to reorganize its water and premium drinks divisions into a standalone global unit starting January 2025 also signals a new direction for the company, as it seeks to better focus resources on these key segments. This restructuring is part of Nestlé’s broader plan to regain consumer interest and address the underperformance of certain business units.

Increased Marketing and Advertising Spend

Nestlé’s renewed commitment to growth includes a substantial increase in its advertising and marketing budget. The company plans to raise its marketing spend to 9% of total sales by 2025, a figure not seen since 2019. This increase is a response to the company’s previous underinvestment in these areas during the pandemic, which had a lasting impact on its competitive edge. As part of the effort to rejuvenate the brand, Freixe emphasized the importance of improving underperforming businesses, stating that his goal is to “fix, rather than sell, the majority of them.”

This marketing boost is part of a broader strategy to reinvigorate Nestlé’s brand and improve its market positioning. By prioritizing advertising and promotional activities, the company aims to better engage consumers, ultimately increasing sales and strengthening its market share. According to Freixe, Nestlé intends to continue focusing on driving organic growth and addressing any weaknesses within its portfolio rather than divesting assets.

As Nestlé looks to increase its advertising expenditure, analysts are closely watching the company’s execution of this plan, as it could have significant implications for its future growth trajectory. Experts from RBC Capital Markets noted that Nestlé’s revised fiscal 2025 guidance is reassuring given the concerns around the company’s ability to maintain margin. However, they cautioned that the company’s forecast for over 4% revenue growth might be optimistic, as consensus expectations are lower.

Analyst Reactions and Market Outlook

The strategic changes at Nestlé have garnered attention from analysts, who are cautiously optimistic about the company’s future direction. Barclays analysts, for example, are particularly focused on the upcoming capital markets day (CMD) event, where they expect Nestlé to provide more clarity on its cost savings efforts, the timeline for these reductions, and its plans to boost sales and market share. These insights could offer valuable information on how Nestlé plans to achieve its growth targets and improve overall performance.

Despite concerns over the company’s ability to maintain margins, analysts are encouraged by Nestlé’s renewed focus on advertising and marketing. The increased spend on promotional activities is viewed positively, especially since it aligns with previous models from analysts who had anticipated such a move. This proactive approach signals Nestlé’s commitment to returning to growth after a challenging period of underperformance.

Analysts also appreciate Nestlé’s clear strategy in reorganizing its water and premium drinks divisions into a separate unit, which could lead to more focused and efficient operations. Given the shifting dynamics in the beverage market, such a move might allow Nestlé to better compete with both traditional beverage companies and newer entrants that have gained traction in recent years.

As Nestlé prepares to implement these changes, there is a sense of optimism surrounding the company’s outlook. The combination of targeted cost savings, a renewed focus on marketing, and strategic restructuring could help Nestlé regain market share and drive long-term growth. Investors and analysts alike will be closely monitoring the company’s performance in the coming months, especially as it works to improve its business and deliver on its ambitious growth targets.

Nestlé’s Path to Reigniting Growth

Nestlé’s latest moves reflect a clear commitment to reenergizing its business and reclaiming market leadership. With significant investments in marketing, cost-cutting initiatives, and the reorganization of its water and premium beverage divisions, the company is positioning itself for future success. While challenges remain, especially regarding revenue growth and margin sustainability, analysts are optimistic about Nestlé’s potential for recovery. As the company looks ahead to 2025, its focus on organic growth, increased marketing spend, and structural changes are likely to be key drivers in its pursuit of renewed success.

With a renewed sense of purpose under Freixe’s leadership, Nestlé is setting itself up for a competitive future in the ever-evolving food and beverage industry.