Nestlé H1 confectionery sales dip; cornerstone brands need investment, says analyst

By Hal Conick

- Last updated on GMT

Will Nestlé leave confectionery investment behind too soon?
Will Nestlé leave confectionery investment behind too soon?

Related tags Health care Health Medicine

Nestlé confectionery sales dipped $300m in H1, so if it wants to stay at the top it must continue to invest in brands like KitKat rather than focus too heavily too soon on health and wellness, Euromonitor says.

The Swiss food major pulled in 42.84 billion Swiss francs ($43.87bn) in sales for H1 with profits down 0.3% from last year. However, its confectionery arm, which includes brands such as KitKat, Butterfinger and Crunch, saw an 8.5% organic growth for its first financial half of the year (January to June 2015).

Paul Bulcke, Nestlé CEO, said these results were in line with the company’s expectations.

“They reflect the relevance and strength of our Nutrition, Health and Wellness strategy and our discipline in execution,”​ Bulcke said. “Our investments in the new growth platforms Nestlé Health Science and Nestlé Skin Health are delivering and complement the good momentum in our food and beverages businesses. This allows us to confirm the outlook for the full year.”

Too soon to leave confectionery behind

Lianne van den Bos, a food analyst with Euromonitor International, warned it would be hasty to leave behind confectionery in terms of investment.

“Whilst Nestlé is shifting its reliance on food towards health care, it does generate one third of its business from confectionery and frozen processed food,” ​van den Bos said in a statement sent to ConfectioneryNews.

Confectionery growth across the world.

Nestlé reported confectionery growth or improvements across the world, including:

  • The Middle East
  • North Africa
  • China
  • Japan

She said Nestlé may want to rebalance its portfolio away from categories such as meal replacement, pasta, spreads and snacks to focus more on the iconic food brands while it moves reliance toward healthcare.

Maintaining the lead

Nestlé is facing similar headwinds to last year, van den Bos said, but still managed to have some nice results given the market conditions.

The company is continuing to lead global packaged food with a 3.4% share as of 2014, she said, so it would take a serious investment from second-place Mondelēz to close market share gap there.

“A gap which is roughly equivalent to the combined sales of a handful of Nestlé’s iconic brands: Stouffer's, Kit Kat and Häagen-Dazs,”​ van den Bos said. Yet with the company refocusing its investment on nutrition and healthcare, who is to say that it won’t [close the gap]?”

In confectionery, the company is in fourth place with a 5.2% market share, putting it a touch behind Cadbury at 5.4%.

Overall expectations

Van den Bos said while Nestlé is aiming for an organic growth of 5% over the rest of the year, expecting similar conditions to 2014, the world GDP will likely be lower, thus making it likely the company does not meet this expectation.

“Having said that quite a lot of ‘loose’ sales come from smaller categories such as spreads, pasta, meal replacement and sweet and savory snacks where sales have been underperforming over the last five years, and have contributed little to overall 2014 growth,”​ van den Bos said.

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