Nestlé: diversified brand power

True, Nestlé does have exposure to some of the worst affected parts of food retail – namely within its ‘professional’ restaurant business, its water division and its ‘Nespresso’ coffee boutiques, as well as confectionery and ice cream. But first-quarter sales declines in these areas were more than offset by strong demand for the group’s ‘essential products’, including prepared meals, cooking aids and the Purina PetCare range.

It helps that Nestlé owns more than 2,000 brands, including big names such as Felix cat food, KitKat chocolate bars, Quality Street sweets and Nescafe instant coffee. The sheer size of that empire means that Nestlé is very well diversified; an attractive quality in normal circumstances, but particularly so in such uncertain and challenging times. What’s more, while 26 per cent of Nestlé’s portfolio constitutes premium goods, the rest pertains to mainstream products. This should help protect the group from the risk of hard-pressed consumers trading down from top-end brands.

Nestlé is diversified geographically, too. While its largest region by revenues is the Americas, the group sells into 187 countries in total. Developed markets were the main engine of growth for the first quarter, with a 7.4 per cent uptick in organic sales, but emerging markets still edged up very slightly. Meanwhile, the group has also shown versatility in its methods of reaching customers. Out-of-home sales contracted during lockdown, but Nestlé’s e-commerce revenues rocketed by 29.4 per cent – exceeding a tenth of total sales for the first time ever.

Today’s portfolio is a product of a judicious approach to acquisitions and divestments, under the watchful eye of chief executive Mark Schneider. Since his appointment at the start of 2017, there have been more than 50 transactions and reviews, allowing it to focus specifically on the categories of nutrition, health and ‘wellness’. This has helped reinvigorate organic growth following several sluggish years to 2018. It has also helped push the group's impressive returns higher (see chart below).

This has helped Nestlé tap into fast-developing trends. For example, its decision to purchase plant-based food company Sweet Earth in 2017. In the US alone, plant-based food sales are said to have reached a whopping $5bn in 2019 – up by 29 per cent over the previous two years. But the group has also made sizeable disposals, such as the sale of its US ice-cream business for a cool $4bn (£3.2bn) at the start of the year.

And earlier this month, Nestlé announced plans to “sharpen” its focus in the water market and make it carbon neutral by 2025. This could include the sale of the North American business, which accounts for CHF3.4bn of the division's CHF7.8bn revenue.