Nestlé Adopts 'De-averaging' Strategy to Drive Growth

Nestlé is pivoting toward a "de-averaging" strategy that concentrates investment in high-growth subcategories while addressing execution lapses in its North American operations. The company reported an improvement in real internal growth (RIG) to 1.8% in the second quarter of 2024, up from 1.2% in the first quarter, signaling momentum in its operational reset.

The strategy narrows the company's marketing focus. Nestlé has reduced its brand media investment from 400 brands to 120, while decreasing non-working media spending to below 20% of its budget to ensure more capital reaches consumer-facing initiatives.

"We are at about 6% of sales in active transaction work, and frankly that is about the limit before it starts to distract from the core business," said Anna Manz, Chief Financial Officer at Nestlé, during the Barclays Global Consumer Conference.

Operational Limits and Margin Targets

Manz stated that while the company is pruning its portfolio and streamlining operations, there is a limit on how much organizational change can occur simultaneously without harming core performance. The "de-averaging" approach identifies and supports specific winners within the portfolio rather than applying uniform growth expectations across all product lines.

Regarding financial discipline, Manz addressed the firm's underlying trading operating profit (UTOP) margin, a key metric for investors tracking the success of the current restructuring.

"The 17% UTOP margin target is a floor, not a ceiling," Manz said.

Addressing North American Execution

The reset arrives as Nestlé works to stabilize its performance in North America, a market that has faced recent headwinds due to execution failures. By reallocating resources toward the 120 core brands, the company intends to improve its competitive positioning against specialized food and beverage rivals. The shift represents a move away from the high-volume model that characterized the firm's historical approach, favoring a surgical deployment of capital into segments with the highest potential for volume expansion.