Nestlé: On a higher shelf than Danone

This is what consumer staples companies should do. Nestlé trumped first-quarter expectations by a country mile, with organic sales growth of 7.7 per cent year on year. That more than doubled the rate expected by analysts, lifting reported sales to SFr21.1bn ($23bn).

The Swiss food giant has not escaped the pandemic unscathed: shuttered restaurants and kiosks melted down sales of ice cream and other out-of-home offerings last year. But other lockdown trends play to its strength. Newbie bakers and pet owners both helped drive growth while a 17 per cent rise in coffee sales showed a caffeine habit is as hard to kick at home as in the office.

What is Nestlé doing that eludes serial disappointer Danone? Nestlé has managed to squeeze more from its assets than has Danone. One can see this in the surge in Nestle’s return on equity since 2017, more than doubling to 25 per cent in 2020. Meanwhile, Danone’s has travelled the other direction, losing more than six percentage points in the same period. Also, the sales it generates from its assets have slipped away.

Portfolio mix explains part of the food duo’s diverging performance. Nestlé is offloading bottled water assets, which fall foul of greener trends. Organic sales fell 5.6 per cent in the first quarter, roughly half the equivalent like-for-like sales at Danone.

Nestlé has also found new growth areas such as health and functional foods. At its life sciences division, organic growth of 9.5 per cent was further boosted by acquisitions.

Distribution is the third leg. Consumer goods companies have historically relied on supermarkets and drugstores to shunt — and oftentimes promote — their goods. Efforts to diversify channels are piecemeal. Moreover, Nestlé has made more progress in ecommerce, which now accounts for 14.5 per cent of sales compared with a tenth at Danone last year.

Finally, Nestlé unlike Danone has a permanent boss in situ to execute its long-term strategy. That too is a staple for any well-performing multinational.

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