Nestlé (VTX:NESN), the world’s largest food company, has both good and bad news.
The maker of Nescafe, KitKat, Purina pet food, and many other top brands revealed their figures for 2016, and it is disappointing. Net profit has come down to $8.4 billion from $9 billion a year back. Sales growth has slowed from 4.2 percent to 3.2 percent on account of low demand in emerging markets and food inflation.
As a consequence, the sales growth target has been reduced between 2 percent and 4 percent for this year, and the company has also initiated a cost-cutting plan. This is a big change for the company because traditionally, Nestlé has always targeted 5 percent to 6 percent growth, in what is known as the “Nestlé model”.
The management doesn’t seem positive about the immediate future as well. The new CEO Mark Schneider says it might be several years before Nestlé again returns to the growth rate of previous years. Mark also said they might exit underperforming businesses that cannot be fixed.
Ecommerce Growth Is Impressive
However, there is good news too, which will surely make the management and Nestlé’s investors happy. Online sales in 2016 grew by a massive 18 percent last year, even though the growth of overall sales went down. In fact, ecommerce is now the fastest area of growth at Nestlé, accounting for 5 percent of the total sales. A year back, this was just 2.9 percent. So it has almost doubled. In 2016, ecommerce grew six times faster than its average growth.
Nestlé says they were expecting better ecommerce performance as the company has been focusing on innovation and marketing for some time now. Online sales are close to double in four years, as a result.
Nestlé to Establish Direct Channels With Customers
Encouraged by this, Nestlé’s (VTX:NESN) is now planning to beef up their ecommerce operations even more and establish “direct channels of communications” with customers so that they can buy directly. This will also help Nestlé improve communication and service.
Nestlé’s CFO, François-Xavier Roger said while speaking to reporters, “We do invest in innovation. We invest in marketing. We invest in order to premiumise our range of products but we do invest a lot as well in new channels, and this is really at the core of our strategy. And ecommerce is a good illustration of it”.
Other FMCG brands are also looking to grow through the ecommerce route. Unilever purchased Dollar Shave Club recently, while Procter & Gamble has also launched their online subscription service.