VEVEY, SWITZERLAND — From a temporary project to a corporate-wide strategic objective, Nestle SA’s stock-keeping unit (SKU) reduction effort has grown. By working harder with fewer resources, management is dedicated to enhancing the company’s financial success.
Nestle’s initial goal was to simplify its product portfolio in an effort to relieve supply chain bottlenecks. When markets around the world recovered from the epidemic, it was important to
make sure the SKUs with the highest turnover were available.
Ulf Mark Schneider, chief executive officer, said on a conference call to report annual results on February 16 that “after we started implementing that, we found there was huge promise in it, and we scaled it up and accelerated it quite a bit. And undoubtedly, we realized that it had been a while since we engaged in that kind of workout.”
According to the corporation, the emphasis has now switched from specific SKUs in a line to brands, categories, and geographical areas.
If we can’t sell a business, Mr. Schneider added, “we’re not afraid to walk away from it as long as we do it well.”
He cited Nestle’s impending exit from the Canadian frozen food market as an illustration.
This is a business book worth roughly CHF 150 million ($162.4 million), according to Mr. Schneider. Because we don’t have our own local manufacturing in Canada, the firm wasn’t really sellable and wasn’t really a winning offer.
These goods were created in the US before being imported. And it’s obvious that it was difficult to make this one successful when you consider transportation and currency. But we think that letting it go and winding it down over a two-year period will have huge benefits for the firm moving forward, which is exactly what we’re interested in, even if it will obviously slow down RIG (real internal growth) and organic growth for the short term.
According to the business, the pullout should be finished by 2024. Nestle’s SKU simplification program is motivated by the idea that a more narrowly focused firm will be more successful. That’s essentially what we’re going for, according to Mr. Schneider. “So that we can be even more concentrated, it will include some additional SKU items as well as certain divestitures over time.
“We will continue as a multi-category diversified food and beverage company, no question. But we believe that the company overall within that broader scope will benefit from even more focus than before.”
For the fiscal year that concluded on December 31, 2022, net income was CHF 9.3 billion ($10.1 billion), or CHF 3.42 per share ($3.70) on the common stock, a significant decrease from CHF 16.9 billion, or CHF 6.06 per share, the previous fiscal year.
Currency fluctuations and “substantial cost inflation” associated with packaging, freight, and energy expenses, as well as dairy and cereal ingredients, were factors affecting profitability. Also, Nestle gained from the 2021 sale of its L’Oreal stock.
Sales increased from CHF 87.1 billion to CHF 94.4 billion ($102.2 billion). Much of the sales gain was aided by price hikes.
According to Francois-Xavier Roger, chief financial officer, “Looking at volume, we observed an exceptional step-up in 2021 with growth over three times higher than previous levels in the context of rising pandemic-related demand.” “This extraordinarily high base of comparison and supply limitations adversely affected our volume growth in 2022. The average volume growth over the past two years, at 1%, was only marginally below pre-pandemic levels, demonstrating the current low degree of pricing elasticity.
Nestle anticipates organic sales growth in 2023 to range between 6% and 8%. Mr. Schneider predicted that this will remain a pricing-driven market.