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Nestlé USA : company profile

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European food giant Nestlé has steadily expanded its footprint across North America with a succession of important acquisitions in niche sectors as well as the main stream. The first key purchase was Carnation in 1985. More recent cornerstone deals have included local brands Purina petfood, Dreyer's ice cream, Gerber baby food and DiGiorno frozen pizza, each of which has delivered the group a dominant position in a particular sector. However, Nestlé has found it far more difficult to establish a strong US presence for its major European brands such as Maggi or Nescafe, and some products which play an important role in its international profile - breakfast cereals, for example - are not sold at all in America. It has begun to consider scaling down other weaker US segments, such as confectionery, for example. It announced a strategic review of that particular business in 2017, and eventually agreed a sale of the business to Ferrero for $2.8bn.

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Brands & Activities

The Nestlé group derived almost 30% of its worldwide revenues from the US in 2016, SFr 26.7bn, equivalent to approximately $27.1bn. However organic growth has slowed dramatically in recent years, partly as a result of the group's size - it has no less than 77 manufacturing facilities and 10 R&D sites across the US - as well as the fact that the business is divided into several different semi-autonomous operating units.

The biggest of these operating businesses is Nestlé USA, headquartered in Glendale, California. It is the main food business, responsible for confectionery, beverages, prepared foods and snacks. Sales were $9.7bn in 2015. Its biggest segment is prepared foods, which accounted for as much as a third of sales. Many of Nestlé's food brands in the US are distinctively American, not sold in any market outside North America.

Frozen & Prepared Foods

The group is the clear leader in the prepared frozen foods sector, with combined retail sales of around $4.8bn. In the frozen dinner/entree segment it had almost 35% share in 2016 (IRI, 52 weeks to Jan 2017, all channels, Grocery HQ). Nestlé's main brand in the dinner/entree segment is Stouffers, with sales of almost $1.3bn. It is accompanied by diet-friendly Lean Cuisine, with around $400m, and other products. Nestle is also the clear leader in the separate handheld frozen entrees segment with Hot Pockets ready-made "stuffed sandwiches", and low-calorie Lean Pockets. Combined sales of those two products alone were over $780m. Main rivals in the sector are ConAgra, Heinz, Bellisio and Pinnacle Foods.

At the end of 2009, Nestlé agreed to acquire the frozen pizza division of rival Kraft for $3.7bn. It boosted Nestle from the #4 in the sector to the clear leader with over 43% value share of the market (IRI) and combined sales of around $1.9bn. That portfolio is led by DiGiorno (known as Delissio in Canada), the undisputed best-seller in the sector with almost 24% market share, more than twice the combined sales from private label products or any other brand. Tombstone, also part of the purchase, is the third-biggest branded pizza with 6% share. California Pizza Kitchen (under license from the restaurant chain of the same name) and Jack's also feature in top 10, along with Nestle's existing Stouffer's frozen pizza. Nestle's main competitors are Schwan (19% share from #2 brand Red Baron, as well as Freschetta and Tony's) and General Mills (8%, mainly from Totinos).

The frozen brands are supported by top-selling premium refrigerated pasta and sauce brand Buitoni, as well as the Maggi culinary range, imported from Europe.

In 2017, the group acquired plant-based vegan meal range Sweet Earth for an undisclosed sum.

Beverages

The company's second largest market segment is non-water beverages, which accounted for sales of $2.04bn in 2013. The portfolio is dominated by Coffee-mate, the country's leading creamer, with almost 55% market share, equivalent to around $1.4bn. Nesquik is a leader in the flavoured milk segment with 21% share (sales of around $440m). Though it's a powerhouse elsewhere, Nescafe solube coffee has never really earned a following in the ground-dominated US coffee market. It had around 31% share of a comparatively small market, equivalent to sales of $280m. Nestle's position in US coffee has been further challenged by an aggressive series of purchases by JAB Holdings, parent to Jacobs Douwe Egbert and other businesses. Nestle made a belated attempt to get back in the game in 2017 with the purchase of a 68% stake in speciality premium roaster and retailer Blue Bottle Coffee for a lavish $500m. That business, which will retain standalone operations, sells a wide variety of high-end blends either through its own small retail network, or more significantly on subscription through its website.

In 2013, the company began trialling water-enhancer Nestfruta in Canada as a challenger to Kraft's Mio. Juicy Juice shelf-stable fruit juices were divested in 2014 to private equity firm Brynwood Partners.

Until 2012, Nestea and other ready-to-drink chilled teas were produced in the US by Beverage Partners Worldwide, a joint venture with Coca-Cola. Nestle took back sole control of the brand that year, although BPW still markets it in Canada. That brand now sits within the separate Nestle Waters portfolio.

Ice Cream

Traditionally the largest manufacturer and distributor of branded ice cream in the United States, Nestlé lost its lead in 2015 to arch-rival Unilever. Nestle's main subsidiary is Dreyer's (pronounced "dryers"), with six factories spread across the country. Nestlé acquired a 67% stake in Dreyer's Grand Ice Cream Holdings in 2003, and subsequently launched an offer to buy back the company's publicly held shares. That process was completed in early 2006, at which point Dreyer's became a wholly owned subsidiary of Nestlé.

Until recently Dreyer's operated mainly in the premium and super-premium segments of the market. It sells premium ice cream under the Dreyer's brand name in 13 western US states and Texas as well as parts of Asia and South America. For historical reasons, the identical products are distributed in the eastern United States, the Caribbean and South America under the Edy's brand name. Both products are available in a variety of flavours, as well as various frozen yogurt, reduced fat and other "better for you" formulations. Grand is the core line, available in more than 20 varieties. The company's low-fat product was relaunched with enormous success in 2004 as Slow Churned. Dibs, a line of chocolate-covered ice cream and frozen yogurt snacks, was introduced in 2005 and has also been extremely successful. Other lines include Dreyer's Loaded and Fun Flavors with added mix-in pieces, as well as a range of sherbets and Outshine frozen fruit and yoghurt bars. In addition, the company for several years marketed super-premium Starbucks ice cream under license. It lost that license in 2008 to Unilever. Combined retail sales of Dreyer's/Edy's were $773m in 2015, according to Euromonitor. Outshine contributed an additional $449m.

Under the terms of the Nestlé takeover, the Dreyer's portfolio was expanded to include Haagen-Dazs as well as Nestlé Ice Cream frozen snack novelty brands. In addition to main cone product Drumstick and family favourite Eskimo Pie, the range includes a number of spin-offs from the company's confectionery and food portfolios, such as Nestlé Crunch, Butterfinger, Carnation and Toll House Chocolate Chip ice creams. The group also acquired low fat ice cream brands Skinny Cow and Skinny Carb during the year. (In the UK, Skinny Cow ice cream is produced by Nestlé's local licensee Richmond Foods). Just to demonstrate its mastery of the sector, the company even makes Frosty Paws ice creams for dogs!

According to IRI figures (52 weeks to Jan 2017, all retail channels, Grocery HQ), Nestle had combined scoop ice cream and sorbet sales of $963m in 2016, equivalent to 17.6% value share of the $5.5bn US packaged ice cream market. However, Unilever was ahead with almost $1.3bn, and 23% share, as a result of its acquisition of fast-expanding premium brand Talenti. In the separate frozen novelties segment, Nestle was the leading player with sales of $1.05bn and 28.2% share. Drumstick was the top-selling product, accounting for more than a third of sales.

Confectionery

The group is currently the #4 in confectionery and candy in the US, some way behind Hershey, Mars and Lindt with around 5.5% market share, and sales in the region of $900m. However, it doesn't have rights in the US to its top-selling international brand, Kit Kat, which is controlled here by Hershey. Instead, its top-seller in America is the Butterfinger chocolate bar, with sales of around $80m, supported by Nestlé Crunch and Baby Ruth chocolate bars; Wonka sugar confectionery; Goobers, Raisinets and Sno-Caps chocolate raisins and nuts. In 2017, the group announced a strategic review of this business. It eventually accepted an offer of $2.8bn for the business from Italian rival Ferrero in early 2018.

The group is also well-known for baking products such as Nestlé Tollhouse dough and ingredients, Albers cornmeal and Libby's Pumpkin puree. It also has a substantial foodservice operation supplying professional or institutional customers with its national products, as well as several trade-only brands, such as Chef-Mate heat-and-serve prepared meals and Minor's sauces.

Nutrition

The group's nutritional products were spun out in 2005 as a separate unit, Nestlé Nutrition, in order to emphasise the group's reputation for health and wellness foods. Products include Carnation Instant Breakfast and Nestlé Good Start baby formula (previously Carnation). In 2006, Nestlé acquired a collection of adult nutrition products from Novartis, and topped this in 2007 with an agreement to purchase Gerber, the dominant baby food brand in North America. The Gerber range commands an extraordinary 74% share of the US baby food sector (SymphonyIRI ye Jan 2012 excluding Walmart), compared to around 10% for rival Beech-Nut and 6% for Hain Celestial. In the baby formula segment, however, Nestle/Gerber ranks only third behind Abbott's Similac and Mead Johnson's Enfamil, with 21.3% share and sales of $856m (IRI 52 weeks to Jan 2014, all retail channels, Grocery HQ, powder, RTD, concentrate). Overall share of the sector in 2017 was around 24%, according to Euromonitor.

In 2006, the group acquired weight management business Jenny Craig, which markets a selection of nutritional snack bars and prepared foods, as well as diet planning programs. That business was sold again in 2013 to private equity firm North Castle. Energy snack PowerBar was also sold in 2014, to cereal group Post Holdings. Combined US sales from Nestlé Nutrition were around $2.3bn in 2013, equivalent to 34% overall share. Infant nutrition accounted for the bulk of that sum, or around $1.2bn.

Separate from the main Nestlé USA and Nutrition groups are Nestlé Purina Pet Care and Nestlé Waters, both of which operate independently of Nestlé USA. Purina is the group's second biggest unit, accounting for 26% of combined sales, or around $6.6bn. Waters is #3 at 15% of combined sales or $3.8bn.

Nestlé Canada markets many of the same products as the US company, but has a few brands all its own, such as confectionery products Big Turk, Mirage and the local jewel Coffee Crisp; and the Parlour, Polar, Real Dairy, Itzakadoozie and Mr Big ice creams, added to the portfolio through the acquisition of local Canadian businesses Ault and Dairyworld in 1997. Crucially, Nestle does have rights in Canada to the Kit Kat chocolate bar. Canada is one of Nestle's top ten markets, with sales of CHF 2.1bn (C$2.3bn) in 2013. According to Nielsen figures for the year to June 2015, Nestle was the #1 chocolate marketer with 19.4% share, ahead of Mondelez with 17.2%, and Hershey at 16.9%.

Background

Although Nestle is generally thought of as a Swiss company, it actually traces one branch of its history back to the company launched in Switzerland by two American brothers, George and Charles Page. They were pioneering the process of condensing milk for longer storage in Europe in the mid 19th century at the same time that the company founded by Henri Nestle was commercialising milk cereal for infants. The two businesses began encroaching on each other's territory after 1875, before eventually merging in 1905 as the Nestle & Anglo-Swiss Condensed Milk Company.

Nestlé had by then already opened its first facility in the US in 1900 to make powdered milk, and entered Canada for the first time in 1918. During the 1930s the company began to extend its influence into other areas, launching the Nestlé Crunch chocolate bar in 1938, and Nestlé Tollhouse baking products a year later. Extending the technology it had developed in the coffee market, it introduced its first Nestea powdered tea in 1948, along with Nesquik chocolate powder (originally marketed as Nestlé Quik). During the 1970s and 1980s the company expanded rapidly through a string of acquisitions, starting with Stouffer's. Founded by the Stouffer family in the 1920s as a coffee-shop, the business later expanded to a chain of restaurants. When customers began asking for take-out orders in the 1950s, the family had the idea of freezing its most popular dishes for convenient home preparation, and Stouffer's had became a substantial brand by the time it was acquired by Nestlé in 1973. Nestlé's most significant add-on was the Carnation Company in 1985, which added Friskies petfood and the Libby's brand to the portfolio along with Carnation and Coffee-mate.

Also that year the group acquired Hills Brothers and MJB ground coffees in an unsuccessful bid to break the stranglehold of Folgers and Maxwell House on the US coffee market. (The brands were later sold to Sara Lee). Wonka sugar confectionery joined the portfolio in 1988 through the acquisition of Sunmark; Baby Ruth and Butterfinger in 1990, from Nabisco; sports nutrition product Powerbar in 2000. Also in 2000, Nestlé made its biggest acquisition to-date with the capture of Ralston Purina for $10.3bn, followed by the $2.6bn acquisition of Chef America, marketer of frozen "stuffed sandwiches" under the Hot Pockets, Lean Pockets and Croissant Pockets brand names (combined sales of around $930m in 2013); and the reverse takeover of Dreyer's in 2003. Although it has grown substantially in recent years, Nestlé has also taken the opportunity to divest some of its less profitable products, such as Peter's chocolate, Ortega Mexican foods and the Crosse & Blackwell preserves range. Wonderball, a confectionery product loosely based on Ferrero's Kinder Surprise eggs and launched in 2002, also proved unsuccessful and was later sold.

Last full revision 14th July 2017

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