As the Swiss daily Tages-Anzeiger makes public, Nestlé is getting out of the water business: “U-turn by Swiss company. Bad image, too little profit: why Nestlé is pulling out of the drinking water business”. The food giant wanted to make money from water. But now it is shedding the legacy of its former boss, Peter Brabeck.
Nestlé managed to make a brand out of coffee, but not water. The company had a plan to conquer the world with its bottled water. On Tuesday, Nestlé abandoned that plan. The division is to be spun off at the beginning of 2025 in order to enter into partnerships with other beverage companies or to be sold.
Even the world’s biggest brand group has not been able to turn water into a luxury label. There are exceptions, such as San Pellegrino or Perrier, which Nestlé sells in upmarket restaurants around the world. But the Pure Life business, which former CEO Peter Brabeck set up to ensure basic supplies, is barely profitable. The company recently sold off part of the business. Now Nestlé is turning its back completely.
Nespresso twice as profitable as water
Unlike coffee, water is a human right, which is why Nestlé’s water business has been highly controversial from the start. The company has been accused of buying water rights from local authorities at low prices and then selling bottled water at high prices. It has also threatened groundwater supplies in some places (such as Vittel, France) through massive pumping. The company is turning water into money, according to the 2012 documentary ‘Bottled Life’.
It is now clear that the water business is simply not profitable enough for Nestlé. Its operating profit margin is around 10 per cent. By contrast, Nestlé achieves over 21% with its coffee products. In addition, water is the least profitable of the Group’s product categories: CHF 2.5 billion in the first nine months, compared with CHF 4.6 billion for Nespresso alone.
The full article in Tages-Anzeiger (in German, with paywall)
FoodDive sees the story a bit differently:
Nestlé to cut $2.8B in costs, separate water into standalone business
The packaged goods giant also plans to fix, rather than sell, the majority of its underperforming businesses, CEO Laurent Freixe told investors and analysts.
- Nestlé plans to cut at least $2.8 billion in costs by 2027, with the savings invested into other parts of its business. The Lean Cuisine and Nespresso manufacturer also plans to increase advertising and marketing to grow sales and market share of some of its biggest brands.
- The Switzerland-based CPG giant announced at its investor day that it would separate its waters and premium beverages business into a standalone business beginning in 2025. The business, which includes brands such as Perrier and Sanpellegrino, represents just under 4% of its global sales and has struggled recently. Nestlé management said it will evaluate strategy for the business, including partnership opportunities.
- The announcements come as Nestlé faces challenges as consumers cut back on spending, cutting into demand for many of its products such as frozen food. The company named insider Laurent Freixe as CEO in September and has since announced changes to its organizational structure and executive board to reduce complexity and speed up decision-making.
