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Nestle: A Giant In A Hurry


The Corporation

NESTLE: A GIANT IN A HURRY

The top brass at food giant Nestle had always coveted leadership in the fast-growing mineral water business. That meant buying France's Source Perrier--but it didn't seem for sale. Then one day in November, 1991, the phone rang at the company's lakeside headquarters at Vevey, facing the Swiss Alps. A friend told Chairman Helmut Maucher the jolting news that Italy's Agnellis were about to bid for the holding company that controlled Perrier.

Maucher moved fast to keep his prize from being wrested away. He plunked down a $2.3 billion cash bid to challenge the Agnellis. He bested the family in the French courts and cut side deals with old friends in French business such as Antoine Riboud, head of food giant BSN. Then he deftly swung top-drawer French banks to his side. After two months of pummelling, the Agnellis gave up. European Community bureaucrats, worried about antitrust issues, required Maucher to spin off some of Perrier's capacity, but they are set to grant final approval. "Now," he says, "we are in everything we want to be in."

Nestle is in quite a lot. With $36 billion in sales, it's the world leader in instant coffee, mineral water, confections, condensed milk, frozen food, and infant food, as well as No.2 in U.S. pet foods. Maucher has stocked Nestle's larder with more than $10 billion worth of acquisitions, starting with Carnation in 1985 (page 5440). And in uncharacteristic moves for the staid Swiss company, he has formed joint ventures with Coca-Cola Co. in canned coffee and tea drinks, and with General Mills Inc. in cereals.

ASIAN KEY. But amid a global food shakeout, Nestle will have to maintain its frenetic pace just to stay even. So Maucher is revving the company up to double sales in a decade--the hard way, without counting acquisitions he's sure to make. To achieve that, sales will have to grow at a compounded rate of more than 7% every year, including inflation.

Problem is, European and U.S. food markets alike are both flat and fiercely competitive. So Maucher is counting on new markets and new businesses for growth. Nestle is setting its sights on consumers in fast-growing Asia. And it's angling to take over French cosmetics maker L'Oreal.

As it pushes its way into new world markets, though, Nestle is often bumping into some aggressive rivals who have gotten there first. Nestle is the world's biggest food company, but it competes against the likes of Philip Morris' Kraft General Foods division and the Anglo-Dutch Unilever Group. "If we succeed, we will probably just about keep our relative position within the global players," Maucher concedes.

To accomplish even that much, Maucher has to remake Nestle's stodgy, centralized bureaucracy. The 65-year-old Maucher is a product of the very culture he's seeking to change. He started with the company as an apprentice in the same German plant as his father. By the time he moved into the top job in 1981, Nestle was a giant--but a sluggish, reticent one. It was loath to make hostile bids and was plagued with consumer boycotts because of the way it sold baby formula in the Third World.

Its operations were tightly controlled by the predominantly Swiss brass in Vevey. But Maucher, who is German, has transformed the top ranks. Now, Nestle's executive board is a mini-U.N. that conducts business in English. Maucher's deputy, Ramon Masip, is a Spaniard, a Frenchman heads European operations, and an American the U.S. Last fall, Maucher finally did what other big companies had done: He slashed the power of headquarters bureaucrats by pushing decision-making down to seven "strategic business units," such as milk products, coffee, and ice cream. That threw responsibility to a class of globally minded operating executives.

As a result, the giant is looking more nimble, developing products quickly and getting them to market fast. It's making the most of its reach by picking hit brands in one country and sowing them across borders. Since buying Italy's Buitoni, for example, Nestle has invested $400 million in the company. The goal is to develop authentic Italian pasta dishes to sell around Europe. And since it pounced on candy maker Rowntree Mackintosh PLC, it has been pushing Britain's favorite "sweeties" such as After Eight dinner mints and Smarties candies on the Continent. Exports from Britain zoomed 60% in two years.

BEACHHEADS. If his company is to achieve Maucher's goals of doubling sales, however, the crucial battleground will be in developing countries. They accounted for barely 20% of Nestle's sales in 1992 but offer huge growth potential as their consumers acquire both the taste and the money for processed foods. Morgan Stanley & Co. reckons sales in the developing world will grow at a 13% annual clip, providing a third of Nestle's total sales by the year 2000.

China will be one reason. True, it's a nation of tea drinkers--but Nestle is establishing beachheads for coffee in urban areas such as Guangzhou and Shanghai. It has two joint ventures: a Nescafe coffee and Coffee-Mate creamer plant as well as an infant-formula and milk-powder plant near Harbin. And Nestle is making a big push in ice cream, just the sort of product the Chinese are flocking to. After having bought 51% of Jardine's Dairy Farm International operation for $160 million in November, 1992, Nestle now controls an ice-cream plant in Guangzhou.

Besides bringing Western-style foods to China, Nestle is also experimenting with Chinese dishes. One hot new product: frozen dim sum, the small Cantonese-style appetizers. And in Southeast Asia, Nestle will spend $150 million over the next two years to build five plants to make such local goodies as soya sauce as well as Western products. The assault on Asia has persuaded most Nestle-watchers that Maucher may well pull off his goal of increasing global sales volume by 4% a year and raising prices by 3% a year. "It should be possible without any acquisition," says Rene Weber, food analyst at Zurich's Bank Vontobel.

NEXT TARGET. But acquisitions are clearly the way of the future in Europe. The advent of an internal market means that Europe's fragmented consumer businesses will consolidate rapidly. Small deals happen regularly. And Nestle's next major target is practically preprogrammed: France's L'Oreal, the world's No.1 cosmetics company, with 1992 sales of $6.7 billion. Nestle has had a 25% indirect stake since 1974, and, says Maucher, "Nestle would of course like to have the majority one day." That day could come any time from 1994 on, when a standstill agreement keeping Nestle from buying more L'Oreal shares lapses.

Before Nestle gets its majority, though, Maucher will have to win over France's richest woman and Nestle's largest shareholder, Liliane Bettencourt. Bettencourt, who is in her late 60s, owns 51%, and Nestle 49%, of a company called Gesparal set up in 1974 to control 55% of L'Oreal stock. "Liliane Bettencourt has said nothing will change while she is alive," warns L'Oreal Chairman Lindsay Owen-Jones, who opposes a Nestle takeover. All the same, Nestle insiders say, Maucher is optimistic. A takeover would cost him at least $3.2 billion, and perhaps twice that.

The big question is whether Nestle can simultaneously handle all its management challenges. With its fast expansion of other businesses, big joint ventures to run, and Perrier to absorb, "I just don't know whether they have got [the management capacity]," says Bank Baer analyst Roger Birrer.

ON THE MOVE. Part of that management burden is falling to Masip, the No.2. When he arrived in Vevey from Spain in 1986, Masip was shocked to find that the 800 people Nestle classifies as international staffers were working practically everywhere except Europe. So he started a program to move rising managers around the Continent and insists that all management trainees should be at least bilingual. Now, he has about 80 executives who can react like Europeans rather than Germans or French. Creating that depth is a key step in transforming Nestle into the stateless corporation that Maucher has been building for a decade.

Although at 65 he's already reached normal retirement age, Maucher acts as though he intends to see most of his plans through. He reminds anyone cheeky enough to ask that Nestle directors can stay in office until they're 72. Fellow executives say Maucher is still goading them to hunt for new opportunities. With challenges on all fronts, the odds are Maucher will be around for plenty more battles.John Templeman in Vevey, with Stewart Toy in Paris, Dave Lindorff in Hong Kong, and bureau reports


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