Nestlé contemplates divestiture of North American Waters division19 Jun 2020
Nestlé announced last week that it is considering selling the majority of its North American Nestlé Waters business unit. The Swiss company said it would retain its international brands Perrier, S.Pellegrino and Acqua Panna and will sell regional brands, including Poland Spring, Deer Park, Ozarka, Ice Mountain, Zephyrhills and Arrowhead.
In addition to selling a large portion of its North American portfolio, the company said it will be looking to invest in the functional water category with a focus on health-enhancing ingredients.
Water has struggled as a category for Nestlé in recent years. Although bottled water remains a popular beverage in the United States, concerns about the sustainability of plastic and rising transportation costs have stagnated growth in this category. To try and turn the financial situation of its bottled water business around, Nestlé launched regional sparkling water products in North America in 2018. However, that one-off effort did not result in a significant upward shift in revenue. Private-label water, Coca-Cola and PepsiCo have continued to grab market share away from Nestlé, reported Barron’s.
But Nestlé has not given up on restoring the prominence of its waters business. In October, the Swiss company relinquished centralized control in favor of regionally-managing its North American business unit in an effort to become more responsive to local trends. Two months after this shift in management, the company announced the release of two new functional water lines in 2020: Poland Spring energy water and Nestlé Pure Life Plus.
Still, it appears that a bigger change than last fall’s overhaul is required to turn around the North American Waters business unit. While Nestlé has not confirmed a sale of this portion of its business, it did confirm that there is an effort to explore strategic acquisitions to grow its market share in the category.
"The creation of a more focused business enables us to more aggressively pursue emerging consumer trends, such as functional water,” said Nestlé CEO Mark Schneider in a statement. “This strategy offers the best opportunity for long-term profitable growth in the category, while appealing to environmentally and health-conscious consumers.”
Nestlé’s CEO has been notable for his acquisition and divestiture strategy over the last three years. Schneider has worked to aggressively reposition the company’s entire portfolio to focus on fast-growing segments like plant-based protein and coffee while shedding slow-growth segments like ice cream and Buitoni pasta. Additionally, the company has been looking into bringing functional products into the fold as can be seen with its recent acquisition of Vital Proteins, a food and drink producer focused on collagen-infused products.
Since water makes up about 8% of Nestlé's overall sales and less than 5% of profit, according to Jefferies data highlighted by The Wall Street Journal, finding a way to reinvigorate consumer interest in the category could have substantial effects on Nestlé’s bottom line.
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