Nestle plans to grow in tea, frozen food

Friday, 29 October 2010 14:43 -     - {{hitsCtrl.values.hits}}

Reuters: Nestle SA, the world’s biggest food company, plans to expand in the bottled tea and frozen foods markets in the United States, where the business climate is expected to remain difficult in the near future.

The tea business is beckoning because the company sees little room to introduce new water products as it already sells many brands, said Kim Jeffery, Chief Executive of Nestle Waters North America.

“Our next frontier is looking at other beverages that we can sell that fit into the healthy hydration space that we staked out with water,” Jeffery said in an interview on Friday following a news conference in New York. “We like the tea space.”

Nestle already owns 35 percent of small tea brands Sweet Leaf and Tradewinds and plans to buy them outright within 18 to 24 months, Jeffery said.

Nestle’s North American water business accounts for some $4 billion out of Nestle’s total revenue of about $100 billion. Jeffery declined to provide sales targets for the current year, except to say he expects to gain market share.

The company’s North American water brands range from San Pellegrino and Perrier to Poland Spring and Deer Park.

The Swiss company reported nine-month results on Friday, beating forecasts with a 5.7 percent rise in sales thanks to strong demand in emerging markets, price increases and a thriving Nespresso coffee business. It also affirmed its 2010 sales growth and margin outlook despite concerns about higher commodity prices and the economy.

In a separate interview, Brad Alford, chief executive of Nestle USA, said he sees big opportunities in frozen foods and said growth for the company would likely be both organic and through acquisitions.

“I am very bullish on frozen food. I think there are many, many more opportunities in frozen food,” Alford said. “We live in an ‘And’ world. So we will be looking organically and for acquisitions.”

Nestle Chief Executive Paul Bulcke said acquisitions were among the company’s priorities for using its cash reserves, along with investing in research and development and factories, marketing and paying dividends.

The food sector has seen its share of merger activity and Bulcke said Nestle is on the prowl for acquisitions.

“That’s what we do always. Is it more than in the past? No. It’s always very intense,” Bulcke told Reuters.

Earlier this year, Nestle bought frozen pizza brands, including DiGiorno and Tombstone from Kraft Foods Inc and agreed last month to buy Waggin’ Train, a dog snacks business.

Speculation has swirled in recent months about what Nestle plans to do with its 30 percent stake in L’Oreal SA. It has the right to bid for the 31 percent stake held by the French cosmetics maker’s billionaire heiress, Liliane Bettencourt, if her family decides to sell, but it could also sell its stake.

Bulcke declined to comment on Friday about L’Oreal or any other specific companies. Recent media reports have suggested Nestle could be a potential suitor for companies, including Mead Johnson Nutrition Co, General Mills Inc, Green Mountain Coffee Roasters Inc and part of Yoplait.

With unemployment in the United States remaining high, the business environment should remain difficult in the short term, said Alford, who oversees U.S. brands such as Coffee-Mate creamers, Stouffer’s frozen meals and Edy’s ice cream.

Still, he expects to be able to put through some price increases on certain products, whose raw material costs have gone up recently.

Nestle’s biggest ingredients are cocoa, sugar and dairy. Alford said Nestle is able to use a combination of price increases, easing promotions and cost cuts to offset the commodity inflation, which is greater this year, fiscal 2011, than last year.

The overall company has forecast a 2 percent to 3 percent increase in input costs this year.