By Saabira Chaudhuri
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 18, 2019).
Nestlé SA, the world's biggest bottled-water maker, is
overhauling that business as the industry navigates big consumer
shifts -- from the rise of sparkling water to a backlash against
single-use plastic.
Bottled-water sales have boomed in recent decades, particularly
in the U.S. -- Nestlé's biggest water market -- as consumers cut
back on sugary soft drinks. But growth has slowed lately as the
category matures and consumers opt for sparkling and flavored
waters, which are drunk in smaller quantities.
U.S. bottled-water volumes rose 4% last year, down from 8.3% in
2015, according to Euromonitor. Globally, sales growth slowed to 6%
from 7.2%.
The industry -- long criticized for bottling a drink readily
available from the tap -- is contending with mounting concerns
about plastic waste, rising costs to make and transport bottles,
and fierce competition from store-branded products.
Those issues are challenging Nestlé's core water brands,
including Poland Spring and Pure Life, with price rises to offset
higher costs further eroding volumes. While Nestlé's upscale brands
such as San Pellegrino and Perrier are doing well in the U.S., the
company was slow to tap the trend for sparkling, flavored
water.
Rivals such as Coca-Cola Co. have highlighted the same shift,
lauding the performance of premium sparkling brands like Topo
Chico, while cautioning that Dasani is under pressure from
supermarkets selling big cases of their own-brand water.
Nestlé for the first nine months of the year reported a 2.2%
fall in water volumes. That is a big slowdown from 2015, when
volumes grew 7.2%.
In response, Nestlé said Thursday it would restructure its water
arm, changing it from a stand-alone, globally managed business with
headquarters in France, to one managed locally in the company's
various regions. Its waters head, Maurizio Patarnello, will leave
the company after over 16 years in that unit.
The change mimics a restructuring Chief Executive Mark Schneider
pushed through for Nestlé's infant-nutrition arm, where the company
says results have since improved. "The business is now at a stage
where local responsiveness and competitiveness are of increasing
importance," he said.
Overall, Mr. Schneider said his aim was to de-emphasize
lower-margin water brands and focus on premium, functional,
carbonated and flavored ones. "The whole notion of healthy
hydration with water is as important as ever," he said. Nestlé will
look to divest local water businesses in some countries, he said, a
shift the company began last year with a sale in Brazil.
Since taking over in 2017, Mr. Schneider has focused on a
handful of businesses he views as high growth. Water is one of
these, along with nutrition, pet food and coffee.
A company spokesman declined to comment on whether there would
be job losses at Nestlé Waters, which employs 28,000 people and
generates about 60% of its sales volumes from local or regional
brands. Water makes up about 8% of Nestlé's overall sales and under
5% of profit, according to Jefferies.
The news came as Nestlé said sales in the nine months ended
Sept. 30 totaled 68.37 billion Swiss francs ($68.71 billion),
compared with 66.42 billion francs a year earlier. Organic growth
-- which strips out the effects of currency movements, mergers and
acquisitions -- was 3.7%. Nestlé said it would return 20 billion
francs to investors over the next few years, primarily through
share buybacks. The company didn't release profit figures.
Water sales were flat in North America and declined in Europe,
where Nestlé sold less water than it hoped over the summer.
Water is a "problem category" for Nestlé, said Jefferies analyst
Martin Deboo earlier this month. The company is losing share in
still water and has been slow to respond to rapid growth in
sparkling and flavored water, he said.
Nestlé last year began selling sparkling, flavored water under
Poland Spring, Arrowhead and other brands in the U.S. but has
struggled to stand out in an increasingly crowded category. Aside
from LaCroix -- the market leader in the U.S. -- Coca-Cola Co. and
PepsiCo Inc. have rolled out sparkling-water competitors, while
startups and private-label seltzer brands abound.
In Europe, Nestlé is among a number of bottled-water makers
scrambling to use more recycled plastic in their bottles. It is
researching alternatives to plastic and plans to roll out machines
next year that accept card payments and let customers refill
bottles with filtered, flavored water.
The waters business "has to cope with a number of sustainability
issues that are becoming increasingly important," said Mr.
Schneider.
Nestlé has also invested in recycling technologies and
collection programs to help it comply with new regulations.
Incoming European laws will require single-use plastic bottles to
contain at least 30% recycled material by 2030. Nestlé wants its
water bottles globally to be made from 35% recycled plastic by
2025.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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October 18, 2019 02:47 ET (06:47 GMT)
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