Nestle SA Chief Executive Officer Mark Schneider is the latest consumer-goods boss to be shown the door as companies struggle to coax shoppers back to premium brands after a period of high inflation and belt-tightening.
After eight years as CEO of the Swiss maker of Nespresso coffee and Purina pet foods, Schneider will be replaced by Latin America chief Laurent Freixe, Nestle said late Thursday.
The news came as a surprise given that Schneider was scheduled to appear at three different events next week, including a Barclays “fireside chat” promoted hours before the announcement.
Schneider is not alone. Just last week, Laxman Narasimhan lost his job as CEO of Starbucks Corp. after less than two years; he’ll be replaced by Chipotle Mexican Grill Inc. chief Brian Niccol. Estee Lauder Cos. CEO Fabrizio Freda plans to retire in 2025, after the cosmetics company ran into trouble in recent months.
Also Read: Zomato shuts down intercity ‘Legends’ services, CEO Deepinder Goyal announces
Last year, new bosses started at Dove soap maker Unilever Plc, beleaguered infant-formula maker Reckitt Benckiser Group Plc and Johnnie Walker whisky distiller Diageo Plc, all of which are trying to win back investor confidence in an environment where interest rates remain high and shoppers continue to keep a tight grip on spending.
While retailers like Walmart Inc. and Target Corp. have adapted to more price-conscious shoppers, in part by pushing their offering of cheaper private-label goods, companies like Nike Inc. have fallen behind.
“The pandemic, the supply-chain disruptions, 50-year-high inflation, rapidly rising interest rates and the negative consumer sentiment effect have all conspired to create a difficult environment for the average consumer stock,” said Eric Clark, portfolio manager at Accuvest Global Advisors.
Company Overhaul
Until recently, Schneider was lauded by investors as the CEO who overhauled Nestle, fending off a 2017 attack from activist investor Third Point. He initiated lucrative disposals of the Swiss company’s skin injectables business, low-margin bottled water brands in the US and some frozen products.
Schneider focused on persuading consumers to pay more for premium versions of existing product lines, developing Nestle’s offering of coffee and pet food, while building up its health and wellness business. Nestle also smoothly navigated the supply-chain struggles many companies faced in the pandemic, thanks to its localized production.
Over the past couple of years, however, Schneider’s star began to fade. Nestle has struggled to win back shoppers after the post-pandemic bout of inflation, repeatedly missing quarterly sales expectations.
Also Read: Anil Ambani to pay ₹25 crore fine as Sebi bans him from securities market for 5 years
Schneider joined Nestle after running pharmaceutical company Fresenius SE, but his interest in health care did not always work out at the KitKat maker. Last year, Nestle took a $2.1 billion write-down on its investment in a peanut allergy medicine called Palforzia. The head of its vitamins and supplements business was replaced after IT problems caused supply shortages.
In July, Nestle trimmed its sales growth outlook for the year to at least 3%, lower than the roughly 4% previously targeted. Frozen food in the US proved to be a particular problem area because lower-income consumers are struggling to make ends meet.
Other Setbacks
Not all the blame lies with the weak consumer, though. Nestle has had problems at its vitamins unit — acquired in 2021 for $5.75 billion. It’s also suffered shortages in its water business in the last couple of years.
“Schneider did a good job when he came in making changes to the portfolio,” Donny Kranson, a portfolio manager at Vontobel Asset Management, said in an email. “More recently, however, the company has had some struggles, some self-inflicted and some a function of the external environment.”
Also Read: WhatsApp allows real-money gaming ads in India, not for alcohol: What we know
The stock has climbed 22% since Schneider took over at the start of 2017, about half the gain that Unilever has posted during the same span. The Anglo-Dutch rival’s prospects have improved under new CEO Hein Schumacher, even as Nestle has started to fall behind.
“Certain things didn’t work; some acquisitions didn’t work,” Nestle Chairman Paul Bulcke said on a call with journalists. “But that’s inherent to running a company like this. I’m looking at more of the dynamics of things and moving forward. And I don’t cry over spilled milk.”
Internal Successor
Unlike Starbucks, Nestle didn’t search for an outside candidate, choosing to go with someone who understands its culture. That suggests evolutionary changes rather than a radical shift from Schneider’s course.
“Laurent Freixe has been at the company for decades,” Kranson said. “I would assume that there won’t be a major change to the strategy. What investors want to see from Nestle is boring, consistent delivery on its targets, which it has not been able to achieve over the past several reporting periods.”
Freixe, who started at Nestle in 1986, has spent 16 years as a member of the executive board and did stints heading operations in Europe and the Americas. The 62-year-old said on a call with journalists that he’ll focus on “making sure that we live up to our promises and focus on the core, focus on winning in the marketplace.”