Nestle Waters `Optimistic' Sales Will Rebound on Emerging Markets Growth

Nestle Waters, whose sales have dropped for two years, aims for revenue growth of as much as 6 percent as it expands in markets that lack clean drinking water.

Nestle SA expects bottled-water revenue, excluding the effects of currency swings and acquisitions, to achieve the same targets as the entire company over the long term, Nestle Waters Chief Executive Officer John J. Harris said in an interview in Paris. Nestle’s goal, which it calls the Nestle model, is for 5 percent to 6 percent average sales growth each year.

“I’m optimistic that the worst is behind us for bottled water,” Harris said. “Whether it gets to the model this year or next year, it should be within the model.” Nestle Waters was Nestle’s only unit to post a decline in so-called organic revenue in 2009.

Expanding populations and poor infrastructure for drinking water have led demand for bottled water in emerging markets to increase even during the global slowdown, Harris said. More than 2 million people die each year from diarrhea caused by unsafe water, sanitation and hygiene, according to the World Health Organization. Consumption in the U.S. and western Europe is also picking up, Harris said.

“Water resources are becoming increasingly scarce at a time when demand is increasing,” Consumer Equity Research analyst James Targett wrote in a June 9 report. Nestle gets about a tenth of its water sales from emerging markets, while Danone gets about half, Targett estimates.

Nestle’s bottled water sales rose 2.5 percent in the first quarter, led by Nestle Pure Life, the world’s biggest bottled- water brand. Targett has estimated a sales increase of 1.5 percent this year and 2.5 percent next year.

Emerging Markets

Nestle’s bottled-water unit, with plants in about 37 countries, wants to enter five more, aiming to expand its proportion of sales from emerging markets to a third of revenue within a decade, Harris said. He declined to name the five.

“We have got to figure out how to get our business to reflect the emerging markets,” he said. “That’s a big push for us.” Nestle will consider making its own investments if it can’t find companies to acquire or form alliances within those markets, Harris said.

Nestle is the world’s largest bottler of water, with sales of 9.06 billion Swiss francs ($8.2 billion) last year from that business. Group Danone SA, its closest rival, had 2009 revenue of 2.58 billion euros ($3.2 billion).

Modest Growth

Reaching 5 percent to 6 percent growth would be the fastest growth for the unit since 2007, when so-called organic sales rose 6.6 percent. Revenue has dropped in the last two years as consumers in western markets cut back on bottled water and beverages as the economy slowed and to avoid creating waste.

“We’re starting to see people come back, though they’re not coming back to the magnitude that they were before they left,” Harris said. “We’re starting to see overall an industry that’s showing modest, low growth in the west. Taking a look at the rest of the world, we’re looking at incredible double-digit growth.”

Nestle’s Perrier and San Pellegrino water could reach 1 billion francs of sales annually each within six to seven years, having kept growing through the slowdown, Harris said.

Emerging-market consumption has room to grow, as it’s often as low as 10 liters (2.6 gallons) per capita annually, compared with about 140 liters for Italy, the biggest market for bottled water, the executive said. Harris has led Nestle Waters since late 2007 after helping Vevey, Switzerland-based Nestle integrate its 2001 acquisition of Purina and heading the pet- food business in Europe and Asia.

Nestle also plans to expand in existing markets such as China, Brazil, the Middle East and Pakistan, Harris said. Nestle Waters hasn’t entered India because it hasn’t yet found “sustainable, quality” water sources in that market, he said.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net.

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