Nestle Doesn’t Need New Coffee Brands in U.S., CEO Says
Nestle SA (NESN), the world’s largest food company, has strong enough brands to compete in the U.S. single- serve coffee market without making acquisitions, Chief Executive Officer Paul Bulcke said.
“We have to do with what we have,” Bulcke said yesterday in an interview in New York. The Vevey, Switzerland-based company plans to accelerate expansion of the Nespresso and Nescafe Dolce Gusto brands in the U.S., he said.
The U.S. single-serve market is dominated by Green Mountain Coffee Roasters Inc. (GMCR), whose Keurig system has an 80 percent market share. Nestle may consider acquiring Green Mountain, Mitchell Pinheiro, an analyst at Janney Montgomery Scott LLC in Philadelphia, said last month. The U.S. company’s market value is now $5.9 billion.
Nespresso entered the U.S. several years ago and its growth has been slower than in Europe as Americans traditionally are less fond of Italian espresso, Bulcke said. Nestle started selling its Dolce Gusto brand at Wal-Mart Stores Inc. in the U.S. last year. Dolce Gusto can make a wider range of milk-based coffees, while Nespresso makes espresso.
The first priority for the maker of KitKat bars, which received more than $28 billion last year from its sale of a stake in Alcon Inc., is investing for the future, said the 56- year-old executive. Nestle is boosting its capital expenditure 20 percent this year to 5.5 billion francs ($5.95 billion). It plans to spend more on marketing, research and factories after it last month reported 2010 sales growth that beat analysts’ estimates after selling more Nespresso capsules.
“We are true believers in our own growth,” Bulcke said. “That has always been, if you see it over time, the biggest part of our growth base.”
Nestle dropped 85 centimes, or 1.6 percent, to 51.95 Swiss francs yesterday in Zurich trading. The shares have declined 5.1 percent this year, giving the company a market value of 180 billion francs.
The company will also consider acquisitions after spending 5.6 billion francs last year on purchases including Kraft Foods Inc.’s frozen pizza business, the CEO said. Growth from acquisitions has “spiked” occasionally, as when Nestle bought Ralston Purina Co. for $11.9 billion in 2001. “Over time, it has been one part only of our growth and I feel that’s going to continue,” he added.
No Worldwide Gap
“There’s no such thing as a worldwide gap that we want to fill,” Bulcke said. The company has “also reduced our debt, which is not a bad thing,” Bulcke said, adding that Nestle wanted to be cautious with its debt level.
Nestle aims to expand its bottled-water business in emerging markets such as Latin America and Asia, Bulcke said. Nestle gets 15 percent of its bottled-water revenue from emerging markets, compared to 10 percent two years ago, he said.
Nestle also aims to expand its existing brands such as Butterfinger and Wonka in the U.S. chocolate market. The company’s U.S. chocolate sales rose more than 10 percent last year, he said. Nestle is the third-largest chocolate maker in the country.
When asked if Nestle was interested in bidding for Hershey Co. (HSY), Bulcke said “You can only buy what’s for sale.” He declined to comment on whether Nestle had ever tried to buy Hershey, which has the rights to make KitKat in the U.S.
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