Perrier Boosts Nestle’s Bubble as Activist Loeb Busts InBy
Water brand plans 200 million-euro investment at French plant
CEO calls water a growth engine as activist investor pounces
Perrier opened a new production line at its plant in the south of France last month that speeds the process of filling green, teardrop-shaped bottles with bubbling mineral water for shipment around the world.
Now the brand’s owner, Nestle SA, is further ramping up production, planning its biggest factory upgrade since it acquired Perrier a quarter century ago. The Swiss giant said Monday it plans to spend 200 million euros ($223 million) to add three similar lines, bringing the total to 15, increasing employment by 200 and lifting output by more than 40 percent through 2020.
By sticking with the French brand through the tumultuous years that followed a 1990 safety scandal, Nestle offers a riposte to Dan Loeb, whose activist hedge fund Third Point has disclosed a $3.5 billion stake in Nestle, saying the food giant should boost profits by casting aside underperforming businesses. Rival Unilever, which earlier this year fended off a takeover bid from Kraft Heinz Co., has championed a similarly patient approach to brand-building.
Perrier’s popularity in the 1980s made it the liquid equivalent of a mint-green Lacoste polo shirt: the perfect statement of the times, but desperately out of fashion a few years later when yuppie tastes moved on. Perrier all but disappeared from Riviera terraces after the discovery of the carcinogen benzene in some bottles. Now it’s being embraced by millennial hipsters and Nestle says there’s a bright future for the brand as it targets growth in Asia and among consumers seeking an upmarket alternative to soda.
“Water can be and will be a growth engine for Nestle,” said Maurizio Patarnello, chief executive officer of Nestle Waters, speaking before Loeb’s investment was disclosed. “Water premiumization is the most promising segment. We see this trend is accelerating everywhere, not just in the Western countries.”
Nestle’s move to expand Perrier marks a striking turnabout from the mid-2000s, when then-CEO Peter Brabeck-Letmathe floated the idea of selling Perrier or moving production in response to labor disputes. It’s one of several of the Swiss company’s brands that have turned out successful after a disappointing start.
Nespresso languished for years after Nestle introduced it in the 1980s, with consumers balking at having to buy special coffee makers and pricey capsules. European sales took off after Nestle created branded boutiques to sell the system. The U.S. lagged until the company introduced its VertuoLine in 2014 to meet American demand for bigger cups -- and until longtime pitchman George Clooney agreed to promote the brand in the U.S. in 2015.
Patience hasn’t always paid off for Nestle. Sales of its Hot Pockets microwaveable sandwiches have suffered for about a decade and attempts to revamp the brand with better cuts of meat failed to drive any long-term rebound.
New Nestle CEO Mark Schneider has moved to streamline the company by putting its U.S. confectionery business, including BabyRuth and Butterfinger bars, up for sale. Though water is the company’s lowest-margin unit, he sees it as a growth pillar, alongside coffee and pet food, as he shifts the snack giant toward healthier fare.
Perrier is expanding its range of flavored waters to give soda drinkers a healthier option as Coca-Cola Co. and PepsiCo Inc. extend their water offerings. Lemon, lime and other flavors make up about a quarter of the brand’s sales, and this year it’s adding watermelon.
The global bottled-water market will grow more than 20 percent to about $231 billion by 2021, after swelling 40 percent in the last five years, according to Euromonitor. Rapid growth has prompted a backlash, with groups like Ban the Bottle contending that packaged water is environmentally damaging and financially wasteful.
Nestle is the world’s largest water bottler and Perrier is the biggest carbonated brand, with a 2.3 percent share of volume, according to Euromonitor. Alain Oberhuber, an analyst at MainFirst Bank AG, estimates Perrier sales at more than 1 billion Swiss francs ($1 billion) last year.
Dita von Teese
Perrier’s recovery has been led by its traditional markets, North America and Europe. Patarnello said China, where Perrier is still too small to be included in Euromonitor data, looks promising. Toning down racy advertising -- a 2010 advertisement featured burlesque dancer Dita von Teese pouring Perrier over her bosom -- has helped to broaden the brand’s appeal, the water chief said.
Peter Walshe, BrandZ global strategy director at Kantar Millward Brown in London, said upside potential for Perrier could be limited because it’s a brand that’s “slightly stuck in the past.”
“They can use the heritage in a positive way, as there’s never been anything like it and never will be, which makes the brand unique,” he said. “People drink it at a relatively special occasion, but it doesn’t have a wide everyday target.”
After the benzene scandal, production dropped by about a third, to about 800 million bottles a year. Since 2013, when production again crossed 1 billion bottles, a recovery has accelerated. Sales grew 9.7 percent last year, compared with almost 8 percent for San Pellegrino, and Perrier aims to produce 2 billion bottles in 2020, up from 1.4 billion last year.
At the plant, which sprawls across a plain surrounded by vineyards and olive groves between Montpellier and Nimes, manager Sylvie Ivon refuses to dwell on the past, saying she feels “new energy.”
“The growth is a great engine to move forward,” she said.