Nestlé 1998
Management Report
Table of contents
Product group development
22
28
35
40
Beverages
Milk products, nutrition and ice cream
Chocolate and confectionery
Prepared dishes and cooking aids
(and miscellaneous activities)
46 Foodservice
48 Pharmaceutical products
52 Associated companies
General information
54 Manufacture and sale of products
56 History
1
Product group development
Beverages
Sales
Trading profit
Capital expenditure
Millions of Swiss francs
1998
1997
1996
19 879
19 142
16 348
3 253
3 243
2 759
593
629
586
Nestlé invented soluble coffee in Switzerland in 1938, and sales
of Nescafé have been growing steadily ever since. With over
3000 cups drunk every second, Nescafé is by far the world’s most
popular brand of coffee. Ready-to-drink coffees are sold under the
same brand. Nestlé is also the worldwide leader in chocolate- and
malt-based drinks, for which the best known brands are Nesquik/
Nestlé Quik, Milo and Nescau. In addition, the Group is present in
roasted coffees, including Hills Bros. and MJB in the United States
and Dallmayr Prodomo in Germany, as well as Nespresso, an
espresso coffee in capsules; in fruit juices, where its most important brand is Libby’s in the United States; and tea-based drinks,
particularly soluble and ready-to-drink Nestea. Nestlé is also the
world market leader in mineral and spring waters. Its presence
is strongest in Europe, with such brands as Vittel, Contrex, Perrier,
San Pellegrino, Levissima, Vera and Fürst Bismarck, and in the
United States, with Arrowhead, Poland Spring, Zephyrhills, Deer
Park and Ozarka.
Green coffee
The prospect of a sharp increase in supply – as a result of Brazil’s largest harvest
for 11 years – dominated the market for
much of the year. After firming up in
February, prices of arabicas followed a
downward trend until the end of October. The damage inflicted by Hurricane
Mitch on the infrastructure of the coffeeproducing countries in Central America
caused prices to rise in November and
December. Nevertheless, despite certain
Green coffee prices
Average monthly prices
expressed in USc/ per lb
225
175
125
75
1996
1997
1998
losses in production and delays in routing coffee to the ports, the market trend
remained generally depressed.
Robusta prices displayed greater stability, owing to a smaller crop in Indonesia, a conservative sales policy on the
part of Vietnam – where production had
initially been affected by a prolonged
drought – and brisk demand from roasters for this kind of coffee.
Two innovative top-of-the-range Nescafé
products with the new logo,
launched in the United Kingdom and Canada.
The terms in italics on pages
22 to 51 of this report are
registered trademarks of
the Nestlé Group.
23
Sales
Soluble coffee performed well during
the year, although sales were somewhat
affected by the crises in Russia and
South-East Asia. Nescafé consolidated
its leading position in soluble coffee in all
markets, assisted by the launch of new
products and an intensified presence in
out-of-home distribution channels.
Nescafé’s communications strategy
has been totally reviewed with, for example, a rejuvenation of the brand logo
to strengthen its image with consumers.
A new advertising campaign begun in
the course of the year will transform
Nescafé liquid concentrate in individual
portions for making iced coffee
has been well received in Japan.
24
Successfully
launched in Thailand,
ready-to-drink
Nescafé is both
stimulating
and refreshing.
Nescafé, already a leading brand of soluble coffee in every country, into a universal brand. It is designed to give the
brand a more open image and to create
a stronger emotional bond between the
consumer and the brand throughout the
world. Already launched in several major
European and Asian markets, the basic
campaign is being supplemented by
local ones emphasising the specific
characteristics of the products in each
country.
This new Nescafé communications
policy addresses young people, with the
aim of convincing them that Nescafé
belongs to their generation and that coffee is an up-to-the-minute product. For
this purpose, the campaign encompasses numerous peripheral activities, ranging from a website to Nescafé’s wider
presence at musical and sporting events
and in non-traditional sales channels.
Nescafé’s new
presentation for
the Thai market.
An exclusive sealed
capsule filled with
a measure of freshlyground roasted coffee.
As part of a major strategic evolution,
the Nespresso coffee preparation system has reinforced its marketing plan
with a pan-European advertising campaign to extend awareness of the brand
and product to a still larger audience of
espresso connoisseurs. At the same
time, the introduction of the AlessiNespresso machine, with its innovative
design, is opening up good prospects of
additional sales for this brand in new distribution channels. These various elements have helped to generate strong
growth, while emphasising both the
Italian roots of the concept and its image
of quality.
In a difficult economic environment,
chocolate- and malt-based drinks maintained their leadership around the globe.
Nesquik/Nestlé Quik and Nescau made
good progress in Europe and America.
Milo posted high growth rates in Latin
America and significantly increased its
market shares in Asia.
The world leader in chocolate-based
drinks for children, Nesquik is
available in several practical formats,
including syrup and ready-to-drink.
26
A delicious, malt-flavoured
source of energy,
very popular with teenagers.
Sales of mineral and spring waters
continued to grow vigorously in 1998.
The Group improved its positions in
Europe, thanks both to the further development of its existing brands and to the
acquisition of the San Pellegrino group,
the leader in the Italian mineral water
market with a good position in sweetened beverages and alcohol-free apéritifs (San Bitter). In France, a new plan
has been implemented for the restructuring of the Vergèze industrial site,
which will improve the profitability of the
Perrier brand.
In the United States, where the market for water in PET bottles continues to
expand rapidly, the Group gained further
market shares, reinforcing its number
one position.
Perrier refreshes
its label.
The Group also continued its development in the emerging markets, establishing a presence in China and achieving strong growth in Vietnam, Thailand,
Brazil and Mexico. Water under the
Nestlé brand – Nestlé Pure Life – was
launched in Pakistan at the end of 1998
and is scheduled for introduction in
other emerging markets.
Profit
Trading profit showed a slight increase.
There was a marked improvement in the
profitability of water thanks to good
volume growth and to cost reductions.
However, this was offset by a lower trading margin for chocolate- and maltbased beverages, reflecting the difficult
situation in South-East Asia.
Capital expenditure
Capital expenditure declined to Fr. 593
million from Fr. 629 million in 1997. The
investment effort was concentrated in
the water sector, where capacity was expanded to meet growing demand in the
United States and in Poland. A bottling
line for Nestlé Pure Life was installed
in Pakistan. In addition, further investments were made in several countries
relating to the switch to PET bottles.
Vittel in a 75-cl PET
bottle with a sports cap
has been successfully
launched in Europe.
San Pellegrino
sparkling water
graces the world’s
most elegant tables.
Levissima, a light
water from
the Italian Alps.
Nestlé Pure
Life, purity and
safety for all
the family.
Milk products, nutrition and ice cream
Sales
Trading profit
Capital expenditure
Millions of Swiss francs
1998
1997
1996
19 175
19 334
16 697
1 837
1 932
1 688
576
745
732
A pioneer in the manufacture of foods for infants and young
children, Nestlé offers a complete range, comprising start-up and
follow-up formulas, growing-up milks, cereals and a variety
of ready-to-eat and dehydrated foods, as well as infant dietetic
specialities. Clinical and performance nutrition are opening up new
fields of action. Nestlé is also the world leader in shelf stable milks
and is continuing to build up its range of chilled dairy products.
Cereal Partners Worldwide, the joint venture with General Mills
for breakfast cereals outside North America, is now active
in 70 countries.
The Group continues to strengthen its global
presence in ice cream.
Milk
1998 was the third consecutive year
of rising worldwide milk production, although the growth rate was slower than
in 1996 and 1997. Growth in a number
of Asian and Latin American countries
and an increase (somewhat less than
had been expected) in the United States
and Oceania more than made up for
the continued sharp decline in Russia
and certain other Eastern European
countries.
Following a gain in 1997, the world
market contracted, reflecting the economic problems in South-East Asia and
the crisis in Russia. As a result, prices
were under pressure throughout 1998,
with the exception of milk fat, where
quotations fluctuated in response to
sustained demand in the United States
and limited supplies.
The implementation of the Uruguay
Round agreements began its fourth year
in July 1998, but the actual subsidised
exports – particularly from Europe –
were considerably below the limits
set by the GATT/WTO, reflecting a
depressed world market.
Sales
Despite the economic crises in SouthEast Asia and Russia, sales volume of
shelf stable milk products continued to
advance, thanks notably to innovation
efforts. Now that the acceptance of
calcium-enriched powdered milks has
been confirmed, the Group has extended their distribution to Latin America
Nido Extra Calcium,
specially formulated
for children
of school age.
29
Fit’n Fresh, a refreshing
fermented milk
drink for young people.
30
and Asia, and has launched a liquid form
in Thailand, as well as Sveltesse Bio
Calcio, a powdered version with bifidus,
in Spain.
After its outstanding performance
in Thailand, Fit’n Fresh, a fermented
milk drink with fruit, was introduced in
the Philippines in eye-catching plastic
bottles.
Sales of coffee creamer have made
spectacular progress in the Philippines
and the United States, where the liquid
version is a great success.
The internal growth in chilled dairy
products has accelerated through concentration on innovative segments and
the elimination of non-strategic products,
such as mozzarella in Italy, flavoured
yoghurts in France and cheese in Chile.
The emphasis has been placed on rationalising industrial structures to improve
competitiveness.
Two recent innovations are strengthening Nestlé’s position in Europe: Nestlé
LC1 GO, a small bottle of fermented milk
containing the Nestlé LC 1 probiotic
bacterial strain, and Petit Duo, a “petitsuisse” with an exclusive coextrusion
process, which has been launched in
several countries.
In Latin America, growth was particularly strong in Mexico, where volumes
of “fromages frais” have shown a gratifying increase, and in Brazil, where
Nestlé is now leading the market.
In Asian markets, which have yet to
be developed, the Group demonstrated
its dynamic approach through the geographical extension of products with
proven success such as Chamyto, which
was launched in the Philippines.
Nestlé LC1 GO,
mini beverage
with probiotics.
Petit Duo, an exclusive
“petit-suisse” with
a fruit mousse centre.
Infant nutrition made further progress
although the growth rate was affected
by the Asian crisis, which slowed sales
in several countries, especially Indonesia. On the other hand, strong gains
were recorded in Eastern Europe and
North America. Generally, infant cereals
performed the best, while baby foods in
jars were more stable. Two families of
new products are noteworthy: meals
for young children in trays with one
or two compartments, launched in
France under the name of P’tit Menu,
and an extremely varied range of products for “Juniors” from one to three
years old, introduced in Germany. The
follow-up milks with bifidus launched
the previous year continued their geographic expansion.
Clinical nutrition continued to grow,
thanks in particular to the Clinutren oral
nutrition range in Europe. The Peptamen
line of specific products also contributed
to the higher sales. In addition, the first
powdered formulas, intended for tube
feeding and oral supplementation, were
launched at the year end in a number of
Asian countries under the Nutren brand.
In ice cream, the Group’s principal
objective in 1998 was to enlarge its presence in the impulse sector by multiplying its points of sale, an essential factor
for growth.
Nestlé has created a new visual identity with a “fond piscine”, designed to
give an attractive and distinctive brand
image. It consists of an intense lightblue background with a graphic effect
suggesting the movement of water,
The Pirulo concept
from Spain
has been launched
in North America.
Growing-up milk
enriched with bifidus
for small children.
A complete meal
for young children
in a tray with two compartments, heated
in the microwave.
A fruit and cereal bar
for young children aged
from one to three.
31
32
producing a feeling of freshness. This
visual identity was extended to new
markets in 1998.
Innovations added to the product
range enabled Nestlé to distinguish itself
significantly from the competition.
Extrême Duo Cône, a new product
launched in Europe last summer, offers
consumers the first industrial two-scoop
ice cream cone. The Mega line was
enhanced by the introduction of Mega
Truffle, a stick with a delicious chocolate
truffle inside.
The geographical extension of Maxibon and Pirulo was a great success, as
was the After Eight ice cream gâteau in
Europe.
Nestlé has also developed an exclusive
and original display case for the combined presentation of ice cream and
confectionery, which gives a real competitive advantage.
The 70 countries covered by Cereal
Partners Worldwide (CPW) account for
about three quarters of breakfast cereal
consumption outside the United States
and Canada. CPW’s market share in
these countries is estimated at 19%, a
strong number two position.
In 1998, further vigorous volume
growth was achieved, with market share
increasing in most countries. The Football World Cup, of which CPW was a
sponsor, the introduction of new products like Fitness & Fruits and Banana Nut
Clusters, and the excellent performance
of Nesquik, the leading product, all
contributed to these good results.
Extrême Duo Cône,
a new addition to
the Extrême range,
in Europe.
Mega Truffle,
a delicious treat
on a stick.
Profit
The decline in trading profit reflects
volume losses and pressure on margins
for the shelf stable milk products sold
in South-East Asia. On the other hand,
results improved for the product categories where Nestlé has recently
expanded its presence – ice cream,
breakfast cereals, and clinical and performance nutrition. Refrigerated dairy
products also showed an increase in
margin following the streamlining of the
portfolio.
The first cereal
with fruit
for keeping trim!
Capital expenditure
Capital expenditure declined significantly from Fr. 745 million in 1997 to Fr. 576
million. With the streamlining of the
refrigerated dairy portfolio, the emphasis
has been on rationalising the manufacturing base, particularly in Europe. In the
area of shelf stable milk products, selective investments have been made in the
Asia-Oceania region.
Mis Süt, one of
the leading Turkish
companies
in liquid milk.
34
Klim is a major
brand in
powdered milk.
Acquisitions
Nestlé reinforced its worldwide leadership in shelf stable milk products by
acquiring the Klim brand, which is very
significant in Colombia, Taiwan and the
Middle East. At the same time, the
acquisition of the Cremora brand
strengthened Nestlé’s solid position in
non-dairy coffee creamers in South
Africa. In Turkey, the Group took control
of Mis Süt, one of the largest local companies in liquid milks and chilled dairy
products.
In ice cream, Nestlé acquired businesses in Puerto Rico, Panama and
Costa Rica. These acquisitions are part
of a strategy of consolidation in the
Caribbean area and Central America. In
Europe, Nestlé acquired Drammen Is, a
Norwegian company without a manufacturing structure but with a good distribution system, offering the opportunity for expansion in this region.
Cremora, the leader
for non-dairy coffee
creamer in South Africa.
Chocolate and confectionery
Sales
1998
1997
1996
10 485
10 663
9 034
Trading profit
976
1 054
1 015
Capital expenditure
388
435
433
Millions of Swiss francs
Cocoa prices
Average monthly prices
expressed in USc/ per lb
85
75
65
55
1996
36
1997
Nestlé is the world’s leading manufacturer of chocolate and
confectionery. The Nestlé range of chocolate tablets and bars,
specialities and boxed chocolates includes both strategic
international brands, like Nestlé, Crunch, KitKat, Smarties, Lion,
After Eight, Quality Street and Baci, and brands such as
Butterfinger, Baby Ruth, Charge, Femina or Perugina that are
specific to a geographic region or country. The principal brands
in sugar confectionery are Polo and Frutips. In sweetened
and unsweetened biscuits, the business is concentrated in
Latin America, where the Group owns several brands, including
São Luiz, McKay and La Rosa.
1998
Cocoa
The expectation of a significant shortfall
in supply for the 1997/98 cocoa season,
and the resulting seasonal reduction of
stocks, caused prices to remain buoyant
at first, while awaiting more reliable information about the development of the
next harvest. This information, which
proved ultimately to be contradictory,
had only a limited impact on the market,
which had turned its attention from production forecasts to trends in consumption as a result of the Russian crisis in
mid-August. The pessimism with regard
to demand extended to the European
countries that supply Russia, particularly
Germany, and prices fell accordingly.
The influence exerted on the market by
investment funds and speculators resulted in an acceleration of the decline.
Milky Bar and Jelly Tots:
two children’s favourites
in a single product.
The American range of Flipz features
a new variety with peanuts.
After its success in the United States,
this product has been introduced
in the United Kingdom.
Even though the supply deficit will inevitably continue through 1998/99 – for
the third year in a row – the price trend
has not changed, as chocolate manufacturers have reduced their cover.
Sales
Chocolate and confectionery sales were
hampered by the effects of the economic problems in Asia and Russia, but
overall tonnage volume reached the
same level as in the previous year.
Sales in Europe recovered in 1998
with the launch of several new products.
These included in the United Kingdom
Flipz, a chocolate-covered pretzel, and
white chocolate After Eight; in Germany,
Mini Smarties – small sweets filled with
milk chocolate, to appeal to young
Smarties consumers – and Yes Petits
Fours, triangular Yes cakes in a presentation box for serving at the table; and
in Hungary, Boci bars. Two successful
A fresh approach for After Eight,
the best-selling chocolate
mint, has been launched in the
United Kingdom.
Smarties concepts – Smarties Giant and
Smarties Mini Eggs – were introduced in
a number of additional markets.
In the United States a new chocolate ball concept, tied in with the Disney
film “A Bug’s Life”, was successfully
launched.
In Japan, KitKat sales benefited from
new packaging, and sales hit a record
high.
In China, some economic slowdown
and excess capacity in the confectionery
industry demand maximum flexibility.
Nestlé successfully launched a new,
low-priced wafer and total sales rose
sharply, albeit from a low base.
Sugar confectionery under the Frutips brand has been developing well in
the ASEAN (Association of South-East
Asian Nations) countries. In Malaysia, a
new factory came onstream to supply
the ASEAN markets and growth, especially in this country, has been highly
satisfactory.
A new, attractive
presentation:
Yes Petits Fours.
Two new packages
have boosted
KitKat sales in Japan.
37
Several Milky Bar novelties have proved
popular in South Africa, as have new
jelly sweets made without gelatine.
In Latin America a biscuit was launched
for the first time under the Prestigio
confectionery brand. In North America,
Treasures, a new seasonal range, was
introduced. The Canadian business
continues to make good progress, with
a gratifying increase in market shares.
Profit
Difficult conditions in Eastern Europe,
particularly Russia, had a negative impact
on trading profit. On the other hand,
results improved in Latin America and,
to a lesser extent, in Western Europe.
Frigor, the chocolate
sensation, is one of Nestlé’s
great Swiss specialities.
38
Capital expenditure
Capital expenditure declined from Fr.
435 million in 1997 to Fr. 388 million.
Capacity increases related to the introduction of new products and to the reorganisation of production facilities in
Latin America. In addition, a new production centre for sugar confectionery
was established in Malaysia.
Acquisitions
In Russia, two new acquisitions in Perm
(Kamskaya) and Barnaul (Altai) have
been added to the existing businesses of
Rossiya and Konditer in Samara.
Mini Smarties, for small children,
launched in the German market.
Prepared dishes and cooking aids (and miscellaneous activities)
Sales
Trading profit
Capital expenditure
Millions of Swiss francs
1998
1997
1996
18 765
17 660
15 960
1 617
1 525
1 344
442
445
450
The frozen prepared dishes produced by the Group are sold under
three main brands: Stouffer’s in the United States and Findus or
Maggi in the other regions of the world. A diversified range of
soups, bouillons, sauces and culinary preparations, sold primarily
under the Maggi brand, is adapted in each country to local tastes,
recipes and ingredients. Maggi instant noodles are sold in the Far
East-Pacific area, as well as in Europe, Africa and Latin America.
Nestlé is present in Italian cuisine with Buitoni pastas and sauces,
both refrigerated and shelf stable. The Buitoni range also includes
a wide choice of pizzas and frozen dishes. In Europe, a full range
of delicatessen products and cold meats is available under the
Herta brand. The Group also manufactures cold sauces and condiments under various brands such as Thomy, Crosse & Blackwell
and Winiary.
Miscellaneous activities include products for pets,
sold essentially under the Friskies brand.
Sales
The development of prepared dishes
and cooking aids is the Group’s priority
in the culinary sector. Sales continued
to increase at a satisfactory rate in 1998,
thanks to the good results achieved
by traditional dehydrated bouillons,
soups and sauces and to the outstanding performance of frozen and refrigerated products in the United States and
Europe. The Herta range of meat-based
refrigerated products had a good year
in both France and Germany. Sales of
authentic Italian products under the
Buitoni brand also advanced in most
categories; refrigerated sauces and
pastas in Italy did particularly well.
These successes reflected an intensive programme of innovation and renovation in every sector, as well as the
A tasty dish from Maggi
Germany’s very successful
Pastaria range:
fusilli with cheese sauce.
A traditional product
of Herta France:
tasty ham cooked
in its own juice.
An exclusive Buitoni
product which
strengthens the range
of refrigerated pastas.
41
A range of frozen dishes
for the microwave,
launched by Findus
in France.
An economical
pasta snack, introduced
by Maggi in Germany.
42
increased penetration of cooking aids,
especially in Eastern Europe. On the
other hand, growth in sales of Asian
noodles suffered from the effects of the
crisis in South-East Asia.
Maggi Grand Velouté, a new generation of instant soups in the form of a
paste to be diluted with water, has been
launched in France. A litre of homemade
soup can be prepared from a small jar
with a flick of the wrist, offering convenience and excellent value for money.
In line with a policy of offering local
products accessible to people at all income levels, several new bouillons were
introduced in Africa. For young adolescents in Germany, Maggi Nudelspass
offers an economical prepared dish of
seasoned noodles.
In the Philippines, Maggi has
launched an instant rice-based porridge
which can be eaten for breakfast or as a
snack during the day.
For the Chilean market, Maggi Sofrito
is a paste made of garlic, onion and
aromatic herbs to facilitate the everyday
cooking of fried dishes.
Skillet Sensations, a new range of frozen
dishes in bags, was launched in the
United States under the Stouffer’s brand.
Stouffer’s thus strengthens its leading
position with these easy-to-prepare
products, offering a unique variety of
flavours for both American “homemade” recipes and the Lean Cuisine line
of low-calorie meals.
New prepared dishes and frozen
snacks have also been launched in
Europe to meet consumer demand for
quick, economical and practical meals.
These included, in France, the Findus
Plat du Jour range in a two portion container for microwave preparation; in Germany, Maggi Rührei auf’s Brot, a crusty
roll that is also heated in a microwave;
and, in the United Kingdom, New York
Take Out, light modern dishes to be
eaten directly from the package, under
the Crosse & Blackwell brand.
In France, Maggi has
launched a new form
of instant soups.
A new product of Stouffer’s
in the United States:
heat-and-serve dishes
for the skillet.
The new Findus pizza, with a self-raising
crust that gives it an authentic pizzeria
quality, has expanded its presence in
Europe, enabling the Group to improve
its strong position in this sector.
Dr. Ballard products,
made using a unique
oven-baking process,
are sold exclusively
through specialised
shops in the
United States.
Pet food
Sales increased sharply in Europe where
Nestlé has a particularly strong position
in dry pet food, especially for cats.
Sales also progressed well in Japan,
while volumes remained stable in the
United States.
The year was marked by the launch
of new products and the development
of the Group’s brands in new markets
and in specialised sales channels.
Friskies Europe introduced Digestion +, the first prebiotic dry dog food
sold in supermarkets, while strengthening its position in dry cat food.
Digestion+, the first
prebiotic dry dog food for
sale in supermarkets.
44
In the United States, Friskies has created
Dental Diet, the first non-prescription dry
cat food to reduce the accumulation of
dental plaque and tartar by 25%.
The Alpo brand made a successful
start in Japan. Mighty Dog, a balanced
diet that meets the specific nutritional
and energy needs of small dogs, was
launched in Australia.
A new line of dry and wet products
for dogs and cats, continuing the tradition of authentic veterinary recipes, is
now being sold through specialised
channels in the United States under the
Dr. Ballard brand.
Dental Diet reduces
dental plaque and
tartar in cats by 25%.
Friskies Ocean Fish
Flavor is a classic dry
cat food for sale in
the United States with
an irresistible taste.
Profit
Trading profit increased and the trading
margin was stable, despite the short
term dilution arising from the integration
of Spillers pet food in Europe. The underlying improvement in profitability reflects continuing progress in the culinary
sector and the disposal of lower value
added products.
Capital expenditure
Capital expenditure was flat at Fr. 442
million. In the United States, capacity
was increased for foodservice products
and for pet food, and an additional
production line was set up for frozen
prepared meals. In Brazil, a recently acquired pet food factory was modernised.
Alpo dog foods are
now available in Japan.
Acquisitions
In 1998 Nestlé continued to strengthen
its position in the world pet food market.
In Europe, the acquisition of Spillers
gives Friskies Europe a portfolio of wellknown brands (in particular Felix and
Fido), strong positions in the United
Kingdom and Northern Europe, and
products which are adapted to the
rapidly growing specialised sales circuits.
The acquisition of Jupiter in Hungary
and the Darling brand enables the Group
to establish a foothold in Hungary and
the Czech Republic, as a good base for
expansion into the CEFTA (Central European Free Trade Agreement) countries
and Eastern Europe.
In South Africa, a market with great
potential, Nestlé has enlarged the base
for its pet food activities through the formation of a joint venture.
Felix and Fido – two resounding successes
in the European cat and dog food markets.
45
Foodservice
Although the sales of
Nestlé’s foodservice
activities are divided
among the four major
categories of food
products discussed
on the previous
pages, it is worth
devoting a separate
section to them, as
they are designed
for a special group
of customers:
professionals in the
restaurant and hotel
industries.
The end consumer is hardly aware of
the products of Nestlé FoodServices.
They nevertheless constitute an important part of the company’s business,
since more and more people are eating
meals away from home.
In addition to products developed
specifically for industry professionals,
Nestlé FoodServices supplies the Group’s
strategic brands to the out-of-home
sector. However, to meet the special
requirements of such diverse segments
as catering companies, fast-food chains
and airlines, the products must be
adapted to the customers’ respective
operational constraints.
Nestlé FoodServices is one of the
pillars of growth for the Group’s activities. Its top priorities are to satisfy the
operating needs of its customers and to
expand its business geographically.
Automatic vending machines
and beverage systems
In 1998 efforts were focused on implementing a worldwide growth plan for
beverages, designed to increase the
penetration of the Nescafé brand (with
its new visual image for vending
machines and beverage systems) and
of other types of hot or cold drinks,
Launch of a range
of frozen foods
in the Netherlands.
46
including Milo and Nestea, so that they
are available to consumers anywhere,
any time. For this purpose, drawing on
the Group’s expertise in automated distribution, significant investments were
made in the pool of vending machines
bearing the Nescafé brand.
Commercial and
institutional restaurants
The product range is constantly being
renewed and adapted in accordance
with the specific requirements of each
sector. In addition to traditional culinary
ingredients like the dehydrated products
sold under the Chef, Maggi and Minor’s
brands, Nestlé FoodServices provides
operators with meal components, as well
as frozen foods under the Stouffer’s,
Davigel and Findus brands. In Europe, a
line of frozen products for professionals
has been successfully introduced in the
Netherlands and Germany.
Food Ingredients Specialities (FIS)
This company manages the development, manufacture and sale of flavours
and flavouring ingredients for use within
the Group and by third parties. FIS has
developed considerable technical expertise and is recognised as the leader in
savoury flavours.
FIS is ranked among the foremost
Flavour Houses thanks to its strong
fundamental knowledge of flavours and
flavouring systems and to its comprehensive understanding of their use in
food products – an understanding derived from the extensive product formulation expertise available within the
Nestlé group, covering an extremely
wide range of product categories.
Pharmaceutical products
Pharmaceutical products
also include the infant
cosmetics sold
through pharmacies
in several countries.
Sales
Trading profit
Capital expenditure
Millions of Swiss francs
1998
1997
1996
3 443
3 199
2 451
915
825
573
81
66
84
In 1977, Nestlé diversified into pharmaceuticals by acquiring Alcon
Laboratories, which has become the worldwide leader in ophthalmology. Alcon’s activities are divided into three segments: instruments and equipment for eye surgery, as well as intraocular lenses
and products used during operations, such as AcrySof, Legacy,
Accurus, BSS, Viscoat and Custom Packs; ophthalmic drugs,
including Tobradex, Betoptic, Patanol and Ciloxan, with the recent
addition of an otic drug, Cipro HC Otic; and solutions for cleaning
contact lenses – Opti-Free, Opti-One and Supra Clens.
In 1989, Nestlé and L’Oréal formed Galderma, a joint venture in
dermatology. This company offers dermatologists a range for the
treatment of skin complaints, including Différine, which has
become the retinoid of choice for the topical treatment of acne,
Metrogel/Rozex, which is indicated for rosacea, and most recently
Locéryl for the treatment of nail fungus. Galderma also has
products to accompany these treatments, such as Cetaphil, a range
of cleansers and moisturisers, and Helioblock sunscreens.
Alcon
Alcon continued to report strong growth
and excellent performance in 1998. Sales
set a new record of Fr. 3.1 billion, an increase of 7%, despite economic uncertainties and monetary upheavals in various markets resulting in unfavourable
exchange rate trends. Real internal
growth was stimulated by the introduction of new products and the selective
acquisitions of the past few years.
The use of new technologies – often
expensive – to improve the quality of life,
the increase in the average age of the
population and the struggle against new
diseases have caused health care costs
to rise over the past decade. The government policies that have been implemented in this area have put pressure on
prices everywhere. In this challenging
environment, Alcon has become the
most successful company in the eye
Azopt, a topical anhydrase
inhibitor, is highly effective in
reducing the intraocular pressure
associated with glaucoma.
MonarcH provides surgeons
with a unique instrument
for implanting the AcrySof
acrylic intraocular lens
in the eye of the patient.
49
care business by concentrating efforts
on the needs of ophthalmologists and by
offering them a comprehensive range
of products. At the same time, the company has continued to develop new innovative products, to maximise its
global presence, to increase productivity
in order to lower production costs, to
reduce administrative and operating
expenses and to maintain a positive,
steadily improving workplace environment.
The highlights of 1998 included the
introduction in the United States of
Azopt, a carbonic anhydrase inhibitor
prescribed for glaucoma. Particularly
noteworthy was the vigorous growth of
Patanol, which expanded the U.S. ocular
allergy market by more than 30% in the
year following its introduction, thanks to
its therapeutic efficacy and to creative
promotion. The AcrySof intraocular lens
has again made spectacular progress on
the world market. At the same time,
global sales of Alcon’s flagship products
for cleaning contact lenses, Opti-Free
and Supra Clens, have continued to register increases in market share.
The contact lens cleaners
Opti-Free and Supra Clens
have been successfully
launched in Japan.
50
1998 was also marked by the acquisition
of a worldwide licence for Cipro HC Otic,
a combination anti-infective/anti-inflammatory product for ear infections. While
maintaining and strengthening its strong
position in ophthalmology, Alcon made
a strategic decision to enter the otic
market. The ear, like the eye, is subject to
inflammations and infections that are
treated with forms of medication very
similar to those used in eye care, which
are prescribed by specialists, pediatricians and general practitioners who are
already the target group for the marketing of ophthalmic products. Nestlé’s
entry into the otic market, based on
Alcon’s expertise, will expand its presence in the field of specialised medicine.
With increasing market shares
throughout the world, close attention to
the research and development of new
products, the selective acquisition of
new technologies and the intensified
training, motivation and development of
its personnel, Alcon is ideally positioned
for the future.
Galderma
This joint subsidiary of Nestlé and L’Oréal
in the field of dermatology again recorded rapid growth in 1998. Sales increased
by 25% to almost Fr. 490 million.
Setting new sales records during the
year, Différine gel has become Galderma’s leading product. It continues to be
the world’s most popular topical treatment for acne. The new markets opened
up in 1998 included China, Mexico and
Israel. Further additions to the Différine
range are being successfully introduced,
including Différine solution in the United
States and Différine cream in Canada.
Many launches of these new forms are
scheduled for 1999.
The Metrogel/Rozex products, which
are used to treat rosacea, made further
very satisfactory progress.
The Cetaphil range of cleansers and
moisturisers to accompany dermatological treatments continues to meet with
an excellent reception from dermatologists throughout the world.
Profit
Trading profit rose by more than 10%
and there was once again a significant
improvement in trading margin. Alcon
maintained the high level of profitability
achieved through its previous cost cutting programmes. There was a significant increase in the trading margin at
Galderma, reflecting the strong growth
of major products.
Mistamine, the new
antihistamine tablet for the
treatment of urticaria.
Capital expenditure
Capital expenditure increased to Fr. 81
million from Fr. 66 million in 1997. The
increase related to the expansion of
Alcon’s research and development facility
at Fort Worth (United States). Galderma
has been investing in a new factory in
Montreal (Canada), which is due to open
in 1999.
Acquisitions
As mentioned above, Alcon succeeded
in obtaining a worldwide licence for
Cipro HC Otic, a prescription drug to
combat infections of the outer ear. It also
made minor acquisitions to add to its
product offer in the area of vitro-retinal
operations.
Following the purchase of the dermatological range of Darrow in Brazil,
Galderma became one of the leaders in
its field in that country.
In addition, at the end of the year
Galderma acquired the dermatological
products of Nycomed-Amersham in the
Nordic countries, which will enable it to
establish a presence in that region. Finally, a purchase agreement was signed
with Roche for Locéryl, an anti-fungal
product indicated for mycoses of the
nails, which will be added to Galderma’s
dermatological range starting in 1999.
Différine solution and cream,
two additions to Galderma’s
most popular line
of acne medications.
51
Associated companies
In these companies,
Nestlé holds an
interest of at least
20% but does not
exercise management control.
These companies are
included in the
financial statements
by the equity method.
Their net results
appear, in proportion
to Nestlé’s participation, in the Group’s
consolidated income
statement under
“Share of results of
associated companies”. The Group’s
share of their net
assets is shown in
the consolidated
balance sheet under
“Financial assets”.
Lancôme has invented
Vitabolic, daily skin care
and a new source of
luminosity and radiance.
52
Nestlé’s share in the sales
of associated companies
Nestlé’s share in the results
of associated companies
1998
1997
1996
5 156
5 248
4 523
300
256
233
Millions of Swiss francs
L’Oréal
Nestlé owns 49% of Gesparal, the
holding company that controls L’Oréal,
with the Bettencourt family holding
51%. The world’s leading cosmetics
company has continued its rapid development. L’Oréal’s annual report and its
website (www.loreal-finance.com) provide detailed information about its activities and results. Consolidated sales rose
by 9% in 1998, to 75.4 billion French
francs. Net profit showed a further
healthy increase compared with 1997.
The group’s progress in Western
Europe and North America produced a
double-digit increase in profit before taxation for the fourteenth consecutive
year. In 1998, L’Oréal continued its
policy of investing in developing countries, which should be a basis for me-
Féria, the world’s leading brand
in hair colouring for young people,
by L’Oréal Paris.
dium-term growth, despite the difficulties that some of them are currently
experiencing.
On July 1, 1998, the Group bought
Soft-Sheen, which leads the North American market for ethnic hair products.
In December, L’Oréal announced a
plan for the merger of its pharmaceutical
subsidiary Synthélabo with Sanofi, a
subsidiary of Elf Aquitaine. This plan,
which should be finalised in the spring
of 1999, will create a new French pharmaceutical entity, with impressive worldwide growth potential stemming from
the combination of the companies’
respective research capabilities.
Noa, the new perfume
from Cacharel.
General information
Manufacture and sale of products
Position in 1998 in markets manufacturing and selling products
under Nestlé processes and trademarks.
Number of factories
1998
1997
Europe
233
210
Americas
157
156
and Oceania
132
129
Total
522
495
Africa, Asia
Canada 11 PPPPL
United States 59 PPPPP
Puerto Rico 1 LGLLP
Cuba 2 GLLL
Mexico
16 PGGPP
Guatemala 1 PPGL
Nicaragua
1 PLL
Dominican Republic 3 PPPL
Jamaica 2 PPPL
Trinidad and Tobago 1 PPPL
El Salvador 1 GLLLL
The figure in bold after the country
denotes the number of factories.
Costa Rica
3 LPLGL
Panama
3 PPPLL
Venezuela 4 PPPPL
Colombia 3 PPPPL
Ecuador 4 PPPPL
Beverages
Peru
2 PPPPL
Milk products, nutrition
and ice cream
Brazil 25 PGGGP
Prepared dishes and
cooking aids
Chocolate and confectionery
Chile 7 PGGGL
Pharmaceuticals
G Local production (may
represent production in
several factories)
P Local production and imports
L Imports (may, in a few
particular cases, represent
purchases from third parties
in the market concerned)
54
Uruguay
1 PLLPL
Argentina 7 PGLPP
Norway
4 PGPLL
Sweden
7 PGPLL
Finland
3 LPPLL
Denmark
2 LPLLL
Republic of Ireland
Poland 5 PPPPL
3 PLPPL
26 PPPPL
Netherlands 8 LPPPL Germany
Austria
Belgium 4 PPLPP
Hungary
France 40 PPPPP
United Kingdom
Switzerland 9 PPPPL
Italy
Portugal
Romania
Tunisia
Slovakia 1 LLPLL
30 PPPPL
2 PLPPL
2 PLPPL
1 PL
30 PPPPL
6 PPPLL Greece
5 PPPPL
Turkey
5 PPGGL
Morocco 1 PPPLL Syria
1 PPLLL Israel
Egypt
Russia 6 LPLPL
Czech Republic 10 PLLPL
1 PPPL
People’s Rep. of China 10 PPPPP
Hong Kong 1 PPLLL
Japan 4 PPPPL
Lebanon 1 PLLLL
10 PPGPL United Arab Emirates 1 LPL
4 PPGLL Saudi Arabia 1 LPGLL
Pakistan
Taiwan
Senegal
1 LPPL
Cambodia
1 LPLLL
Guinea
1 LLGL
India
6 PGGGL
Ivory Coast
2 PPGL
Sri Lanka
2 PPGL
Ghana
1 PPPLL
Thailand
8 PPPPL
Vietnam
3 PPL
Malaysia
9 PPPPL
2 PPGL
Cameroon 1 LLGL
2 PPPPL
2 PPGPL
Bangladesh 1 LPL
Nigeria
Republic of Korea 1 PGPLL
Singapore 1 PPPLL
Indonesia 5 PPPPL
Zimbabwe
South Africa
1 PPPLL
14 PPPGL
Australia 15 PGPPL
Pacific Islands 4 PPPPL
New Zealand 4 PGPPL
55
History
Nestlé can trace its origins back to 1866, when the first European
condensed milk factory was opened in Cham, Switzerland. The
founder of this factory, Anglo-Swiss Condensed Milk Company,
was merged in 1905 with Farine lactée Henri Nestlé.
The very high child mortality rate which made itself felt in the
19th century was in particular due to the fact that there was no
product to meet the nutritional needs of nursing infants. In order
to improve this state of affairs, Henri Nestlé had devoted several
years to the development of his Milk Food which was based on
the scientific insights of the time as well as on his own findings.
He had also developed a specific production process, thus ensuring
constant product composition and quality. In 1867 he marketed
his Milk Food and created the symbol of the “Nest” (in German,
Nestlé means “little nest”) which has remained the focal element
of the Company’s identity.
Henri Nestlé
Founder of Farine lactée
Henri Nestlé
1867
1905
1929
1938
Farine lactée
Henri Nestlé
Anglo-Swiss
Condensed Milk Co.
(Merger with Nestlé)
Peter-Cailler-Kohler
Chocolats Suisses S.A.
(Merger with Nestlé)
Development
of Nescafé
56
Although milk and infant nutrition go
back to the firm’s origin, many other
food products came to widen its range
over the years: chocolate, instant drinks
(the Nescafé process was developed in
1938), culinary, refrigerated and frozen
products, ice cream, mineral water and
petfoods.
Today, Nestlé is the world’s largest
food firm. Its products which are made
in 522 factories distributed over 81 countries, are being sold all over the world.
Right from its beginnings, the Nestlé
group has devoted itself not only to food
in general, but has also implemented
solutions to the nutritional problems
being faced by mankind. These problems may be specific to certain age
groups (babies, elderly people), to given
situations (hospitalized patients) or they
may be due to economic phenomena
(undernutrition, mal-nutrition) or social
data (longer life expectation, obesity).
For a long time, Nestlé has built up
know-how and knowledge which – together with its potential and its research
and development activities – have given
the Group an excellent position in all
fields of nutrition.
1988
Rowntree
1970
Libby
1978
Chambourcy
1992
Perrier
1971
Ursina-Franck
1985
Hills Brothers
Coffee
1993
Finitalgel
1960
Crosse & Blackwell
1973
Stouffer
1985
Carnation
1994
Alpo
1962
Findus
1974
L’Oréal
(minority interest)
1985
Friskies
1998
San Pellegrino
1969
Vittel
1977
Alcon
1986
Herta
Spillers Petfoods
1947
Nestlé Alimentana S.A.
(new name after the
merger with Maggi)
1988
Buitoni-Perugina
1998
1977
Principal
acquisitions
Nestlé S.A.
57