This installment of the 'Company History' column introduces Nestlé, the world's largest food producer. Nearly 150 years ago, Henri Nestlé saved many infants' lives with his great invention. Through its 'glocalization' philosophy and continuous acquisitions, Nestlé has become one of the most efficient companies in business globalization.
By Global君 | Editor: Fu Yingshuang
Nestlé Group is the world's largest food producer, with operations in almost every country. This giant, which started with baby food, has been in existence for 150 years. Through aggressive investment, expansion, and acquisitions, Nestlé has established a leading position in the global food industry, extending its reach into beverages, seasonings, coffee, pharmaceuticals, and more. ************** The Great Invention That Saved Newborns** Henri Nestlé (1814–1890) was born into a wealthy family in Frankfurt, Germany. In 1833, his family immigrated to Switzerland to escape persecution. In the mid-19th century, Europe was still in turbulent wartime, with deteriorating living conditions, poor sanitation, and inadequate medical resources, leading to high infant mortality due to malnutrition. At that time, the mortality rate for infants under one year old in Switzerland was as high as 20%. Facing this situation, Nestlé, a pharmacist, invented a dairy product for infants, combining milk, flour, and sugar, primarily for babies who could not be breastfed, to address the high mortality rate. Nestlé initially targeted older infants and did not attempt to feed his invention to newborns. At that time, a mother was seriously ill and could not breastfeed her baby, who was born a month premature. The infant was in poor health and refused to eat. Desperate, the couple happened to learn of Nestlé's new product and tried feeding it to the 15-day-old baby. Unexpectedly, it was a resounding success; from then on, the child thrived on this infant food. This case caused a sensation locally, and many parents ordered the infant food from Nestlé. Thus, in 1867, Nestlé founded his company to sell 'farine lactée' infant cereal. The company's trademark was a 'bird's nest' along with Henri Nestlé's surname. In German, Nestlé means 'little nest,' and in English, it conveys 'comfort, settle down,' and 'snuggle.' The nest image naturally evokes images of hungry babies and mothers nurturing them. Someone suggested using the Swiss flag's red cross as a trademark, but Nestlé insisted on keeping the warm sentiment of the bird and nest, which belonged to no single country. To benefit more ordinary families, Nestlé adopted a low-price strategy to reach more people, selling not only in big cities but also in rural areas to serve the poor. With support from renowned physicians and chemists, the product gained wide acceptance, and Nestlé's infant food was used by hospitals in many countries. By 1873, the product was sold in North and South America, Australia, Russia, India, and various European countries. In 1875, Nestlé, then over 60, sold the company and factory in Vevey to three local businessmen. They hired chemists and technicians to expand production and sales. ************** Nestlé Merges with Anglo-Swiss** In 1866, American brothers Charles and George Page founded the Anglo-Swiss Condensed Milk Co. They established Europe's first condensed milk factory in Cham, using Switzerland's abundant fresh milk, and supplied products to European industrial cities under the 'Milkmaid' brand. By 1878, Nestlé and Anglo-Swiss were in fierce competition, as both began selling each other's original products: condensed milk and infant cereal. Both companies expanded sales and production abroad. In 1882, Anglo-Swiss expanded to the United States, but Page's death hindered the plan. In 1902, Anglo-Swiss sold its U.S. operations. In 1905, Nestlé and Anglo-Swiss, with over 20 factories, began building sales networks across Africa, Asia, Latin America, and Australia through overseas subsidiaries. That same year, Anglo-Swiss and Nestlé merged to form the Nestlé and Anglo-Swiss Condensed Milk Co. The company added unsweetened condensed milk and sterilized milk products, becoming a global dairy company. The year 1866, when Anglo-Swiss was founded, became Nestlé's founding year. The outbreak of World War I in 1914 increased demand for condensed milk and chocolate, but raw material shortages and restrictions on cross-border trade hampered Nestlé and Anglo-Swiss production. To address this, the company acquired processing plants in the U.S. and Australia, and by the war's end, it had 40 factories. In 1921, the post-war drop in military demand for canned milk caused a major crisis for Nestlé and Anglo-Swiss. Falling prices and high inventory levels led to the company's first and only financial loss in 1921. At that point, banker Louis Dapples joined as crisis manager. He encouraged the company to appoint professional managers, centralize management, and unify research at the Vevey laboratory. In 1929, Nestlé and Anglo-Swiss acquired Peter-Cailler-Kohler, Switzerland's largest chocolate company, making chocolate an integral part of its business. In 1934, the malted chocolate drink Milo was launched in Australia, and its success led to exports to other markets. Also in 1929, Nestlé chairman Louis Dapples received a request from his former employer, the French and Italian Bank of South America. After the Wall Street crash and coffee price collapse, the bank had surplus coffee stocks in its Brazilian warehouses. The task was to see if Nestlé could turn these stocks into 'soluble solid coffee' for sale. To this end, chemist Max Morgenthaler joined the Nestlé team and began coffee development. In 1938, Nescafé was launched as a 'pure coffee powder extract' that preserved natural coffee flavor, simply requiring hot water to brew. Nescafé is currently the most valuable Swiss brand. During World War II, fearing a possible Axis occupation of Switzerland, in 1939 Nestlé and Anglo-Swiss moved some managers to a new office in the U.S. as a second headquarters. The European war cut off European milk exports, so the company supplied Africa and Asia from the U.S. and Australia and expanded production in Latin America. ************** Continuous Development and Renaming to Nestlé Group** In 1947, Nestlé and Anglo-Swiss merged with Alimentana S.A., a Swiss company producing Maggi soups, broths, and seasonings, and was renamed Nestlé Alimentana S.A. In 1948, Nestlé Alimentana launched a soluble tea product, Nestea, in the U.S., produced similarly to Nescafé and brewable with cold or hot water. Nesquik, launched in the U.S., dissolved easily in cold milk and topped bestseller lists. In the 1960s, Nestlé entered fast-growing new areas like frozen foods through acquisitions and expanded traditional businesses such as milk, coffee, and canned goods. In the 1970s, it diversified into pharmaceuticals and cosmetics. In 1974, Nestlé became a minority shareholder in L'Oréal. In 1977, the company was renamed Nestlé S.A. and continued its diversification strategy. That year, it acquired Alcon, a U.S. manufacturer of pharmaceuticals and ophthalmic products (later sold to Swiss pharmaceutical company Novartis). In 1981, Nestlé and L'Oréal formed a joint venture, Galderma, for skin products. In 1985, Nestlé acquired U.S. company Carnation for $3 billion and entered the pet food business with the Friskies brand. In 1986, Nespresso coffee capsules were born. In 1988, Nestlé acquired British confectionery company Rowntree Mackintosh, adding brands like KitKat, After Eight, and Smarties to its portfolio, and also acquired Italian pasta, sauce, and confectionery group Buitoni-Perugina. In 1991, Nestlé formed a joint venture with General Mills and Worldwide Cereal Partners to produce and sell breakfast cereals globally. It also established a joint venture with Coca-Cola, Beverage Partners Worldwide, producing and selling brands like Nestea. In 1992, Nestlé acquired the French Perrier group. In 1993, Nestlé established an independently operated water business. ************** Two Outstanding Leaders Lead Nestlé to Its Peak** In the 1990s, under the leadership of two outstanding managers, Helmut Maucher and Peter Brabeck, Nestlé grew into the world's largest food group. Helmut Maucher (1927–), born in Germany, was a legendary CEO. He served as CEO from 1990 to 1997 and then as chairman until 2000. During his leadership, Nestlé acquired 250 companies worldwide (including several Chinese companies), many with over $1 billion in revenue, and his acquisition plans never failed. Maucher, with his excellent management philosophy, successfully integrated acquired companies into Nestlé's overall brand and organizational structure, blending diverse corporate cultures. Nestlé quickly became one of the world's largest food companies, and Maucher was named one of Europe's outstanding executives. As CEO, Maucher was very assertive, handling 90% of external contacts, whether negotiating deals or representing Nestlé publicly. When Maucher became chairman and Peter Brabeck took over as CEO, Maucher handed over most external contacts to Brabeck. Maucher believed these tasks fell within the CEO's role, and Brabeck had to take them on, appear in public, and show his authority so others would recognize him, which served Nestlé's future interests. Austrian Peter Brabeck (1944–) started as a delivery driver for Nestlé, waking early to deliver ice cream to supermarkets and coffee shops in refrigerated trucks. He served as CEO from 1997 to 2008 and chairman from 2005 to 2016. Brabeck saw the growth potential of personalized nutrition and established Nestlé's positioning as a leader in 'nutrition, health, and wellness' as its millennium strategy. Nestlé is considered the most efficient company in business globalization. Brabeck's philosophy on global operations was that there is no such thing as a global consumer; it is reasonable to run businesses independently. Any element that consumers can taste, see, feel, or even hear must be decided by local subsidiaries. Nestlé headquarters decides whether to contract or expand based on each foreign subsidiary's contribution to the whole enterprise. As the world's largest food manufacturer, Nestlé does not think like other giants. It knows how to expand its scale while adapting products to local markets, the so-called 'glocalization.' This philosophy has produced products like 'Nescafé' with creamer and sugar for places without refrigeration, and a variety of foods for sub-segments like U.S. Latinos. Nestlé has hundreds of different factories, and each business operator has the authority to make consumer-related decisions to stay close to market demand. The company spends heavily on R&D each year and excels at 'renovating' existing brands. Nestlé's '60/40+' strategy means that when testing a new product against competitors, consumers must prefer Nestlé's product 6 out of 10 times, and it must also be superior in nutritional content (the '+'). In terms of diversification, Nestlé offers products at every price point, so even those who trade down may not realize they are still buying Nestlé products. ************** Nestlé Across 150 Years** Over the years, Nestlé has divested loss-making brands and promoted brands that meet the needs of increasingly health-conscious consumers, in line with its 'nutrition, health, and wellness' mission. It has also expanded operations in the U.S., Eastern Europe, and Asia, striving to become a leader in bottled water, ice cream, and pet food. At the same time, Nestlé has actively expanded in health sciences. In 2001, Nestlé acquired U.S. pet food company Ralston Purina and merged it with its Friskies business. After expanding its ice cream business in the 1990s, Nestlé acquired the rights to Haagen-Dazs in the U.S. and Canada, and in 2003 bought the Mövenpick and Dreyer's ice cream brands, as well as Chef America's frozen food business for $2.6 billion. In 2007, its continued focus on medical nutrition led Nestlé to acquire Novartis Medical Nutrition. Nestlé also acquired baby food company Gerber. In 2010, Nestlé announced plans to invest CHF 500 million over the next 10 years to support the creation of an independent health science business, opening a new industry between food and pharmaceuticals to treat obesity and chronic diseases. In 2011, Nestlé Health Science S.A. and the Nestlé Institute of Health Sciences were established. These entities aim to discover 'effective and cost-efficient ways to prevent and treat acute and chronic diseases of the 21st century.' In 2012, Nestlé acquired Pfizer Nutrition (formerly Wyeth Nutrition) for $11.9 billion to strengthen its position in infant nutrition. In 2013, Nestlé Health Science acquired U.S. medical food company Pamlab. In 2014, Nestlé established Nestlé Skin Health. Nestlé ended its cross-shareholding with L'Oréal, gaining full control of Galderma's dermatology business in exchange. Currently, Nestlé's businesses include dairy and nutrition products, special medical foods, bottled water, culinary products, cereals, coffee, beverages, chocolate wafers and confectionery, ice cream, pet food, food industry ingredients, Nestlé Professional, and skin health. In recent years, Nestlé's annual revenue has remained around $90–100 billion. China has become Nestlé's second-largest market globally. Nestlé began its large-scale development in China in 1987 by establishing its first dairy district and first factory in Shuangcheng, Heilongjiang. Additionally, Nestlé has formed partnerships with Totole, Haoji, Dashan, Yinlu, Hsu Fu Chi, and Wyeth Nutrition. Nestlé's current chairman Peter Brabeck (left) and CEO Paul Bulcke On the occasion of Nestlé's 150th anniversary (1866–2016), the board decided to propose current CEO Paul Bulcke as chairman at the April 6, 2017, shareholders' meeting, with Ulf Mark Schneider to become CEO on January 1, 2017. Schneider once said the best advice he ever received was: 'Think globally, act locally; for a global company, there are no one-size-fits-all rules.' This likely reveals Nestlé's future direction. 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