---
title: "Nestlé's 'Drug-Related' Adventure"
description: "On May 6, global food giant Nestlé trended on social media after a large quantity of cocaine was found at its Swiss factory. Although Nestlé discovered and reported the cocaine, emphasizing that it did not come into contact with any products or production equipment, the incident once again put Nestlé at the center of food safety concerns. Over the years, multiple batches of Nestlé products have been denied entry into China, and the company has faced numerous product recalls globally."
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published: "2022-05-09"
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# Nestlé's 'Drug-Related' Adventure

> On May 6, global food giant Nestlé trended on social media after a large quantity of cocaine was found at its Swiss factory. Although Nestlé discovered and reported the cocaine, emphasizing that it did not come into contact with any products or production equipment, the incident once again put Nestlé at the center of food safety concerns. Over the years, multiple batches of Nestlé products have been denied entry into China, and the company has faced numerous product recalls globally.

> On May 6, global food giant Nestlé trended on social media after a large quantity of cocaine was found at its Swiss factory. Although Nestlé discovered and reported the cocaine, emphasizing that it did not come into contact with any products or production equipment, the incident once again put Nestlé at the center of food safety concerns. Over the years, multiple batches of Nestlé products have been denied entry into China, and the company has faced numerous product recalls globally.

**Cocaine Worth Hundreds of Millions Hidden in Coffee Beans**

On May 6, global food giant Nestlé trended on social media because a large quantity of cocaine was found at its Swiss factory.

According to Reuters, Swiss police received a call from Nestlé's Nespresso factory on Monday evening local time. The call reported that workers had discovered an unknown white substance while unloading coffee beans shipped from Brazil. After analyzing the white powder, police confirmed it was cocaine.

Swiss police stated that the cocaine weighed over 500 kilograms, with a purity exceeding 80%, and its estimated street value was over 50 million Swiss francs (approximately 340 million RMB).

Cocaine is a type of drug that can damage the digestive, immune, and cardiovascular systems. It is explicitly prohibited in many countries, including China, Singapore, and Malaysia. The last time people heard about cocaine was when "madman" Elon Musk threatened to add cocaine back to Coca-Cola after acquiring the company, causing a huge uproar.

The association of coffee beans with cocaine immediately drew attention, with countless netizens worrying whether their Nestlé coffee contained cocaine, feeling a chill; others questioned that such a large company as Nestlé having this incident indicates supply chain problems; some netizens sided with Nestlé, believing it was a victim exploited by drug traffickers; and others thought the worried netizens were overthinking, as cocaine is much more expensive than coffee, with a small pack of Nestlé coffee averaging less than 2 yuan.

After the incident, the Financial World Weekly sought confirmation from Nestlé, which responded that its Romont coffee factory in Switzerland discovered a suspicious substance while unloading green coffee beans and immediately reported it to relevant authorities. The incident is currently under investigation. As part of the investigation, police have sealed and seized the entire shipment.

Nestlé stated that due to the ongoing police investigation, they cannot provide more details, but emphasized that Nestlé has strict quality control measures in place, managing the entire process from coffee bean intake to finished product, and that the substance did not come into contact with any Nestlé products or production equipment used to manufacture Nestlé products, ensuring their products are safe.

As a global food giant, Nestlé has one of the most advanced supply chain systems, so this incident should not have occurred. How did cocaine get mixed into Nestlé's coffee beans? Was it a management loophole that gave drug traffickers an opportunity, or were the traffickers too cunning, bypassing Nestlé's layers of control?

In this regard, industry insiders analyzed that Nestlé is likely the "victim," possibly due to negligence or dereliction of duty by a third-party shipping company, leading to cocaine being mixed into normal cargo. Nestlé was merely the "fall guy" used by drug traffickers.

(Image source: VCG)

Police are still investigating and gathering evidence, and the specific cause is not yet clear. However, this incident has once again put Nestlé at the center of food safety concerns.

In June last year, an internal letter from Nestlé circulated online. The Financial Times reported that Nestlé admitted in the internal document that over 60% of its mainstream food and beverage products did not meet a "recognized health" definition, and that "some of our categories and products will never be 'healthy,' no matter how we innovate."

First, they admitted their food is not healthy enough, and then a food safety incident broke out in the Chinese market. Nestlé's most recent food safety incident occurred in February this year when a consumer found a flocculent substance about 2 centimeters long in a can of Nestlé NAN infant formula. Nestlé insisted that the formula would not have quality issues.

Earlier, in 2017, Nestlé China experienced two major food safety incidents within just one month.

In July of that year, two batches of infant formula distributed by Nestlé were blacklisted by the China Food and Drug Administration because the selenium content in the deeply hydrolyzed milk protein formula was lower than the value indicated on the packaging label. In the same month, Nestlé and its sub-brand Klim had a total of 6 batches, 10.82 tons of imported milk powder, denied entry by the General Administration of Quality Supervision, Inspection and Quarantine due to "excessive use of nutritional fortifiers vitamins B2, B6, and B12."

This is not an isolated case. A Baidu search for "Nestlé denied entry" yields millions of results. In February this year, Nestlé's green lentil flour was not allowed entry due to lack of quarantine access. In May last year, Nestlé's sweet whey powder was denied entry due to mold and spoilage.

According to media statistics, only Nestlé's infant nutrition brand Gerber had 40 batches of products denied entry by Chinese customs from 2018 to February 2021, due to excessive use of food additives and other reasons.

Additionally, Nestlé has had multiple recalls globally. The most recent was in March this year, when Nestlé's French pizza brand was suspected of E. coli contamination, causing over 70 infections, and multiple countries ordered recalls of the affected pizzas, with the factory also ordered to halt production.

In July last year, at least 46 types of Nestlé ice cream were recalled due to the presence of potentially carcinogenic ethylene oxide. In January last year, Nestlé recalled hundreds of tons of snacks in the U.S. and elsewhere because Italian pizza rolls might contain glass fragments. In December 2020, Nestlé recalled over 92,000 pounds of chicken and mashed potato meals after customers complained of finding small pieces of hard plastic...

Li Xingmin, an industry strategy and branding expert, told the Financial World Weekly that Nestlé's frequent food safety issues have various causes. From a corporate management perspective, Nestlé, like other large multinational corporations, is more prone to errors in management difficulty than medium and large food companies, because it involves many links, numerous subsidiaries and branch factories, many suppliers, and many people, and any slight oversight can lead to problems.

**Losing the Top Spot in Two Categories**

Nestlé's history can be traced back to 1866, when the Anglo-Swiss Condensed Milk Company opened Europe's first condensed milk factory in Switzerland. The following year, Nestlé founder Henri Nestlé developed a breakthrough infant food and entered the dairy sector. For many years thereafter, the two companies fought fiercely for market share.

The turning point came in 1905 when the two companies merged to form what would become the Nestlé Group.

With no competitors, Nestlé entered a phase of rapid expansion through aggressive acquisitions. Within less than a decade, it doubled its number of factories to 40 by acquiring processing plants in the U.S., Australia, and elsewhere. Having tasted success, Nestlé continued to expand its global product categories and coverage through acquisitions.

Now 156 years old, Nestlé operates in over 100 countries and regions, with well-known brands such as Nestlé, Gerber, NAN, Haoji, Hsu Fu Chi, and Totole. 98% of its sales come from outside Switzerland, earning it the title of "the most international multinational group" and an undisputed giant in the food and beverage sector.

However, in recent years, Nestlé has faced crises. According to the 2021 Food Engineering Top 100 Food and Beverage Companies list, the biggest change in the food sector in 2020 was PepsiCo overtaking Nestlé to become the world's largest food and beverage company. In the previous year, PepsiCo's food revenue was nearly $10 billion lower than Nestlé's, but in 2020, it surpassed Nestlé by nearly $3 billion.

Food Engineering data shows that in 2020, PepsiCo's food revenue reached $70.372 billion, a year-on-year increase of 4.78%, making it the only company with food revenue exceeding $70 billion. In comparison, Nestlé, ranked second, had food revenue of $67.708 billion, a year-on-year decrease of 11.84%; JBS, ranked third, had food revenue of $50.69 billion, a year-on-year increase of 3.88%.

That year, Nestlé also lost its position as the world's largest dairy company, an area where it had its origins. The Rabobank 2021 Global Dairy Top 20 showed that Lactalis's revenue exceeded Nestlé's by $2.2 billion, making it the world's largest dairy company. Based on 2020 sales, Lactalis had annual revenue of $23 billion, while Nestlé's dairy sales were $20.8 billion.

(Image source: VCG)

Rabobank emphasized that Lactalis has focused on organic growth and pursued a global acquisition strategy in recent years. Since 2010, it has expanded its business footprint through about 60 deals, enhancing its influence in the Middle East, Africa, North America, and South America, leading to rapid revenue growth and gradually narrowing the gap with Nestlé's dairy revenue, eventually overtaking it.

Data shows that Lactalis is a French company founded in 1933. It is the world's largest dairy group, the largest cheese manufacturer, and the third-largest liquid milk manufacturer, with brands such as President, Galbani, and Lactel, and 250 factories in over 50 countries.

It is understood that Lactalis plans to acquire Kraft Heinz's natural cheese business and other companies, with combined annual revenues of approximately $2.5 billion. If completed, these acquisitions would further expand Lactalis's competitive advantage.

2020, the year Nestlé lost two top spots, was indeed not a good year for the company. That year, Nestlé's revenue fell below CHF 85 billion for the first time in eight years, to CHF 84.3 billion, a year-on-year decrease of 8.9%; operating profit was CHF 14.9 billion, a year-on-year decrease of 8.3%.

Nestlé attributed the decline in sales and profit to foreign exchange factors and business divestitures: the continued appreciation of the Swiss franc against most currencies reduced sales by 7.9%, and the sale of underperforming businesses such as the skin health company, U.S. ice cream business, and China's Yinlu Foods Group also lost a significant portion of revenue.

According to Bloomberg, by early 2020, Nestlé CEO Mark Schneider had led nearly 24 divestitures. Schneider had repeatedly stated in conference calls that Nestlé would sell non-strategic businesses that deviated from performance targets.

Industry insiders believe that for Nestlé, the decline in sales and profit in 2020 was a "painful adjustment period": Nestlé was divesting underperforming businesses while actively investing in emerging consumer areas such as pet food and anti-allergy drugs.

In 2021, Nestlé's performance finally rebounded, with total sales recovering to CHF 87.1 billion, a year-on-year increase of 3.3%. For Nestlé, this achievement was not easy, but competitor PepsiCo's growth rate was much higher. Data shows that PepsiCo's net revenue in 2021 was $79.4 billion, a year-on-year increase of 12.9%.

**Challenges in the Chinese Market**

In terms of business composition, the Americas contributed the most to Nestlé's revenue, with sales of CHF 33.8 billion in 2021, but the growth rate was not optimistic, with a year-on-year decline of 0.7%. The third-largest market, Asia, Oceania, and Sub-Saharan Africa, had sales of CHF 20.7 billion last year, with no year-on-year growth. The best-performing region, Europe, Middle East, and North Africa, had revenue of CHF 21.1 billion last year, a year-on-year increase of 4.5%.

In the Chinese market, Nestlé achieved only low single-digit growth in 2021. Due to China's recent push for infant nutrition transformation, encouraging breastfeeding and regulating marketing practices for breast milk substitutes, Nestlé's infant nutrition sales in China declined, partially offsetting growth in other categories.

Nestlé entered the Chinese market in the 1990s. Following its previous strategy of acquiring local companies to gain market share, Nestlé began a "buying spree" in China, acquiring several leading companies in various segments.

In 1998, Nestlé acquired Shanghai Totole chicken essence. In 2010, to secure its own water sources in China, Nestlé acquired 70% of Yunnan Dashan, the province's top mineral water brand. In 2011, Nestlé acquired 60% of Xiamen Yinlu and 60% of Hsu Fu Chi.

However, the results of Nestlé's acquisition strategy in China have not been optimistic. Among the leading companies acquired, only Totole chicken essence can be considered "outstanding." According to data from the China Industrial Research Institute, Totole holds a 67.16% market share in the domestic chicken essence market, far higher than Knorr's 29.38%, making it the leader in the chicken essence industry.

(Image source: VCG)

Apart from Totole, the other two leading companies acquired by Nestlé in China, Yinlu and Hsu Fu Chi, have not performed well.

Since 2011, Nestlé increased its stake twice, becoming the 100% shareholder of Yinlu. In 2013, Yinlu's sales reached over 11 billion yuan, but the good times did not last. Starting in 2015, Yinlu's performance declined. In 2016, Yinlu founder Chen Qingshui stepped down as president, replaced by Nestlé executive Cui Wudi, but the performance did not improve after the change.

By 2019, Yinlu's sales had fallen to CHF 700 million, approximately 5 billion yuan. Because the business did not meet expectations, Nestlé singled it out, stating that Yinlu had put pressure on overall performance that year, and in 2020 formally expressed its intention to sell Yinlu.

Ultimately, Yinlu was "taken over" by its founder. At the end of November 2020, Nestlé officially sold Yinlu's congee and milk business to Food Wise, a company controlled by the Chen Qingshui family, the founders of Yinlu.

Hsu Fu Chi's performance was also poor. When Nestlé acquired Hsu Fu Chi in 2011, it had ambitions to defeat Mars and become the number one in China's sugar and confectionery industry. However, its peak was in 2013, with sales exceeding 6 billion yuan, after which it continued to shrink, with revenue contracting to around 5 billion yuan by 2019.

When news of Nestlé selling Yinlu emerged, there were also rumors that Hsu Fu Chi might be sold, but for now, Nestlé seems to be trying to save it.

While the acquired brands performed poorly, Nestlé's core product, infant nutrition, has also faced comprehensive attacks from Chinese competitors in recent years, dragging down its performance in Greater China.

Nestlé's Wyeth was once the "number one milk powder" in China, but began to fall from grace in 2018, overtaken by domestic brands. In recent years, domestic milk powder brands such as Feihe and Junlebao, while solidifying their positions in third- and fourth-tier cities, have launched fierce attacks on first- and second-tier cities, taking away market share that originally belonged to foreign milk powder brands.

As a representative of traditional foreign milk powder brands, Wyeth had long held the top position in China's infant formula market, especially in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen, with an unshakable advantage. In the past two years, it has declined. Besides competitor factors, industry insiders attribute its decline mainly to chaotic channel management.

Several maternal and infant industry insiders admitted that in recent years, selling Wyeth products has had no price advantage, with very low profit margins, leading many maternal and infant store owners to switch to selling domestic milk powder brands.

In 2019, sales of Wyeth's main infant formula S-26 in China experienced a brief decline. In 2020, Nestlé NAN's growth in China was offset by negative growth of Wyeth S-26 and Wyeth Illuma. Euromonitor data shows that in 2021, Wyeth fell to fourth place in China's infant formula market, with the top three being Feihe, Aptamil, and Junlebao.

Nestlé, which has high hopes for the Chinese market, took drastic measures. In October last year, it announced an organizational restructuring, separating Greater China as a standalone region. Nestlé emphasized that the adjustment aimed to strengthen its market-oriented business model and enhance its ability to win in a rapidly changing market environment.

Not only did it elevate the status of Greater China, but Nestlé also appointed a new leader. Zhang Xiqiang, former CEO of Totole, replaced Rashid Aleem Qureshi as CEO of Greater China, marking the first time in five years that Nestlé appointed a local CEO for the region.

It is understood that Zhang Xiqiang's style is very different from Qureshi's. Industry insiders describe Zhang as very "down-to-earth," not only good at communicating with young people but also personally engaging in live-streaming sales, claiming that "a CEO who doesn't do Douyin is not a qualified CEO and should be laid off."

Nestlé's first-quarter report released not long ago is Zhang Xiqiang's first report card since taking office. The Greater China region's performance was disclosed separately, with sales of CHF 1.361 billion in the first quarter of 2022, an organic growth rate of 3.4%, the lowest growth rate and smallest size among its five business segments.

As for the reason, Nestlé explained that partly due to the impact of the Chinese New Year timing, Greater China achieved low single-digit organic growth. The growth was supported by innovation, with increased market share in seasonings, ready-to-drink coffee, and confectionery. However, strong sales growth in most categories was partially offset by a decline in infant nutrition sales, as transformation measures in infant nutrition continue.

For the new leader Zhang Xiqiang, turning around the Greater China region will require considerable effort.

Source: AI Finance and Economics (ID: aicjnews)

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