Nestle's New CEO Challenges Food Industry's Cost-Cutting Mantra

(Bloomberg) -- Nestle SA Chief Executive Officer Ulf Mark Schneider said many food and beverage companies are focused so much on cutting costs that they will undermine their growth prospects, challenging a recent mantra that's been driven by companies such as Kraft Heinz Co. and Anheuser-Busch InBev NV.

“Many companies are focusing on radical cost-cutting to deliver higher profits in the short-term,” Schneider said Thursday in his first appearance at Nestle's annual shareholder meeting in Lausanne. “This approach is not sustainable.”

While focusing on efficiency, Nestle also plans to boost investment in the company's fastest-growing businesses, said the 51-year-old German, who became CEO on Jan. 1. Nestle also plans to expand e-commerce, where sales are rising 20 percent, and digital ventures.

Competitors like Kraft Heinz, backed by 3G Capital, have brought zero-based budgeting into vogue in the sector, and have spread fear among companies they might become acquisition targets. Schneider's comments come the same day Unilever announced a wide-ranging plan to boost investor returns after rejecting a takeover bid by Kraft Heinz.

Unilever's plan includes a 30 percent reduction in the number of ads it creates and job cuts among senior and middle management.

Nestle will also take “necessary actions” where growth is slow, said Schneider, who came from the healthcare industry and is the company's first outsider CEO in almost a century.

In February, the Nescafe maker announced plans to move its U.S. headquarters from Glendale, California, to Rosslyn, Virginia, transferring about 1,000 jobs. It's also working on measures to reduce costs in Europe, the Middle East and Mediterranean markets through 2019. In January, Les Echos cited union representatives saying they expect hundreds of job cuts in France.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier