Nestlé targets brands at hard discounters

By Chris Mercer

- Last updated on GMT

Related tags Private label Venture capital

Nestlé says it will embrace moves by hard discounters to sell more
branded products as part of its plan to recover from difficult
times on Europe's food and drink market.

If you can't beat them join them, that's what they say. And the world's number one food producer is no different, announcing that it plans to increase product lines in Europe's hard discount stores.

Group spokesperson, Roddi Child-Villiers, said at today's nine-month results conference that Nestlé was "delighted"​ by discount retailer Aldi's announcement this week that it would consider stocking branded goods.

Nestlé said the discounter channel was now the fastest growing category for its products in Europe and that "discounters that have taken on branded products have grown much, much faster"​.

"We are doing our best to make sure our brands are in there,"​ said Child-Villiers, adding that Nestlé's deal with Lidl, Aldi's rival, was already progressing well. The group said it had expanded its brand coverage by more than 10 per cent in Lidl this year.

Europe's food producers and retailers have long bemoaned the rise of such discounters for ruthlessly cutting prices, fostering the growth of private label 'brands' and forcing down value in the food and drink sector when firms face rising energy and packaging costs at the other end.

Nestlé's embrace, however, shows just how well hard discounters, led by German chains Aldi and Lidl, have managed to establish themselves as credible retailers across Europe.

The group said it foresaw no particular change in the "constant progress of private label and hard discounters"​ in Germany.

It said the situation in France was "worrisome"​ and that "very fast growth of discounters and private label"​ meant "retailers have almost panicked into an aggressive price focus"​.

Nestlé's organic growth so far in 2005 was 1.2 per cent in France and 0.5 per cent in Germany, though higher at almost six per cent in the UK. The group has increased prices by two per cent so far this year.

There were few outstanding performers in Nestlé's third quarter of 2005, with the firm managing to increase total sales at a steady 5.8 per cent over nine months.

The group said ready-to-drink beverages, especially powdered formulas, had done well, and shelf-stable milk products showed double-digit growth.

Ice cream sales dipped slightly on last year due to a slow-down in Europe offsetting strong growth in the US market. Confectionery and biscuit sales were the weak point, only growing 2.7 per cent over the nine months.

Yet, Nestlé hopes to benefit long-term from pouring money into research and development, in order to get ahead in the blossoming nutrition, health and wellness categories.

"I believe that virtually all our product lines can offer additional nutritional benefits that can make them more attractive to consumers,"​ said chief executive Peter Brabeck-Letmathe. He added this would protect the group better against private label copying.

Nestlé recently earmarked €500m to fund the development of more nutritional food processing techniques. The money will go towards a special venture capital fund, set to begin in 2006 under the leadership of current chief financial officer Wolfgang Reichenberger.

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