Taking responsibility

Nestlé CEO Paul Bulcke on sustainability and the role the world’s biggest food company has to play in improving global health.

“Over the 10 years since we created our sustainable agriculture initiative, millions of farmers have benefited from our free technical assistance”
-Paul Bulcke

As for many other organisations, 2009 has been a tough year for Nestlé. It’s recently announced nine month figures showed that the food and drink giant had managed organic growth of 3.6 percent in the first three quarters of the year, down from 8.9 percent for the same period in 2008. However, in a business environment such as today’s any growth is positive and CEO Paul Bulcke is keen to put these figures into some kind of perspective. “They come on top of many years of strong performance, which delivered profitable growth period after period, year after year,” he says. “Let us just look at the past three years for example. For the period of 2006 to 2008 our sales and constant currencies are up 27 percent and our EBIT increased 43 percent with significant improvements in EBIT margin and the return on investment capital. We invested 29 billion Swiss francs in growing our business. 14 billion of that in capital expenditures and 15 billion Swiss francs in acquisitions. At the same time we returned a total of 28 billion Swiss francs to our shareholders, 12 billion from dividends, which increased 55 percent over the period and 16 billion from our share buyback programs.”

Behind these numbers, Nestlé has continued to pursue its aim of shifting away from just being a food producer to a company profile that gives equal weight to health and wellness. Giving structure to this transformation is a 'road map' that clearly sets out where Nestlé is headed.  "The road map clearly defines what we want to be as a company," Bulcke continues. "We want to be the world's recognised leader in nutrition, health and wellness, and also the reference at the same time for financial performance in our industry. It defines what we want to leverage to succeed. First, our product and brand portfolio backed by strong R&D capabilities, our unmatched global presence in the world and our people, values and culture. It defines also where we see opportunities for particularly accelerated growth in nutrition, health, and wellness with emerging consumers and our properly positioned products initiatives and out-of-home consumption and in premiumisation.

"It then also defines how we deliver efficiently and effectively every day, to consumer relevant innovation and renovation across our brand and product portfolio, to continuous improvement of our operational efficiencies by having our products wherever the consumer looks for them, and by communicating and connecting better with our consumers.  That is what the road map is all about, a clear and straightforward framework outlining our strategic direction, which everyone at our company is aligned with and implements on a daily basis."

Aside from Nestlé's financial ambitions, the company is also taking a crusading approach to major global social issues. "At the beginning of the 21st century malnutrition remains one of the most serious problems facing humanity," says Bulcke. " It is an underlying cause of around 35 percent of death in children under five years old and mainly in the developing countries. Micronutrients deficiencies exist in iron, iodine, vitamin A and zinc in both adults and children. These deficiencies are especially common in Africa, South Asia, and Southeast Asia.  Overall one-third of the world's population is deficient in iron, iodine, vitamin A or zinc, or a combination of them. Severe iron deficiency exists in Africa and in parts of Asia and South America, causing delay in mental development in children and reduced physical performance. Vitamin A deficiency is particularly severe in South Asia and Sub Saharan Africa, resulting in blindness and increased susceptibility to infections. Iodine deficiency is more scattered across the globe and is also responsible for impaired mental development, and widespread zinc deficiency leads to poor growth and reduced immunity."

Bulcke clearly believes that Nestlé is uniquely place to address some of these issues. "Over one billion Nestlé products are purchased every day around the world, which are or could be carriers of micronutrients," he continues. "We are now mapping out our product fortification efforts against known micronutrient deficiencies across the globe. Working with local health and experts, we are analysing local nutrition landscapes including nutritional status intakes and dietary habits of different populations in order to best target consumer needs."  Nestlé has been fortifying food and beverages for many years now and has a large product portfolio, largely focused on developing countries. A key line is in fortified milks, which have the significant benefit of being comparatively cheap to produce, enabling them to be affordable for those in most need. By the end of 2010, these milk products are hoped to be available to millions of consumers in over 70 countries. For a company whose relationship with the developing world has drawn considerable controversy in the past, it would be easy to dismiss these efforts as little more than a smokescreen aimed at patching up a tarnished image. However, Bulcke insists that Nestlé's efforts are motivated by a balanced combination of business imperative and social responsibility.

"It is our hope that our strategies in product fortification will over time contribute significantly to the eradication of malnutrition and of micronutrients deficiencies around the world," Bulcke states. "This mapping activity is a good example of how our business activities link up with society in responsible and sustainable way.  We call this creating shared value.  In this particular case we are contributing to the solution of a public health problem with products that address the nutritional needs of specific parts of the population, and in doing so we serve both society and our shareholders at the same time."

Sustainability is an increasingly vital component of how just about every industry does business. It's therefore no surprise that Nestlé is devoting plenty of resources towards addressing it. The company is increasing its use of Fairtrade products across its brands and recently announced that the extremely popular KitKat chocolate bar will now be made from Fairtrade sourced cocoa. In addition to partnering with organizations like Fairtrade, Nestlé is also working on its own initiatives. The Nestlé Cocoa Plan was announced in late 2009 and builds on the company's efforts to help farmers by bringing its plant science knowledge to bear to ensure a steady and sustainable supply of cocoa in years to come. Recent history has seen an unprecedented rise both in chocolate consumption and cocoa prices, so it is vital for a massive confectionery producer such as Nestlé to have a secure supply of raw materials. Supplies of cocoa and coffee, another major part of Nestlé's business, depend upon farmers at a local level and as a result, the company will be investing CHF 460 million over the next decade on a range of initiatives to keep the beans flowing in. "These cocoa and coffee sustainability programs are part of our commitment to carry out our business in a responsible and sustainable manner, and in line with our values and our principles'" says Bulcke. "Over the 10 years since we created our sustainable agriculture initiative, millions of farmers have benefited from our free technical assistance. This is a strong holistic program with our agriculture suppliers. It aims to improve efficiency and risk management in the supply chain and it supports sustainable development in agriculture. Today our company provides free technical assistance to over 600,000 farmers."

But sustainability isn't purely an issue for farmers and suppliers. It permeates right through the organization to the impact of how products are packaged and produced. "We have invested 250 million Swiss francs this year alone in sustainability projects in our own factories and operations," Bulcke continues. "These include renewable energies, reducing water usage, and improvement of our overall carbon footprint. Bottled light weighting is just one of these projects among many of the recent capital investments we have made in sustainability. Nestlé Waters continues to be the leader in PET bottle light weighting. Since its launch in 2007 the Eco Shape bottle in the United States alone has saved around 100,000 tons of resin.  In energy savings equivalent this would be equivalent to 78,000 cars taken off the road this year. This year we launched a ultra-lightweight 1.5-litre bottle in Spain for Nestlé Pure Life, which is the world's lightest bottle of its kind. This bottle is being rolled out now in other countries. We believe that it is important that our shareholders, consumers, customers, suppliers, other stakeholders and the public at large understand how we positively link up our activities with society in a responsible and sustainable way, and this is what we mean by creating shared value, and the role it plays in the convergence of growth, sustainability, and nutrition. In fact, this is the key to creating and maintaining trust with society in general."

Nestlé was founded in the 19th century on the bedrock of infant formula, a product designed to improve the health of consumers. In light of the huge upswing in popularity of so-called 'functional foods' with positive health benefits this marks the company out as being significantly ahead of its time. "It is the core," confirms Bulcke. "It is the soul of our strategy. We have a road map that we have put in the centre the ambition to be a leading recognised leading nutrition health and wellness company. We have said also that we are driving a very important R&D structure that is inspiring our strong portfolio and brands, so we are focusing behind several platforms for that."

Key to keeping Nestlé at the nutritional cutting edge is a commitment to continuous innovation. Bulcke describes a perfect situation as one where the product portfolio is in a constant state of churn, so that new developments and nutritional benefits can be incorporated without delay. But improving products is only part of the story. Consumers need to understand exactly why nutrition is so critical. "This whole thing is linked to information, to inform the people about nutrition," Bulcke says. "There's nothing with less present education in general than nutrition. I remember when I was in school we never had a one-hour course in nutrition, and yet at the same time it's so important in your life and you have to take nutritional decisions. Everybody has to take on nutrition several times during the day decisions, so we are not prepared for that. Governments are starting to be involved here. 

"We as a company have a nutrition compass, which is on every Nestlé product. Consumers see a compass that gives some comprehensive information that helps to induce that better awareness and understanding of what nutrition is all about, and we have in the framework of creating shared value announced also that we're going to drive a global push through the market, so structures that we have in every market, that gives kids a global nutrition education program. We already have quite comprehensive programs in 30 countries that we do together with local authorities to educate kids on nutrition because the effect, the multiplying effect of educating kids also for the future but in their families is quite dramatic."

As 2010 kicks off, Nestlé is ready for another big year. As befits the biggest food company in the world, it is pursuing a global vision, one that has the potential to bring big rewards for shareholders and consumers alike. Bulcke recognises the responsibility that a multinational of Nestlé's size has and also understands the power it can wield. "We put nutritional values into our food and our portfolios, that has a broader context of also affecting nutritional decisions by the people so they go for a more balanced and healthier diets in their lives," he says. "This is a very global equation that we have to be part of and actively drive our knowledge through this whole process.  It's a very, very important thing that is so close to what we want to do as a company."

Nutritionally speaking

Werner Bauer, Nestlé's Chief Technology Officer, on the company's efforts to make its products healthier

When we talk about nutrition we didn't start yesterday to do that. Our Nestlé Nutrition Council was created 32 years ago and today is still contains the most preeminent members, the top specialists of the world who guide us to do the right things as a company. They got us as well into doing proper clean science behind what we call nutrition science. There are two things that you always have to remember when we talk about a nutrition company. Food per se is the best carrier of health. With that we have first to make sure is that the base on what we deliver is clean and good. This is about getting rid of the bad things. Trans fatty acids are not good in them. 

We have put our policy in place already in 1999 to eliminate TFA's from our products, and we over time operationally have done that. It's about having the right levels of salt, having the right levels of sugar. You can't imagine how much R&D money we spend today in doing things properly for just our base. This is reflected in our company policy, what we call the 60/40 plus. You remember 60/40 was to win on taste, on texture.  The plus was to win on the nutritional content of the product.  On top of that comes the micronutrient environment. That's what we need on a daily basis. 

On top of that is the targeted nutrition environment. Wherever you have a deficiency you hone in with your products to deliver on those things. We have decided properly, what are the most preeminent things that we have to cover? One is iron deficiency. This is supported by our product development worldwide. It's 300 billion servings per year that we deliver to our people everywhere in this world.

It's not so easy to do that.  It's not just about adding on iron. You cannot do it to everything. You need specific encapsulation processes behind it, so the science and the technology behind it is the crucial thing. I'll tell you, we are spending time and time and money and money to do the right things right here on that one. On the other side we have to be careful to avoid overdoing it. Over-fortification is wrong. Here together with our nutrition council we're really doing step-by-step this fortification program to roll it out worldwide at this level.

60/40+

Nestlé's 60/40+ concept is the tangible expression of the company's vision. Increasingly the consumer is looking to food to provide nutritional and health benefits – not at the expense of taste but in addition to it.

As a result the company aims to make products that achieve both 60/40 consumer taste preference and a nutritional advantage. This means that not only should six out of 10 consumers prefer the Nestlé product to a competitor's equivalent but that there should be a nutritional plus too. Nutritional assessment is carried out by R&D nutritionists and generally compares a Nestlé product with the main competitor product. The nutritional assessment examines the levels of nutrients and the intrinsic value of key ingredients in our products.  The potential contribution the product makes to daily needs for a healthy balanced diet can then be determined. The assessment identifies nutritional strengths and weaknesses, and provides direction for product improvement leading to nutritional superiority.