Nestle shakes up infant nutrition to tackle local rivals

By Martinne Geller and Silke Koltrowitz

LONDON/ZURICH (Reuters) - Nestle, the world's largest packaged food firm, is reorganising its infant nutrition unit to compete with regional rivals, the latest in a string of shake-ups for global packaged goods companies struggling to reignite sales.

The Swiss maker of Gerber baby food and Illuma formula said on Wednesday it would appoint regional managers for the $10 billion business to address local trends faster.

The change comes five months after Nestle's new CEO listed its highly profitable infant formula as a priority focus.

Consumer groups like Nestle, Unilever and Procter & Gamble are under intense investor pressure to lift margins as people flock to smaller, independent brands.

Infant nutrition is a key battleground for Nestle and rivals such as Danone, which also ranks its baby unit as its most profitable, and Reckitt Benckiser, which recently bought Mead Johnson, the maker of infant formula Enfamil.

Major brands still retain consumer trust that they have lost in other areas of packaged food, particularly in China, a big focus for future growth due to its growing affluence and a policy to allow two children per family instead of one.

Nestle has come under pressure to shift gear from activist shareholder Third Point, which in June revealed a $3.5 billion stake. Nestle has satisfied some demands, such as buying back shares and setting a margin target.

Nestle said it would manage some areas of infant nutrition globally via a "strategic business unit" for innovation, quality management, compliance and global manufacturing capacity.

But the position of global nutrition head will be replaced by three regional business chiefs. Current Nutrition head Heiko Schipper leaves at the end of 2017, to lead Bayer AG's consumer health unit.

REGIONAL FOCUS

Nestle already manages most of its businesses regionally, with exceptions such as bottled water, Nespresso, Nestle Health Science and Nestle Skin Health.

"The new organisation will allow Nestle's infant nutrition business to deliver accelerated organic growth and realise further efficiency gains," Nestle said, adding it would allow it to be more "agile and efficient" in responding to local demands.

Strengthening local management and decision-making has become a trend for consumer firms that had relied on strategies outlined by headquarters. Both Unilever and Diageo have shifted towards decentralisation.

Nestle is the world's biggest infant formula maker, with about 21 percent of the market, according to Euromonitor International. It is also No. 1 in China, which accounts for a third of a global market worth $68 billion.

The Chinese market has temporarily slowed ahead of new rules from January that require manufacturers to register with the government. But analysts see international players benefiting next year as some smaller brands fail to meet the requirements.

Danone has been outperforming rivals, helped by its presence on new Chinese e-commerce sites and in shops targetting mothers and babies. The French firm said strong China sales aided a 4.7 percent rise in underlying third-quarter sales.

Nestle Chief Executive said in September that he was "reasonably optimistic" about China over the next two years, due to the two-child policy and a stronger focus on quality.

Schneider said in June he would focus capital spending on particular high-growth categories including coffee, petcare, bottled water and infant nutrition.

Nestle said Chief Technology Officer Stefan Catsicas was leaving "to pursue entrepreneurial and venture capital activities outside Nestle". He will be replaced at the start of the year by Stefan Palzer, head of the Nestle Research Center.

Nestle shares, up about 15 percent this year, were flat at 84 Swiss francs at 1356 GMT.

($1 = 0.9864 Swiss francs)

(Reporting by Martinne Geller and Silke Koltrowitz; Additional reporting to Dominique Vidalon in Paris; Editing by Jason Neely and Edmund Blair)