Nestlé, the $92 billion Swiss multinational food and beverage behemoth headquartered in Vevey, last week revealed an audacious restructuring plan. As part of this drive, the company plans to double its targeted cost savings to 3 billion Swiss francs, about $3.76 billion, by the end of 2024. This decision comes on the heels of a dramatic leadership reshuffle. It makes a terrific counter to increasing pressures due to soaring commodity prices, particularly for cocoa and coffee.
Nestlé’s previous targets for cost savings were 2.5 billion Swiss francs ($3.13 billion). The company is being hit by soaring cocoa prices and increasing tariffs on Brazilian products. In light of this, the need for cuts much deeper than 2% has become obvious. Nestlé is making some pretty radical moves to increase productivity, including slashing 4,000 positions in its manufacturing and supply-chain operations. This hard decision will save the company an estimated 1 billion Swiss francs ($1.25 billion) a year by the end of next year.
Since then, Nestlé has seen additional leadership shakeups including CEO Laurent Freixe’s dismissal. His downfall came in the wake of an inquiry into his previously undisclosed romantic relationship with an employee. Freixe ended up serving for only one year. The scandal over his departure led Nestlé’s Chairman, Paul Bulcke, to step down more than a year early. Philipp Navratil, who has been with the company in various executive roles for two decades, has been put in as CEO.
This restructuring announcement comes as Nestlé, along with other food manufacturers, is feeling the pressure from increasing commodity prices, particularly wheat. The cost of cocoa soared to all-time highs last year thanks to severe weather disrupting supply chains. Cocoa is already scheduled to decline in 2025 as supply increases. They’re still significantly elevated compared to two years ago, materially impacting Nestlé’s overall cost structure.
Finally, in response to mounting financial pressures, Nestlé announced a series of price increases this summer. This change is intended to compensate for higher costs associated with coffee and cocoa. Following these announcements, Nestlé’s stock experienced a notable increase at the opening bell on Thursday, reflecting investor confidence in the company’s ability to navigate its current challenges.
Now, the good ol’ Trump administration’s tariffs on Brazilian stuff have thrown another spanner into Nestlé’s operational maelstrom. Currently, a 40%, in addition to an existing 10% tariff. Now that there’s an extra 50% tariff on coffee, orange juice and other consumer staples, Nestlé’s never been more focused on where to cut costs first.
