Nestle Transformational Challenge 1990 2005 en

I wanted to stimulate your creative thinking and give Our goal is to earn consumers’ trust as their preferred
you a more in-depth feeling of some of the resources Food, Beverage, Nutrition, Health and Wellness Company
available in the Group, which are not always sufficiently both for their own needs and those of their family mem-
exploited. We have therefore again organised, not only bers, including their pets. We understand consumers’
the very much appreciated Product Exhibition, but also nutritional and emo-
Transformational
Nestlé 1990–2005
Transformational Challenge
a visit to IMD, where we will be exposed to the latest tional needs/prefer-
thinking on relevant business issues seen from the aca- ences and provide
demic point of view. A visit to our Research Centre at Challenge them with innova-
Lausanne, which, by the way, celebrates its 10th anni- tive branded prod-
versary, will give you the opportunity to get a better idea Nestlé 1990–2005 ucts and services
of how those 650 people can help you to achieve a Albert Pfiffner based on superior
Hans-Jörg Renk
higher degree of competitiveness in the market place. science and technol-
But before starting on the specific issues, let me make ogy. By serving our
a preliminary remark: it is only fair that I should explain consumers and im-
to you how most of our subjects for discussion fit into proving their quality
a broader framework, namely the development strategy of life, everywhere in
of our Group. Over the past years, I have had more than the world, we ensure
once the opportunity to reflect on the shape of things profitable, sustain-
to come, to use H.G. Wells’ wonderful title that conjures able, long-term capi-
up the future as an imagined landscape seen from afar. tal efficient growth.
Many distinct scenarios passed through my mind – from Our Nestlé perform-
a world of continuous economic growth as a result of ance model is to
more free trade, worldwide democracy, and a more bal- deliver an Organic
anced distribution of wealth – to the other extreme of a Growth target be-
revival of socialistic, nationalistic thought, combined tween five and six
with trade protectionism and religious fundamentalism. per cent, combined
However, the more scenarios I thought of and tried to with further improve-
analyse in their relevance to the future of our Company, ments in EBITA and
the more I was reminded of Winston Churchill’s words: ROIC margins. We strive for market leadership or strong
“It is a mistake to look too far ahead. Only one link in No. 2 positions in all categories/markets in which we op-
the chain of destiny can be handled at a time.” With this erate. On this basis, we seek to deliver an industry out-
in mind, I decided to leave the big visions behind and performing long-term Total Shareholder Return and to re-
to concentrate pragmatically on the many ideas and main an attractive financial investment. Where Nestlé
62453_Nestle_UG_eng_Luxus.indd 1 18.7.2007 9:20:39
Transformational Challenge
Nestlé 1990–2005
Transformational
Challenge
Nestlé 1990–2005
Outlooks – Insights
Windows can provide a view
either of the outside world or of
an interior, and the tension and
interplay between inside and out-
side can alter the perception of
the viewer.
The photographer
Christian Vogt has produced a
series of photographs that
eloquently express this interplay,
with the photographs on the
cover and at the start of each
chapter showing views into and
out of Nestlé buildings in Vevey
(headquarters), La Tour-de-Peilz
(Rive-Reine training centre) and
Orbe (factory and research
building).
Transformational Challenge — Nestlé 1990–2005
Table of Contents
Foreword 7
Introduction 9
Part I
Background and Environment 25
1. Background 27
2. The Political, Economic and Social Environment
and its Impact on Nestlé 37
Part II
Strategies and their Implementation 74
3. Key Managers and Strategies 77
4. Business Mix and Brand Policy 97
5. Geographic Expansion: Zones and Markets 139
6. Organisational Change 151
7. GLOBE 183
8. Research and Development 191
Part III
Nestlé and its Stakeholders 223
9. Corporate Governance 225
10. Human Resources/Trade Unions 253
11. Nestlé and the Public 277
Epilogue 309
Appendix 315
I. Executive Board Members, 1990–2005 316
II. General Organisation of Nestlé S.A., 1 January 2005 318
III. Key Figures, 1990–2005 320
IV. Acquisitions and Divestments, 1990–2005 (selection) 322
V. Nestlé Research Centres, 1990–2005 (by country) 330
VI. Abbreviations 332
VII. Directory of Diagrams and Tables 338
VIII. Nestlé Publications (selection) 340
IX. Footnotes 344
X. Index (Individuals and Companies) 360
5
Foreword
Nestlé will be celebrating its 140th anniversary this year. De-

spite having a history that stretches back almost one and a
half centuries, however, the company has always kept itself
young while at the same time remaining true to its underlying
values. A 140th anniversary is no cause for major festivities in
itself – nor have any been planned as such – and neither is it
normally a reason to publish a company history.
Convinced as I was that Nestlé and its environment had
changed more over the last fifteen years than was previously
the case over a quarter of a century, however, I asked Nestlé‘s
corporate historian Dr. Albert Pfiffner to pick up where Jean
Heer‘s work of 1991 left off and bring the company‘s history
from 1990 to 2005 up to date. In view of the increasingly rapid
pace of change both within and outside the company, I did
not want to wait until our 150th anniversary to record the
changes – and, of course, the continuities – that have shaped
Nestlé over the last decade and a half.
In their work, Dr. Pfiffner and his co-author Dr. Hans-Jörg
Renk, who previously worked within Nestlé’s Media Relations
department, enjoyed complete freedom and unrestricted ac-
cess to all internal sources, as well as to current and former
senior Nestlé managers. They were not bound by any param-
eters, but worked to the best of their knowledge and belief on
the basis of historical facts. In this process they chose their
own focal points, and were by no means compelled to inter-
pret matters in a way that slavishly toed the company line. Af-
ter all, one of the cornerstones of Nestlé’s corporate culture
is the freedom it grants its employees to carry out their work
and make their own decisions.
I am delighted to introduce you to this publication, and
hope you find it an interesting read.
Peter Brabeck-Letmathe
Chairman of the Board and Chief Executive Officer 7
Introduction
It is rare for a corporate historian to be entrusted with the task

of writing about a period – in my case since 1993 – which he
has experienced himself and extends up to the present day.
This task presents opportunities, but also brings its own risks.
The opportunities arise from being able to familiarise oneself
directly with the background circumstances, the environment
in which decisions are made and most of the decision-makers
themselves. I and my co-author Hans-Jörg Renk took advan-
tage of the opportunity to speak to the key players and ask
them about various issues, as far as was possible in the time
available. As a historian I was more accustomed to writing
about events and people – such as company founder Henri Nes-
tlé – on the basis of secondary sources. Gaps due to lack of in-
formation simply had to be accepted. With this current project,
on the other hand, the mass of available sources was immense.
What was missing, however – and here we come to the risks
– was the usual distance between the historian and his sub-
ject. The implications of many of the decisions made in the
past have yet to become fully apparent, and a balanced assess-
ment will not be possible until more time has passed.
The particular motivation and challenge behind this pub-
lication was, therefore, to convey the “internal” perspective
of the company, or rather of its main players. After all, it is not
so much the environment itself that influences the actions of
a company, but rather the attitude of the major players within
the company towards that environment. In this respect, this
publication may serve both as introductory reading and also
a work of reference for the writing of Nestlé’s history at a later
date.
The chosen perspective is that of the Nestlé Group as a
whole. This book does not set out to represent the history of
individual divisions, markets, products or brands, which are
only dealt with in selected cases as part of the greater whole.
As a result, this publication focuses mainly on events from the
point of view of the headquarters in Vevey.
9
Tables and statistics are intended to provide a rapid over-

view, present supplementary information and illustrate certain
trends. However, the absolute figures should be approached
with due caution as evaluation methods have been subject to
frequent changes and series of figures extending over longer
periods of time and various product areas, countries, curren-
cies and groups often cannot be compared directly.
The book is structured according to the main issues on
which we have chosen to focus. In Part I, we investigate which
of the changes in the corporate landscape during the period
under review are considered the most relevant by senior man-
agers, and as such are seen as having represented the main
challenges for the Nestlé Group. Part II illustrates the strate-
gies and solutions devised in response to these challenges
and looks at how – and with what result – these strategies and
solutions were implemented. In Part III we address a range of
central issues that have particularly affected the company’s
various stakeholders.
As far as was possible given the amount of information
and time at our disposal, we attempted not only to include the
broader economic and social context but also to take a look
at individual competitors. After all, this is the only way to
clearly demonstrate whether Nestlé was following general
trends or “going its own way”.
This publication is intended for a general audience, and
is not an academic work. It should still satisfy certain mini-
mum academic criteria, however, which is why all sources
have been referenced. We the authors bear sole responsibil-
ity for their selection and evaluation, as well as for any incor-
rect interpretation. We were given access to confidential
sources such as strategy papers and minutes of the Board,
and were free to select the topics and to handle them as we
saw fit, while maintaining the requisite confidentiality. Our
greatest limitation was the timeframe of less than two years,
which forced us to take an extremely selective approach. We
were not able to read through all documents in detail, neither
did we have time to cover all topics or interview all those in-
10
Introduction
dividuals who would also have had interesting contributions

to make.
We would particularly like to thank Peter Brabeck-Let-
mathe, CEO since 1997 and Chairman since 2005, for the trust
he placed in us, for the many frank discussions and for the
freedom granted us to write this book. Without his initiative
and openness, this publication would never have been possi-
ble in this form. I would also like to thank my co-author Hans-
Jörg Renk, whose writing, knowledge and network of con-
tacts from his time in the Communications department at the
headquarters in Vevey contributed a great deal to this publi-
cation. I would also like to thank my two colleagues in Nestlé’s
Historical Archives, the historians Lisane Lavanchy and Tanja
Aenis. In addition to writing the box texts on the history of
various acquisitions and shareholdings, they were also respon-
sible for illustrations and captions and for co-ordinating the
translation of the original German into three different lan-
guages.
Several individuals gave us their time to be interviewed.
In addition to Peter Brabeck, these included in particular his
two predecessors as Chairman of Nestlé S.A., Helmut O.
Maucher (CEO 1981–1997, Chairman 1990–2000, since Hon-
orary Chairman) and Rainer E. Gut (Board of Directors 1981–
2005 and Chairman 2000–2005). Our numerous conversations
with these three personalities provided us with important in-
sights and background information, not just about the period
covered in the book, but also about prior events vital to un-
derstanding many of the developments of the last fifteen years.
We would therefore particularly like to thank them for their
trust and their openness, which made writing this book a con-
siderably easier task.
The same also applies to all the other individuals who pro-
vided us with valuable insights into their respective areas of
activity: Werner Bauer, Executive Vice President (Technical,
Production, Environment, R&D) and his two predecessors
Rupert Gasser and Brian Suter, as well as the former Execu-
tive Vice Presidents Mario A. Corti (Finance and Control) and
11
Michael W.O. Garrett (Asia, Oceania, Africa). We would also

like to thank the following for the information and documen-
tation they provided: Marlyse Amez-Droz (Nestlé Nutrition),
Anita Baldauf (Investor Relations), Caroline Biétry (Corporate
Communications), Jenny Bohn (General Secretariat), Yvan
Borgeat (Business Information Center), Danielle Bouvier, Paul
Broeckx (Human Resources), Niels Christiansen (Public Af-
fairs), Bernard Daniel (General Secretariat), Marina Delessert
(former Zone Americas), Jean Claude Dispaux (formerly Infor-
mation Technology), Edward B. Fern (Corporate Wellness
Unit), Ami Gabioud (Financial Consolidation), Barbara Groll
(Nestlé Germany), Herb Hottinger (R&D), Muriel Huber
(Acquisitions), Jean-Michel Jaquet (GLOBE), Felicia Jerie,
Anna Korb (Nestlé Deutschland AG), Jean-Daniel Luthi
(Finance Projects), Denise Meister (Corporate Communi-
cations), Herbert Oberhänsli (Economic and International
Relations), François X. Perroud (Corporate Communications),
Claude Rossier (Pharma & Cosmetics), Marcel Rubin (formerly
Corporate Communications), Klaus Schnyder (formerly Public
Affairs), Eric Somnolet (Nestlé Nutrition), Roland Stalder (Qual-
ity Management), Roland Suchet (Architecture & Construc-
tion), Jenny Sykes (General Secretariat), Peter van Bladeren
(Research Center), Lisa Welsh (Nestlé Purina PetCare),
Friedrich Wernli (Architecture & Construction) and Brian Young
(Chef America). We would like to thank Margrit Müller from
the University of Zurich for her current research work, which
she made available to us in advance of the writing of this
book.
René Ciocca and Siegfried von Känel (Corporate Identity
& Design), together with the company messi & schmidt, were
responsible for the graphic design and the layout of this book,
while Heinz Malzacher and Claude-Evelyne Rüfenacht of
Stämpfli AG in Berne were entrusted with its production. The
translation was organised on the part of CLS Communication
AG by Christine Gerber and Carmela Ahokas. Hans-Peter Thür
and Ursula Merz of NZZ-Verlag arranged for the distribution
of the German edition in bookshops. I would like to thank all
12
Introduction
those mentioned for their valuable contributions to this book,

not forgetting our partners who, even in the most stressful
periods, not only put up with us but gave us their active sup-
port.
13
This update of Nestlé’s history kicks off at the time when the
American political economist Francis Fukuyama – having wit-
nessed the fall of the Berlin Wall and the collapse of the Com-
munist regime in Central and Eastern Europe, as well as the
victory of democracy and the market economy – stated that
the “end of history”1 had arrived. We have since come to re-
alise that Fukuyama was overly optimistic: history has contin-
ued, though not solely in the direction that he and many of his
contemporaries had hoped. While the momentous events of
1989/90 created the ideal conditions for a new era of peace,
stability and prosperity, they also led to new crises and wars,
even in Europe, where this had been least expected.
Looking back over the last fifteen years, however, one has
to admit that Fukuyama really was something of a visionary.
The “annus mirabilis” of 1989 was a historical watershed, the
like of which has not been seen since 1945 and, while it did
not mark the end of history, it certainly signalled the defini-
tive, long-anticipated conclusion of the post-war period. It
also, however, brought an end to the certainties that the Cold
War seemed to have provided for almost half a century with
its fragile but ultimately stabilising “balance of terror”. This
year heralded an era of uncertainty and contradictions, but
also one of previously unimagined opportunities. The collapse
of the bipolar system with its rival superpowers of the USA
and the USSR unleashed forces that were both unexpected
and uncontrollable. There have been very few developments
over the last fifteen years – good or bad – that cannot be at-
tributed directly or indirectly to the landmark events of 1989/90:
the reunification of Germany, the introduction of democracy
and the market economy to the states of Central and Eastern
Europe, the collapse of the Soviet Union, the strengthening of
the European Union (EU) via the Maastricht Treaty, the intro-
duction of the euro, the enlargement of the EU with the former
EFTA states of Austria, Finland and Sweden, as well as eight
Central and Eastern European states plus Cyprus and Malta
almost a decade later. Even the end of apartheid in South Af-
rica and the return of various Latin American countries to de-
14
Introduction
mocracy would have been just as impossible under the con-

ditions of the Cold War as the initially successful attempts to
resolve the Israeli-Palestinian conflict via the Oslo Accords of
1993.
The same goes for economic developments. The elimina-
tion of political constraints facilitated the removal of trade bar-
riers, not just within regional blocs such as the EU, ASEAN
(Association of Southeast Asian Nations) in Southeast Asia or
NAFTA (North American Free Trade Agreement) and Merco-
sur (Southern Common Market) on the American continent,
but also worldwide in the context of the newly created WTO
(World Trade Organisation) from the former GATT (General
Agreement on Tariffs and Trade). The transformation of 1989/90
strengthened the new phase of accelerated globalisation.
Thanks to the liberalisation of trade and the privatisation of
the economy in countries that had previously known only a
state-controlled command economy, new markets and invest-
ment opportunities opened up in Eastern Europe, but above
all in China, which – with its unique combination of commu-
nism and capitalism – succeeded in performing a true eco-
nomic miracle and in less than a decade became one of the
leading players on the global economic stage, followed closely
by India, which benefited increasingly from its assets in the
form of democracy, a market economy, high levels of educa-
tion and English as its lingua franca.
As such, the transformation of 1989/90 was not the end,
but in many respects the beginning of a new phase in history.
In their euphoria, however, many contemporaries forgot that
history is not like a clock that can be reset to zero. The shock
was all the greater, therefore, when just nine months after the
fall of the Berlin Wall another war broke out after Saddam Hus-
sein invaded oil-rich Kuwait. In view of the weakness of the
Soviet Union, the Iraqi dictator had assumed he would be able
to achieve his long-harboured goal without any great risk. He
was mistaken, however, because it was precisely the weak-
ness of the USSR that allowed the USA, six months later, to
obtain a UN mandate allowing an American-led coalition to
15
free Kuwait, albeit without bringing down Saddam Hussein.

Even greater was the shock, in Europe in particular, when in
the same year of 1991 the state of Yugoslavia began to crum-
ble. This, too, was due partly to the imminent demise of the
USSR, with the threat of Soviet intervention having held the
multi-ethnic state together even a decade after Tito’s death.
The removal of this threat brought decades of internal ten-
sions to the surface, resulting in a bloody civil war that con-
tinued intermittently throughout the final decade of the 20th
century and was only partly resolved by the Dayton Peace Ac-
cord of 1995, the intervention of NATO in Kosovo in 1999 and
the fall of the Serbian dictator Slobodan Milosevic the follow-
ing year. While the Central and Eastern European states freed
from communism grew accustomed to democracy and the
market economy relatively quickly and saw encouraging eco-
nomic growth rates, and while the Czech Republic and Slova-
kia separated peacefully, the war in Yugoslavia was accompa-
nied by the kind of mass murder and ethnic cleansing that was
thought to have been consigned to the dim and distant past.
Africa, too, witnessed the simultaneous occurrence of strik-
ingly different developments. While South Africa saw the first
free elections to mark the end of apartheid in 1994, some
800,000 people fell victim to brutal mass murder in Rwanda.
Even more dramatic were the wars raging in the Congo (then
Zaire) from 1996 onwards.
Also in Asia, contradictions were – and still are – very
much a feature of the landscape: economic success coupled
with unsolved political problems that could theoretically es-
calate into open conflict at any time, for example the tension
between India and Pakistan that has been simmering for over
half a century or the almost equally longstanding divide be-
tween North and South Korea, not to mention the ongoing
Middle East conflict. The US intervention in Afghanistan fol-
lowing the terrorist attacks of September 2001 caused the
downfall of the Taliban regime there and the US-British inva-
sion of Iraq in April 2003 ousted Saddam Hussein, but neither
of these two exercises has yet produced a new, more stable
16
Introduction
situation. Contrary to the intentions of the intervening pow-

ers, both countries have remained breeding grounds for ter-
rorism, itself an unanticipated delayed consequence of the
1989/90 period of transformation. This brings to a close our
brief summary of the key political events of this period.
Nestlé reacted to the opening up of markets and the new

growth prospects at the beginning of the 1990s by giving it-
self – under the name of “Nestlé 2000” – a new organisational
structure aimed at facing the upcoming demands head on.
The existing organisation of the headquarters according to ge-
ography and the Products and Technical departments was re-
placed with one that contained elements of a matrix structure
combining the traditional geographically based business units
(zones) and the newly created product-based strategic busi-
ness units (SBUs). The SBUs took on the duties of the former
Products departments and some of those of the Technical di-
vision. The reorganisation was implemented in parallel with
the renewal of the Executive Board. The youngest of its new
members, Peter Brabeck-Letmathe, succeeded Helmut
Maucher as CEO in 1997 and also became Chairman in 2005.
Following the retirement of Helmut Maucher as Chairman in
2000, Rainer E. Gut, who had been a member of the Board of
Directors since 1981, took over the chairmanship and re-
mained in this role until 2005. This continuity at the highest
level underlines the long-term orientation of the company,
which is undoubtedly part of the secret of its success.
In a second major organisational change, Peter Brabeck
built the foundations for a company that is well-equipped to
continue its growth rhythm. In addition, the existing organi-
sational structure is currently being developed further into an
interlinked network structure. Or, to use an analogy, the su-
pertanker that is Nestlé is being transformed into a fleet of
more agile cruisers and speedboats, led by a strategic flagship
(the headquarters) and supported by a powerful supply ship
(the GLOBE project). Parallel to the organisational transforma-
tion process, a strategic one is also under way, involving the
17
reorientation of the company towards the areas of nutrition,

health and wellness. This transformation is scheduled for com-
pletion by 2008.
Organisational and personnel-based reorientation enabled
Nestlé to react rapidly and flexibly to the economic, political
and social challenges of the 1990s and the start of the 21st
century. The company, however, was not content with merely
reacting to developments as they occurred – wherever possi-
ble, it wanted to anticipate them. In Hong Kong for example,
where Nestlé already had a presence, negotiations were held
at the start of the 1980s concerning an engagement in China
at a time when Deng Xiaoping’s economic reforms had not
yet had any concrete impact and it was still very difficult to
predict how things would turn out. However, Nestlé took
longer than some of its competitors to set up its first factory,
because contractual arrangements were intended to provide
both sides with long-term perspectives and Nestlé wanted ma-
jority ownership.
The company also established a foothold in Central and
Eastern Europe, as well as Russia, early on in the 1990s. Ex-
cept in the former GDR, however, once again it was not one
of the first off the mark, wanting as it did to wait until the eco-
nomic and political changes proved to be lasting. Even in dif-
ficult times, Nestlé remained true to its principle of maintain-
ing its presence in a given country once established. In line
with this principle, the company remained in Russia during
and after the 1998 financial crisis and proceeded to expand
its position further by means of acquisitions, while other West-
ern firms withdrew. Nestlé also pursued the same strategy at
the same time in view of the Southeast Asian crisis by taking
the opportunity to buy shares in the companies of local share-
holders dependent on obtaining cash, thus coming closer in
some countries to its long-term goal of a 100 per cent share-
holding. In addition to these two crises, Nestlé also had an-
other one to deal with in autumn 1998 in Brazil, where the
same principles were put into practice. In the process, Nestlé
proved its ability, based on its strategy of broad geographical
18
Introduction
and product-based distribution, to offset the negative effects

of these crises but to remain in place ready for when things
improved.
Nestlé’s flexible organisational structure, tailored to suit
each area of the business, should now provide every area with
the best possible opportunities for achieving the targeted over-
all growth. This strong network, facilitated by the Global Busi-
ness Excellence (GLOBE) project, is also intended to enable the
company to reap the benefits of its size and save on costs.
Nestlé also prepared itself for the changes in the EU, re-
viewing and further rationalising its inherited industrial struc-
ture in Europe in readiness for the definitive establishment of
the single market on 1 January 1993. In view of the four fun-
damental freedoms of this market (the free movement of
goods, persons, services and capital) it became even less nec-
essary to maintain a factory for every product category in each
EU country. This resulted in a further reduction in the number
of European factories in the food and beverage sector by a
third from 182 in 1990 to 123 in 2005. This led unavoidably to
disputes with trade unions intent on asserting their vested
rights whose position had been strengthened by the European
works councils set up in accordance with EU legislation. In
Switzerland, following the rejection of the European Economic
Area (EEA) in the referendum of 6 December 1992, Nestlé
worked towards helping to secure the – from its perspective
highly desirable – bilateral agreement with the EU concerning
processed agricultural products, which came into force at the
beginning of 2005. On the American continent, the company
was actively involved in setting up both NAFTA and Mercosur.
Through its participation in trade associations and institutions
such as the European Roundtable of Industrialists (ERT), the
International Chamber of Commerce (ICC) and the World Eco-
nomic Forum (WEF), Nestlé had an indirect influence on the
drafting of new regulations in connection with the EU and the
WTO.
During the course of the 1990s, Nestlé was faced not only
with new political and economic challenges, but also techni-
19
cal and above all social ones. The company responded to the
emergence of the Internet in the middle of the decade with a
growing number of websites. The development of information
technology also provided opportunities for further optimising
the value chain, making it easier to establish and maintain re-
lationships with both other companies (B2B) and consumers
(B2C). Information technology has also played an important
part in one of the most significant projects of recent years, the
GLOBE project launched in May 2000. This project not only
involved reorganising and harmonising data records within the
Group and standardising information systems and technology,
but above all defined the best practices for certain procedures.
GLOBE is much more than just an IT project. With the global
use of common definitions and standards the Group counts
on benefiting from its size regarding purchasing for exam-
ple.
In 1997 and 1998, Nestlé – like other big Swiss compa-
nies – was confronted, during the course of the highly-charged
debate surrounding the role played by Switzerland in the Sec-
ond World War, with questions concerning the employment
of forced labour in its factories in Nazi Germany and those ar-
eas occupied by the Third Reich. Nestlé opened up its archives,
to the extent required by law, to the Historical Commission
set up by the Swiss Federal Council. It also contributed its fair
share to the fund set up by the Swiss business community to
meet the financial claims of a class-action suit against private
Swiss banks and other Swiss entities.
During the same period, the company also had issues to
contend with relating to its core business of nutrition. While
the discussion surrounding genetic engineering in agriculture,
which emerged at the same time as the equally heated debate
concerning “mad cow disease” (BSE), affected areas in which
Nestlé was not directly active, as the world’s largest food com-
pany it nevertheless had to face up to the subject. More cen-
tral areas of Nestlé’s business activities were affected around
the start of the new millennium in connection with the contro-
versial issue of obesity, which had attracted attention first in
20
Introduction
the US and then in Western Europe. Nestlé was well-prepared

for this debate thanks to its intensive research activity and its
express commitment to the area of nutrition since the start of
the 1990s. Then came the launch of a series of health-promot-
ing foods, including around a dozen “branded active benefits”,
i.e. patented substances added to traditional products. Nestlé
has always attached great importance to distinguishing these
products clearly from pharmaceuticals, stressing that the com-
pany is involved in preventing, not curing, disease. The area
of nutrition gained even greater significance following the cre-
ation of the division of the same name in 1997, Peter Brabeck’s
first move as CEO, and its transformation into a globally active
business unit in 2006. Since then, the company has expanded
the traditional concept of “nutrition” beyond the originally de-
fined areas of infant food, performance nutrition and health
food to include, for example, the services of the weight-man-
agement company Jenny Craig. At the start of the new millen-
nium, public debate started to heat up about other issues di-
rectly affecting Nestlé as the world’s largest buyer of coffee
and cocoa. Nestlé was accused, for example, of having artifi-
cially depressed prices for raw coffee and by certain groups
of tolerating child labour on cocoa plantations. Nestlé re-
sponded by arguing that it had very little influence over raw
coffee prices and that it purchased most of its raw materials
from third parties and therefore was not responsible for the
working conditions of its suppliers. At the same time, how-
ever, Nestlé committed itself to joining forces with other choc-
olate manufacturers to exert what influence it could on cocoa
producers with the aim of eradicating child labour. These is-
sues also reignited the debate surrounding the general con-
duct of Nestlé in developing countries, to which the company
responded with comprehensive reports on its activities in Af-
rica and Latin America to accompany the 2004 and 2005 Man-
agement Reports, followed by the launch of its first fair-trade
product, Nescafé – Partner’s Blend, in the UK in 2005.
At the start of the new millennium, the transformation in
food distribution intensified in Europe in particular. The ‘hard
21
discounters’ that had already been around in the 1990s in-

creased their market share considerably, among other things
because people affected by high unemployment in Germany
and France in particular wanted to pay the lowest possible
prices for their food. This served to strengthen the hand of the
hard discounters in their negotiations with manufacturers.
Nestlé also developed a business policy towards the discount-
ers. In 2004, five per cent of Nestlé’s retail sales in Europe
were attributable to hard discounters.
Nestlé was in a good starting position for the negotia-
tions, due in particular to the strategy pursued systematically
since Helmut Maucher’s time of always being number one in
as many areas of the food industry as possible, including wa-
ter and pet food. Important milestones on the road to this goal
were a series of strategic acquisitions in three areas where
Nestlé had not yet achieved this target: in water the Perrier
Group in 1992 and San Pellegrino in 1998; in pet food Alpo in
1994, Spillers in 1998 and Ralston-Purina in 2001; and in ice
cream Finitalgel in 1993, Häagen-Dazs in 1999, Schöller and
Dreyer’s in 2002 and Mövenpick in 2003.
Nestlé had not been involved in the large-scale regroup-
ing within the food industry at the start of the new millennium.
While major acquisitions in the areas it saw as most impor-
tant had become almost impossible on competition grounds,
no takeover candidates presented themselves in other areas.
Instead, Nestlé focused on a selective acquisition policy. A fur-
ther important component of this strategy is the brand policy
which Peter Brabeck developed under Helmut Maucher and
which focuses on a small number of umbrella brands – of
which Nestlé itself is the most important. This was also ac-
companied by the strengthening of the corporate identity and
a reflection on the Nestlé name and the company logo dating
back to the firm’s founding father Henri Nestlé.
Once the term “shareholder value” had come to domi-
nate the debate in the mid-1990s, the first years of the new
millennium saw questions increasingly raised about the re-
lated concept of “corporate governance”, i.e. the interplay be-
22
Introduction
tween the shareholders, Board of Directors and Executive

Board of a company. The discussion was enlivened in partic-
ular by the plan, announced in the run-up to the 2005 Nestlé
General Meeting, to combine the office of Chairman of the
Board with that of CEO. A bid by a critical fund manager and
some public pension funds to prevent the dual mandate by
means of an amendment to the Articles of Association was
narrowly rejected by the General Meeting. The measures sub-
sequently implemented within the Board of Directors, in par-
ticular the announced revision of the Articles of Association,
eased the tension.
The positive overall results published for the 2005 finan-
cial year in an altogether more friendly economic environment
further reinforced investor confidence in the solid values of
the company, reflected not least in an increase in the share
price to above the 400 Swiss franc mark for the first time at
this par value.
23
24
Part I
Background and Environment
1. Background
A multinational company 27
A 140-year history of international growth 30

and its Impact on Nestlé 37
The emergence of new markets and growth regions 38
Increasing integration of previously loosely connected markets 39
Shareholder value, pressure for disclosure and CSR 42
Changes in the fields of transport, communications and information
technology 53
Population growth and increasing purchasing power 56
Changes in consumer behaviour 63
The food industry and the retail trade 68
25
26
Part I Background and Environment
1. Background
A multinational company
With the acquisition of the Ursina-Franck Group in 1971, for

the first time in its history Nestlé became the world’s top-sell-
ing food company. Between 1990 and 2005 alone, sales al-
most doubled from 46 billion to CHF 91 billion, with food and
beverages accounting for around 93%. In the same period, the
headcount increased from 199,000 to 253,000. No other ma-
jor food firm achieved comparable sales growth during the pe-
riod in question.1 Since it was first founded in 1866, Nestlé
has expanded geographically and in terms of the products that
it offers. By the end of 2005, the company had almost 500 fac-
tories in more than 80 countries worldwide. Its products can
be found anywhere in the world. Consequently, Nestlé is of-
ten described as “the most multinational” of all the multina-
tionals. In 2005, Nestlé was the global market leader in solu-
ble coffee, infant nutrition, dairy, chocolate milk beverages,
bottled water, pet care and – together with Unilever – ice
cream.
27
Whenever anyone talks about Nestlé – whether in internal or external re-

ports – one thing that is often highlighted is its size, expressed in terms of sales
and profit figures. As a result, it is often wrongly assumed that it is this size in
itself – or external factors in particular – that is responsible for the company’s
success.
Even among longstanding employees, there is a view that Nestlé owes its
success to fortuitous circumstances such as the fact that it belongs to the largely
non-cyclical food industry, for example; that Nestlé products have always been
affordable even when times are hard; or that the diversity of products and ge-
ographical spread mean that there will always be a number of product areas or
regions that are doing well at any given time.5 As such, there is almost an im-
plicit assumption that Nestlé couldn’t be anything but successful.
Size may be a sign of success, but it should never be misinterpreted as
a guarantee of success. In the words of Peter Brabeck: “To be big is less and
less a guarantee of preserving a leading position, or even a guarantee of sur-
vival.”6 An analysis of the 100 greatest corporate crises of the years 1998 to
2002 reveals that more than half the businesses concerned – among them a
number of established names – were considered top-flight companies, highly
profitable market leaders until their demise.7 According to the authors, the ma-
jority of these companies suffered not from a lack of growth, tentative change,
weak management or a climate of complacency that was not conducive to per-
formance – quite the contrary, in fact: they were the victim of an excess of all
the above. Growth escalated into massive expansion with too many acquisi-
tions, making it impossible to keep an overview and resulting in a mountain of
debt. Likewise, change was unbridled and lacking in direction. Strong man-
agement figures surrounded themselves with “yes men” and an excessively
success-oriented corporate culture attracted ambitious career climbers with
little sense of loyalty. The four key factors of success – high growth, the capacity
for constant change, a strong, visionary management and a success-oriented
corporate culture – were no longer present in the right measure. This is some-
Food & Beverage Sales of Major Food Companies 1990/1997/2005

In USD billions
Nestlé PM/ PepsiCo Unilever Coca- Mars BSN/ Con Cad- Gen. Sara Kel- Heinz RJR P&G
Kraft Cola Danone Agra bury Mills Lee logg’s Nabisco
Foods Foods
1990 2 33.8 29.6* 17.8 21.1* 10.2 9.0 e 10.5 8.8 6.1 6.4 7.3 5.2 6.1 5.8* 3.3*
1997 3 46.1 31.9 20.9 23.4 18.9 13.8 e 13.8 18.1 6.9 5.6 10.4 6.8 9.4 8.7 4.1
2005 4 68.2 34.1 32.6 27.5 23.1 18.9 e 16.2 14.6 11.8 11.2 10.9 10.1 8.9 — 5.1 e
Food
as % of sales
in 2005 93 100 100 56 100 97 100 100 100 100 57 100 100 — 9
e
estimate
* of Nestlé competitors
who were strongly diversified
in the non-food sector, food &
beverage sales only
28
1. Background
thing that management must continually revisit in order to ensure that the var-
ious elements are always in balance.
The international food industry, too, has changed considerably since
1990. Since the beginning of the 1990s alone, many of Nestlé’s competitors
have disappeared from the corporate landscape as legal entities in their own
right – even if their brands have often lived on: Jacobs Suchard (Philip Morris,
1990 > Kraft Foods, 2000); RJR Nabisco (Philip Morris > Kraft Foods, 2000),
Borden (Kohlberg Kravis Roberts & Co. KKR; Borden Milk Products LP, 1995 >
Milk Products LP), CPC International with Knorr (as “Bestfoods” > Unilever,
2000) Ralston Purina (Nestlé, 2001), Agnesi (BSN/Danone > Paribas Affaires
Industrielles PAI, 1997 > Colussi, 1999), Gerber Products (Sandoz, 1994 > No-
vartis, 1996), Quaker Oats (PepsiCo, 2000), Freia Marabou (Kraft General Foods,
1993). [See also the section on “The food industry, p. 68–73”]. The reasons be-
hind these changes have been many and varied, but they all reflect the dra-
matic transformation of the industry.
Nevertheless, it would be wrong to conclude that the degree of concentra-
tion in this sector is particularly high. Unlike other manufacturing industries
such as the automotive, chemical or pharmaceutical industries, for example,
the food industry is not dominated by a few big companies with production
facilities in a handful of locations.8 Big and small food companies each have
their specific advantages enabling them to exist in the same market. Whilst in
the US some of the very biggest food producers continued to expand, a great
many new small firms entered the market.9 In addition to a few big businesses,
worldwide there are countless small and medium-sized food companies.
The food and beverage industry as a whole is estimated to have a mar-
ket volume worth around 3.5 to 4 trillion US dollars, of which Nestlé – as the
biggest provider – accounts for between 1.6 and 3%, depending on the method
of calculation.10 Between them, the 20 biggest food and beverage producers
accounted for just 11% of the total market in 2003. Given that most firms have
opted for a highly focused growth strategy over the last few years, however,
there are signs of greater market concentration, depending on the product cat-
egory and country.
Typically in the 1990s, there was a marked trend in the food industry to-
wards globalisation in terms of assets, sales and foreign-based staff as a pro-
portion of the total for a given company. According to the UNCTAD Transna-
tionality Index11 (TNI), the food industry ranked second only to the media
industry in 1999 and showed the greatest increase of any sector. At the same
time, the industry showed the lowest level of geographical concentration.12
The main reason for this lay in the fact that national regulations, raw materials
and consumer trends in particular have more of a bearing on the food and bev-
erage industry than, say, the industry for high-tech products (computers, mo-
bile phones, etc.). As a result, food companies have tended to make more for-
eign direct investment than their counterparts in the technology sector, which
attach far greater importance to trading.13
In 2005, Nestlé generated just 1.6% of its sales in its home market of
Switzerland. In 1990, that figure was 2%. According to the UNCTAD rankings14
29
of the world’s top 100 transnational companies outside the financial sector in
2003, Nestlé was rated number 3 in terms of its foreign subsidiaries, number
15 in terms of the TNI and number 30 in terms of its foreign assets. In the same
categories, Unilever came in at position 62 (subsidiaries), 35 (TNI) and 43 (for-
eign assets), while the Altria Group Inc. – the parent company of Kraft Foods –
occupied positions 14, 86 and 52 respectively.
A 140-year history of international growth
As a multinational enterprise, Nestlé has to adapt to the changing environment,

characterised by developments such as the globalisation of the markets (not
consumers!), the emergence of new economic blocs, changes in investor be-
haviour, and new distribution and communications channels, to name but a
few. As a food company, it has to take account of changing consumer needs
and eating habits, the increasing power of retail chains, and new research find-
ings and technologies in order to survive and grow. At the same time, Nestlé
itself – like all major multinationals – has an impact on this process through
the decisions that it makes, by planning, organising and controlling its busi-
ness and activities across national boundaries, manufacturing new products
with specific properties as efficiently as possible, using selected raw materi-
als, and offering these to buyers for a particular consumer group.
Yet the question of how Nestlé should adapt to all these changes in an
increasingly global world is by no means new.
From the very outset, Nestlé and the Anglo-Swiss Condensed Milk Co.,
with which it merged in 1905, had to deal with the phenomenon that we now
know as globalisation. In fact, the companies were founded – Anglo-Swiss in
1866, Nestlé in 1867 – during the first phase of globalisation between 1850
and 1914, when the expansion of the railways, steamship travel and new means
of communication dramatically improved the movement of people, goods and
Nestlé & Anglo-Swiss Factories and Subsidiaries, 1905

Switzerland 11. Staverton Spain
1. Cham 12. Tutbury 19. La Penilla
2. Düdingen
Norway Austria
3. Egnach
13. Sandesund 20. Edlitz-
4. Vevey
14. Hamar Grimmenstein
5. Bercher
15. Kap
6. Payerne
Subsidiaries:
7. Neuenegg USA
London, Tutbury,
16. Fulton
UK Berlin, Hegge, Paris,
8. Chippenham Germany New York, Fulton,
9. Aylesbury 17. Hegge Christiana (Oslo),
10. Middlewich 18. Lindau Vienna, La Penilla
Factories
Subsidiaries
30
1. Background
1 Henri Nestlé, entrepre-

neur in the Swiss town of Vevey
since 1843, developed the infant
formula that bears his name in
1867. He ultimately sold the
business in 1875. Here we see
2 the factory as it was around
1890.
2 The Anglo-Swiss Con-

densed Milk Co. built Europe’s
first factory for the manufacture
of sweetened condensed milk in
Cham, Switzerland, in 1866.
Here we see the factory as it was
31 in 1881.
capital and led to a real wave of cross-border investments (so-called direct in-
vestments) from 1880 onwards in particular.15
The very history of Nestlé itself has been shaped by international growth
beyond the boundaries of its small homeland. Within a few short years of its
foundation, Nestlé was already a globally oriented company.16
This process occurred by means of geographical enlargement and the
expansion of its sphere of activities – encompassing products and production
– in foreign markets, combined with a series of mergers and acquisitions. To
begin with, Nestlé exported the infant formula developed by its founder Henri
Nestlé mainly to the neighbouring countries of Germany, France and Austria,
followed by the United States, Britain and Russia, while Britain was by far the
biggest market for the sweetened condensed milk produced by Anglo-Swiss.
This foreign business was initially handled by agents, then by the company’s
own sales offices and later by subsidiaries. In due course, factories were set
up and a series of acquisitions followed.
Anglo-Swiss built its first foreign factories in Britain and Germany in 1874
before going on to acquire a British condensed milk company the following
year. Nestlé opened its own sales office in London in 1877, its first foreign fac-
tory near Vienna in 1883, and acquired a Norwegian condensed milk company
in 1898. Following the merger in 1905, the new Nestlé & Anglo-Swiss Con-
densed Milk Company thus had a total of 20 factories, 13 of them abroad, as
well as 10 foreign subsidiaries. The supply of the raw material milk, the avoid-
ance of trade and customs barriers, the lower transport costs and the proxim-
ity to the market were decisive.
Before and during the First World War, the prevailing trend towards na-
tionalism meant that Nestlé (like Maggi, which it went on to acquire in 1947)
wanted to be perceived as a home-grown business in each country, or as a
Swiss company at the very least. This resulted in a wave of new companies
being set up abroad or the names of foreign subsidiaries being changed.17
As well as being the year in which Nestlé and Anglo-Swiss merged, 1905
1 It was in 1905 that Nestlé

launched a milk chocolate under
its own brand name but manu-
factured by confectioners Peter &
Kohler. This price list from the
time shows the range that was
on sale in the UK in 1906. 32
1. Background
also saw the first major product diversification, with the launch of the very first
Nestlé branded chocolate, which – following years of collaboration – ultimately
led to Nestlé’s takeover of the Swiss chocolate manufacturers Peter, Cailler
and Kohler in 1929. Prior to this, Nestlé had already taken over the distribution
of the chocolate made by these manufacturers in a number of countries and
provided production capacity abroad.
The boom years leading up to and during the First World War, which
brought the expansion of production in Australia and the US in particular, came
to an abrupt end once peace returned. Overcapacities financed by credit, com-
bined with devaluation and currency turbulence – along with a cumbersome
administrative structure – meant that, in 1921, Nestlé reported the first and
only loss in its history. Drastic restructuring measures combined with the 2
streamlining of the organisational structure under Louis Dapples, appointed as
crisis manager in 1922, were necessary in order to make the company com-
petitive again. Duly strengthened, the company survived the stock market crash
of 1929 and the subsequent economic crisis relatively well, though in Switzer-
land – which had long been contending with the prospect of the devaluation
of its currency – it was forced to close its heavily export-dependent original
factories in Cham and Vevey. Elsewhere, most notably in South and Central
America, the expansion of the company continued apace. The experience of
this crisis was to have a lasting impact on the Group, characterised by an ex-
tremely cautious approach to financing. As a result, its expansion and acqui-
sitions were wholly financed from its own resources right up until the 1980s.
As such, it has always held sufficient short-term assets to be able to repay its
debts in full at any time.18 This prudence has paid off, with the Group enjoying
an AAA credit rating almost consistently right up until the current date.
Along with acquisitions, Nestlé also strengthened its organic growth by
focusing closely on developing new products. The research department was
completely reorganised in the 1930s, paving the way for the considerable ex-
pansion of the existing range of milk products and infant foods with Nestogen
First Nestlé Factory on Each Continent

prior to 1905, separated according to Nestlé and Anglo-Swiss
Europe Switzerland 1866 Cham (Anglo-Swiss Condensed Milk Co.)

1843/1867* Vevey (Nestlé)
N. America USA 1882 Middletown (Anglo-Swiss Cond. Milk Co.)

1900 Fulton (Nestlé)
Australia 1908 Toogoolawah & Wilson Plains
S. America Brazil 1920 Araras
Africa S. Africa 1927 Estcourt & Donnybrook
Asia Japan 1933 Hirota
* 1843: first commercial 2 Nestrovit is the result of a

property of Henri Nestlé in joint venture between Nestlé and
Vevey; 1867: start of production Hoffmann-La Roche. This multi-
of Nestlé’s Infant Formula vitamin product – pictured here
in its original packaging – was
first launched back in 1936 and
marketed by Roche until 2005,
when Nestlé acquired the sole
33 distribution rights.
in 1930, Sinlac in 1932, Nescao in 1932, Pelargon in 1934 and Milo Tonic in 1934.
This was followed by the first – initially somewhat tentative – foray into the phar-
maceutical sector with Nestrovit in 1936 (together with Roche), as well as a
much more decisive one into the coffee business with Nescafé in 1938.
The launch of Nescafé, which had been meticulously planned and was
already under way, was interrupted in Europe in particular by the outbreak of
the Second World War, though it continued overseas. Nestlé had prepared for
possible hostilities by establishing two holding companies back in 1936: the
Nestlé and Anglo-Swiss Holding Co. Ltd with offices in Cham and Vevey, and
a second by the name of Unilac in Panama. When war eventually broke out,
shares in its subsidiaries in the western hemisphere (the United States, the Far
East and Britain) were transferred to these two holding companies. As a con-
tingency measure, knowing that the company might be broken up in the event
of occupation by the Axis powers, the management was also divided up. The
Chairman of the Board Edouard Muller – along with several close colleagues –
went to the US, where he remained until 1947, while the Vice-Chairman Carl
J. Abegg and Board Member Maurice Paternot took charge in Vevey.
After the Second World War, up until the end of the 1950s, the main
challenge consisted of integrating the Maggi company – with its culinary prod-
ucts – acquired in 1947, modernising production facilities and rolling out the
launch of Nescafé in additional countries. For these were the areas in which
the fastest growth rates were being seen.
In the 1960s, external growth via acquisitions began, facilitating the com-
pany’s entry into new areas of the food industry: canned goods (Crosse & Black-
well 1960, Libby 1963), ice cream (France Glaces and Jopa 1960, Delasa 1963),
chilled and frozen products (Findus 1962, Chambourcy 1968) and mineral wa-
ter (Vittel and Deer Park 1969).
The 1970s saw Nestlé’s first foray into the hospitality and winemaking
industries (Eurest and Cahills 1970, Beringer 1971, Stouffer 1973) – areas that
were later resold – and the purchase of Ursina-Franck (1971) rounded off the
traditional business. Economic turbulence (oil crises, high inflation, strong cur-
rency fluctuations) had an impact on the growth of the Group, and for the first
time – in line with the management principles of the day – significant moves
were made to diversify outside the original food sector. This diversification took
the form of a minority stake in the cosmetics company L’Oréal (1974), followed
by the takeover of the ophthalmology firm Alcon Laboratories (1977), of which
around 25% was floated highly successfully on the stock exchange in 2002.
This particular shareholding was much more than just a financial investment
for Nestlé, as illustrated by the dermatology joint venture with L’Oréal in 1981,
out of which Galderma was born.
Following a necessary period of consolidation under Helmut Maucher at
the beginning of the 1980s in which the product portfolio was streamlined, un-
profitable areas of the business sold off and the financial basis of the Group
improved, Nestlé’s mission was to build up a greater geographical presence
and – as far as possible – to make its products number 1 in all its core areas
of activity. In order to strengthen its market share in the US, in 1985 Nestlé ac-
Nescafé soluble coffee

was launched in Switzerland in
1938 and in the UK a year later,
as illustrated by this billboard. 34
1. Background
quired Carnation, which was active in the dairy industry, pet food production
and the catering trade. In order to improve its position in chocolate and con-
fectionery, as well as in the culinary sector, Nestlé bought Rowntree and Bui-
toni-Perugina in 1988.
Elements of the Nestlé Culture

Focusing on values, not structures
Nestlé is one of the oldest multinational companies with Its production is highly decentralised;
factories outside its home nation;
Many of its products are specifically geared to local tastes.
It has a long tradition in numerous countries around the Nestlé believes in the globalisation of markets, not of its
world and has adapted so well to local conditions and ways consumers;
of thinking in each country that in many places it is re-
garded as a “home-grown” company; In contrast to Unilever, for instance, it has never pursued
a policy of vertical integration and neither plantations nor
This impression is reinforced by the management, which distributors are affiliated to the company;
is largely drawn from the locality;
It is proud of its tradition of evolutionary rather than revo-
Despite this, the company has remained true to its funda- lutionary change within the framework of a firmly rooted,
mental principles, shaped by the Swiss essence of the stable set of values; constant adaptation avoids the need
Group, namely quality, pragmatism, a sound financial base for sudden change;
as reflected in its AAA rating, a low-key external profile
and a strong work ethic, for example; Continuity plays an important role;
Nestlé is characterised by a wide range of products with It takes the long-term view;
a far-reaching geographical spread;
Nestlé sees itself as an organisation driven by values rather
than structures.
35
36

and its Impact on Nestlé
The interrelationships between a company and the environ-

ment in which it operates are diverse and complex. In the fol-
lowing chapter we shall pick out a few of the key develop-
ments between 1990 and 2005 and look at them in more
detail, focusing on those that prompted or obliged Nestlé as
a whole to devise new strategies and implement them to the
best of its ability.1 Obviously, these developments cannot be
seen in isolation – they are inextricably linked, even if this is
not expressly stated on each occasion. (In the course of this
chapter, we shall also look at some of the ways in which Nestlé
has responded to issues such as shareholder value, IT, demo-
graphic trends and the environment.)
37
The emergence of new markets and growth regions
Since it was first founded in 1866, Nestlé has always sought to expand geo-
graphically and tap new markets. Before long, Nestlé products were being sold
1 in numerous countries on all five continents. Soon the company opened its
first foreign factories: Anglo-Swiss in England in 1874, Nestlé in Austria in
1883.2
This policy continued throughout the 1980s under Helmut Maucher, cul-
minating in the addition of China, Egypt and Pakistan to the list.3 By now, there
were only a handful of countries – including those of the former Communist
bloc, in particular – in which Nestlé had never or no longer had an industrial
presence.
Following the disappearance of the Iron Curtain, the reunification of Ger-
many and the opening up of the Eastern European states in 1990, Europe of-
fered new opportunities for geographical expansion for internationally oriented
2 firms. However, this new openness went hand in hand with political destabili-
sation. The situation in Russia in particular, following the demise of the Soviet
Union in December 1991, was one of tremendous uncertainty. It took quite
some time after the constitutional crisis of autumn 1993 before Western in-
vestors – including Nestlé – had sufficient confidence in the new political sys-
tem to become active in Russia. Meanwhile, countries such as Hungary, the
Czech Republic, Slovakia and Poland, in particular, were much quicker to move
towards a market economy.
The pace of steps to open up to the outside world and privatise state-
owned enterprises, combined with the opportunity for direct investment, var-
ied from country to country. China was a prime example of just how long and
3 arduous the process of getting up and running in one of these countries could
be in the early stages for a company such as Nestlé. From the initial negotia-
tions in the early 1980s through signing the contracts for a joint venture to ac-
tually opening the first milk factory took something like nine years. By the
1990s, however, things were beginning to move much faster. At the end of
1996, Nestlé already had nine factories in China, and that figure had risen to
21 by 2005. There was hardly an international company that failed to recog-
nise the enormous potential offered by China. Nestlé’s competitors such as
Kraft Foods (1984), Unilever (1986) and Danone (1991) were also quick to es-
tablish a presence in the country.4
The second-largest market in Asia, which opened up further to foreign
companies in the 1990s, was India. From 1991 onwards, its controlled market
economy was increasingly liberalised. Regulations requiring a majority Indian
holding in the case of foreign investments were abolished. This was to enable
Nestlé to make new direct investments, acquire a majority stake in existing
holdings and build new factories in the country. Together, India and China ac-
count for around 30 per cent of the world’s total population and, as such, they
represent important growth markets.
1–3 Expansion of the Other countries such as Vietnam, for example, have also carried out mar-
Kabirwala factory in Pakistan ket economy reforms, permitting or facilitating investment by foreign firms and
in 1995. Pouring of foundation
for warehouse roof, pouring of
foundation in the vicinity of the
Egrons site and erection of a
100,000 litres milk silo.
Construction work on Nestlé fac-
tories embraces local techniques
and know-how while always
maintaining the highest stand-
ards of production quality and
safety. 38
2. The Political, Economic and Social Environment and its Impact on Nestlé
thus opening up new opportunities for international companies such as

Nestlé.
However, this carried with it by no means insignificant risk and the com-
panies concerned had to be prepared to accept setbacks, even if – as in the
case of Nestlé, for example – they had a long track record of dealing with
emerging market economies.
Increasing integration of previously loosely connected markets 4
A further change in the economic and political environment – one which inter-
national companies themselves had been seeking, and which was to have a
tremendous impact on their organisation – has been the emergence of new
economic blocs, created by the integration of numerous, previously separate
markets. Co-operation and agreements between the various economic blocs,
for their part, have further strengthened the trend towards larger economic en-
tities and the abolition of trade barriers.
The most strongly integrated regional economic zone at the beginning
of the 1990s was the EU, followed by the European Economic Area (EEA). The
latter was created in 1992, with the signing of an agreement between the EU 5
and the member countries of EFTA (excluding Switzerland). The numerous har-
monisation regulations that applied within the EEA made it far more than just
a simple free trade zone. With the enlargement of 1 May 2004, the EEA en-
compassed 25 EU and three EFTA member countries.
The European Round Table of Industrialists (ERT) – to which both Helmut
Maucher (1983–1999, as Chairman 1996–1999) and later Peter Brabeck (from
1999 onwards) both belonged – played an important role in the creation of the
European Single Market in 1992.5
In North America, the North American Free Trade Agreement (NAFTA)
came into effect on 1 January 1994. This was an expansion of the earlier Can-
ada-US Free Trade Agreement of 1989, this time including Mexico, to create
a market of some 380 million people with a GDP of more than six trillion US
dollars – roughly equivalent to that of the 15 EU member states.
The South American countries of Argentina, Brazil, Paraguay and Uru- 6
guay also joined together to form a common market in 1991, followed by a fur-
ther six countries with associate member status by the end of 2005. Together,
this “Southern Common Market” (Mercosur) and the Andean Common Mar-
ket (CAN) form the South American Community of Nations (CSN), under which
the two organisations plan to unite to create an enormous free trade zone.
Meanwhile, in Asia, the members of the Association of Southeast Asian
Nations (ASEAN)6 decided in 1992 to create the ASEAN Free Trade Area (AFTA),
which came into effect at the start of 2003. Elsewhere, seven countries led by
India and Pakistan joined forces to establish the South Asian Association for
Regional Cooperation (SAARC), resolving to create by far the world’s largest
free trade zone in terms of population – comprising around 1.5 billion people
– from 2006.
4–6 Construction of the dairy

products factory at Shuangcheng
in China in 1987. The factory
39 went into operation in 1990.
In Africa, too, free trade areas were springing up here and there, though
largely based around co-operation aimed at promoting economic development
in a particular region. Five of these trade blocs form the core of the African
Economic Community. Thanks to their integration and collaboration, numer-
ous disputes have been averted.7
At the global level, the Geneva-based World Trade Organisation (WTO)
came into being in 1995, picking up where the General Agreement on Tariffs
and Trade (GATT) left off – its mission, to abolish barriers to trade.
1 This process of geographical rapprochement and regionalisation, to-
gether with the dismantling of trade barriers, prompted international food com-
panies to review their operations and ultimately embark on reorganisation. In
the 1990s, the original, simple concept whereby you manufacture your prod-
ucts where you sell them gave way to the ever greater division of labour, which
brought with it economic benefits but was also more complex and problem
prone.
So, in the case of Nestlé, for example, whereas the production of choc-
olate or infant food would still have been organised very much along national
lines in the early 1990s, by 2005 a specialised factory was responsible for sup-
plying several countries. Nevertheless, many Nestlé products are still specifi-
2 cally tailored to local tastes even today. This has required changes not only to
the supply chain but also to the organisational structure. Consequently, vari-
ous previously independent national markets at Nestlé have been amalgamated
to create sub-regions.8
These organisational changes, coupled with more rapid industrial restruc-
turing and the exchange of goods between the markets, had a profound im-
pact on the company.
Although the number of countries in which Nestlé had a presence had
risen from 82 in 1990 to 123 by the year 2000, the number of units that the
company operated as markets of its own in the economic sense fell from 73
to 50. This was despite the creation of new markets in Eastern Europe.9
3
Number of Nestlé Regions and Countries by Zones, 1990/2000
EUR AMS AOA

Regions Countries Regions Countries Regions Countries
18 23 17 34 21 10 25 26 34 17 40 63
70
60
50
40
30
20
10
0
90 00 90 00 90 00 90 00 90 00 90 00
1–2 Construction and view

of the outside of the Samalkha
factory in India, 1991.
3 Expansion of the factory

in Antigua, Guatemala, in 1997. 40
4 Safety measures for main-

tenance work on the Bicholim
41 factory in India.
The risks associated with tapping new markets were reduced inasmuch
as products could increasingly be supplied by existing factories in other coun-
tries. This enabled more companies to do business internationally, which served
to intensify global competitive pressure. This, in turn, forced companies to rig-
orously exploit any available savings potential and transfer labour-intensive
processes with little added value to low-wage countries.
At the same time, competition became fiercer not only between individ-
ual companies but also between countries. As a result, each country sought
to maximise its comparative advantage in order to attract investment and jobs
and thus boost growth and prosperity.
Trends such as the opening up of the markets, regionalisation, the emer-
gence of new free trade zones and greater freedom to invest and do business
have all brought new opportunities for international companies to flourish and
grow. As a result, those companies have had to ask themselves some serious
questions, not only about how they should adapt their structures but also about
the resources they have at their disposal and the strategies they should adopt:
whether they can continue to expand geographically in their original areas of
activity or if they even want to – and, if so, where and how? Or if they want to
pull out of certain areas in order to concentrate on particular products or geo-
graphical areas?
Shareholder value, pressure for disclosure and Corporate Social Responsibility

(CSR)
In 1986, Alfred Rappaport published his book “Creating Shareholder Value.

The New Standard for Business Performance”. And so the debate about share-
holder value was well and truly under way, though his book was ultimately to
prove just the tip of the iceberg. At the heart of this approach is the notion that
the primary objective of a company is to provide investors with an adequate
return on their capital. The internal benchmark used to measure how well a
company is meeting this objective is to calculate the amount of Economic Profit
generated, i.e. the return earned on the company’s assets over and above its
weighted cost of capital.10 Empirical studies have shown that the most widely
used external benchmark, namely total shareholder return (i.e., the dividend
yield plus share price appreciation) very much reflects the market’s perception
of the amounts of Economic Profits generated currently and expected to be
generated in the foreseeable future.
The relentless advance of institutional investors such as pension funds,
life insurance companies, investment funds and the like has reinforced the
growing emphasis on the total return achievable from a share, comprising div-
idend income and long-term added value. Rating agencies compare invest-
ment opportunities, while rankings indicate how companies are performing.
As such, companies are put under pressure to achieve rapid, ever-greater prof-
its so as not to be downgraded by the analysts. This pressure has meant that
target returns are constantly being ratcheted up. In order to achieve these tar-
42
gets, more and more companies have started to divest elements of their busi-
ness in order to simplify things and improve their operational efficiency. Even
the food industry has not been untouched by this process.
Despite criticism of the excessive and imbalanced concentration on
purely economic, quantifiable measures of success, the over-emphasis on im-
proving efficiency (though desirable in itself), the failure to include other stake-
holders and the danger of excessive short-termism on the part of management,
in the 1990s shareholder value became a yardstick of good management. As
a result, it influenced the strategies of a great many companies, though to dif-
fering degrees.11
Instead of the strategy of diversification and the formation of conglom-
erates, still prevalent in the 1970s, the tide now turned in favour of greater fo-
cus, the streamlining of corporate structures, the outsourcing of essential op-
erational activities outside of the actual core business and a growing number
of strategic alliances and co-operation agreements of all kinds, from joint ven-
tures to subcontracting, network arrangements, franchising and contract man-
ufacturers, to name but a few.12 One positive effect of this trend has been the
more efficient use of production facilities and improved performance, ultimately
adding value to the business. At the same time, cost-cutting measures, im-
provements in efficiency and the control of investments all lead to higher re-
turns, part of which gets passed on in the form of dividends.
At Nestlé, for example, the dividend per share trebled between 1996 and
2005. The total yield from dividends and price gains for the period stood at 267
per cent or almost 15 per cent per annum, also benefiting all those in the work-
ing population whose pension funds are among the growing number of Nestlé
investors.13
Almost in parallel with the rise of the shareholder value approach, the
so-called stakeholder approach has also emerged since the 1980s. The stake-
holders of a public limited company – alongside its shareholders – are all those
individuals and groups who are in some way specially connected to that com-
Evolution of Dividends, 1990–2005 (in CHF)
1.98 2.13 2.32 2.50 2.65 2.65 3.00 3.50 3.80 4.30 5.50 6.40 7.00 7.20 8.00 9.00
10.00
8.00
6.00
4.00
2.00
0.00
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
43
1–6 Coffee research carried

out at the R&D Centre in Tours,
France, (1), is put into practice
in coffee-producing countries,
especially in Mexico and Costa 3
Rica (2 to 6). In consultation with
NGOs, this research has paved
the way for small producers to
improve their harvests and max-
imise revenues by selling direct
to industrial customers. Nestlé
buys 110,000 tonnes of coffee in
this way, i.e. 15% of the volume
required to supply its 28 soluble
coffee and Nespresso factories. 44
45
pany; for instance, its employees, proprietors, suppliers, customers, competi-

tors, local residents and the like. This approach stresses the importance of ac-
tively working for the benefit of the operating environment, good relations and
the mutual interests of those concerned. At the end of the 1990s, the concept
was expanded to encompass the ethical and environmental spheres and has
become increasingly widespread – in the guise of corporate social responsi-
bility (CSR) – since the crisis of the “New Economy”.14 In 2001, the European
Commission defined corporate social responsibility as “a concept whereby
companies integrate social and environmental concerns in their business op-
erations and in their interaction with their stakeholders on a voluntary basis”.15
As a whole, these developments reflect the growing public pressure on the
business community to consider not just economic factors but also the envi-
ronmental and social dimension. For the management of a company, this
causes a dilemma, with the interests of the shareholders on the one hand –
with their essentially short-term desire for higher returns – and the conflicting
demands of the other stakeholders on the other.
While the importance of the institutional investor was growing and the
global financial markets were becoming increasingly interlinked, another
Helmut Maucher on Shareholder Value
Gabriele Fischer, “Brand Eins”: To an outsider, a career as representatives of the financial media. Back then, I was in-
a top manager looks impossibly tough – so challenging terviewed by one of your colleagues from a major finan-
that you would have to be exceptionally talented to do it. cial publication and he said to me, reproachfully: “You only
How complex is it, in reality? meet with financial analysts twice a year – far less than
Helmut Maucher: First off, there are two levels you need your colleagues. Don’t you take your shareholders seri-
to distinguish between: the complexity of the company ously?” To which I replied: I meet my obligations. Firstly,
that the manager is running and the complexity of the job I do meet with analysts twice a year, and secondly, I’ve
itself. granted you an interview today, haven’t I? But more than
that, I take the view that it’s in my shareholders’ best in-
Let’s start with the job. terests if I devote the bulk of my time to the actual busi-
That has certainly become increasingly complex over the ness of running the company and leave the job of investor
last few years. This is due to competition, modern tech- relations to my CFO. He can explain the financial side of
nology, globalisation and all the other factors that affect a things just as well as I can – whereas running the business
business. But the biggest dilemma facing any manager is what I do best. And that, in turn, shows in the figures,
these days is the conflict between the short-term objec- which benefits our shareholders. That’s what you call long-
tives of those obsessed with shareholder value and the de- term success.
mands of society as a whole. In other words, the ethical
and social obligations that a manager must meet. Sounds reasonable to me. Did he see your point of view?
I don’t know. But though opinions may be more important
Weren’t they around in your day, too? than facts in the short term, in the long term it’s the facts
Indeed they were. In the mid-1990s, shareholder value was that count. I’ve always held on to that and tried to divide
all the rage – every CEO had to decide how much time he my time up accordingly. […]16
wanted to devote to the numerous financial analysts and
46
development was also taking place, heralding greater pressure for disclosure
in the financial domain in particular.
The impact on Nestlé

The globalisation of the capital markets has had an impact on the composition
of Nestlé’s shareholder base. Against the backdrop of the above-mentioned
debate about shareholder value, this, in turn, led proprietors to expect man-
agement to deliver far higher returns.
In 1988, Nestlé’s Board of Directors decided that foreign shareholders
could now purchase registered shares which – with a few exceptions – had
previously been reserved almost exclusively to Swiss residents. The securities
in question formed almost two-thirds of the company’s share capital. As such,
this marked the end of a restriction introduced in 1959 to safeguard and
strengthen the Swiss character of the company.17 Nestlé itself hoped that this
decision would enable it to eliminate the Swiss disadvantage of the much lower
valued registered shares and reach a share valuation that was similar to its di-
rect competitors. From 1989 onwards, a series of roadshows were held, pro-
viding foreign investors and analysts with specially targeted financial informa-
tion about Nestlé. Nestlé shares were now also listed on the London, Paris and
Tokyo stock exchanges.18
In due course, the capital structure was also simplified. The share capi-
tal was increased from CHF 330 million to CHF 404 million in three stages (in
1989, 1991 and 1993). Initially, this led to the creation of capital reserves. Then,
in 1993, the participation certificates were converted into shares. At the same
time, the unitary share was introduced and the bearer share abolished.19
Thanks to these simplifications – along with other measures – Nestlé was
able to make its shares more attractive to international investors, thus laying
the foundations for the creation of added value.20
The breakdown of the share capital by nationality was to change dramat-
ically as a result. Just ten months after the decision to allow foreigners to pur-
chase registered shares, the proportion of Nestlé’s total share capital owned
by foreign shareholders had risen from barely one-third to around 50 per cent.21
This figure fluctuated within a relatively narrow band during the 1990s before
rising to almost two-thirds from 2002, due largely to US investors. A second
key element also rose sharply, namely that of institutional investors, up from
approximately 44 per cent in 1994 to almost 69 per cent in 2005.22
These changes in the shareholder base intensified the pressure on the
management of Nestlé to deliver higher returns in a shorter timeframe and to
develop its shareholder information policy.
In May 1990, Die Welt wrote: “For Maucher, it is now increasingly about
also getting international investors – not least those from the US and Japan –
interested in the company. One of the ways in which it is hoped to achieve
this is through an open and transparent information policy along US lines,
with the publication of interim reports, for instance. By this point, more than
half of all the company’s securities were in foreign hands.”24 At the meeting
47
of the Board of Directors in March 1992, Helmut Maucher informed his col-
leagues that, for the first time ever, his Letter to Shareholders in the Manage-
ment Report would include a qualitative assessment of the outlook for the
year ahead. These forecasts were aimed primarily at institutional investors, in
recognition of the higher expectations of the shareholders of the day. How-
ever, there is no hiding the fact that Helmut Maucher himself did not regard
investor relations as his top priority. This was something that the otherwise
forthcoming CEO preferred to leave to his Chief Financial Officer25. (See: Hel-
mut Maucher in interview with brand eins.) In the same vein, in-house annual
targets were rarely revealed to the outside world so as to avoid extra pressure
and enable the company to remain flexible. For similar reasons, a potential
listing on the New York Stock Exchange has never been implemented. Hel-
mut Maucher wanted the Europeans and the Americans to reach an agree-
ment on the mutual recognition of one another’s accounting standards (IAS
and US-GAAP) before he would be willing to seriously consider the possibil-
ity of listing Nestlé’s shares in the US.26
Nevertheless, his reticence in terms of investor relations does not mean
that Maucher failed to take the financial interests of the company’s sharehold-
ers seriously. For the first time in 1993, the Nestlé Group Strategy Paper ex-
pressly stated that the share price should be supported by ensuring that the
P/E ratio was at least equal to – if not higher than – the industry average at the
international level. This involved strengthening growth in earnings per share
by holding back slightly on the issue of new capital and, of course, the tar-
geted increase in the Group’s consolidated net profit. One year later, in the
same document, it was added that certain non-core activities and unprofitable
areas of the business should be actively reviewed with a view to their possi-
ble sale.
Helmut Maucher’s job was to strike a balance between the long-term
corporate strategy and the objectives of certain groups of institutional inves-
tors, with their emphasis on returns. In his address to shareholders at the 1996
Distribution of Share Capital by Nationality, 1992–2005 (in %)
60
50
40
30
20
10
0
92 93 94 95 96 97 98 99 00 01 02 03 04 05
Switzerland
USA
France
UK
Germany
48
General Meeting, he picked up on two topics which were high on the public
agenda at that time, namely “shareholder value” and “focusing”, and warned
against exaggeration:
“… let me take this opportunity to raise a subject which I believe to be
important and which has often been touched upon in the course of the last
year. I refer to the term ‘shareholder value’, describing an attitude of top man-
agement that gives priority to the interests of the shareholders compared to
all other groups who are in one way or another connected to the company,
such as employees, customers or the authorities. I take satisfaction in point-
ing out that for years I have been an advocate of precisely this attitude. I have
always held it as self-evident that a shareholder is entitled to receive remuner-
ation for the use of his capital and that his interest in increasing the value of
his investment is perfectly legitimate and normal. Today, that opinion seems
to be widely shared, to an extent even, where it generates some exaggera-
tion.
“This concerns essentially the question of whether such an increase in
value should come in the short or in the longer term. Clearly, if the maximum
shareholder value is realised at the expense of the strategy and the long-term
development of the company, the latter will find itself, after some years, in a
deteriorating competitive situation and will soon run the risk of being unable
to produce any additional value at all, as it will be pressured by competition
and the need to restructure. On the other hand, I believe just as strongly that
long-term thinking is only possible if the company regularly produces profits.
There is consequently no doubt in my mind that the pressure for annual per-
formance is generally a good thing.
Exaggeration and one-sidedness are always dangerous. This also applies
to another concept that is in fashion these days. I am thinking of ‘focusing’,
i.e. the concentration of the company on clearly defined and specific activities,
with the correlated pressure to divest at any cost of the non-core activities or
those parts that do not yet measure up to the usual profitability standards.
Share Capital by Investor Type, 1994–2005 (in %) 23
100
90
80 56.2 56.8 54.7 53.3 54.3 52.7 48.4 44.0 33.0 34.7 32.6 31.1
70
60
50
40
30
20 43.8 43.2 45.3 46.7 45.7 47.3 51.6 56.0 67.0 65.3 67.4 68.9
10
0
94 95 96 97 98 99 00 01 02 03 04 05
Private Shareholders
Institutionals
49
Peter Brabeck on the Corporate Objective

of Internal Growth, 2001
“The only objective I have publicly stated is the goal of commitment of the 230,000 people [headcount as at 2000]
4 per cent real internal growth. Now, I haven’t done this who work for Nestlé. That is why I put the 4 per cent in-
for the financial world. I’ve done it for Nestlé’s employees. ternal growth goal out there. It’s a yardstick to measure
If all I wanted was growth, I could do that myself with a ourselves by – and a very ambitious benchmark for a big
banker and a negotiator, through acquisitions. But I can- organisation like ours.”28
not achieve internal growth by myself. I need the personal
There is clearly an element of truth in such demands and Nestlé has always
prudently refrained from going into activities that were too far removed from
its know-how and its corporate culture. Our company is highly focused, since
over 95 per cent of its sales come from the food sector. Moreover, Nestlé is
not present in entire product ranges, such as margarine, biscuits in Europe or
commodity-like products. In addition, Nestlé has sold off all those activities
which did not belong to the strategic development axis, and by the end of 1995
we had divested our wine business (Beringer) in California.”27
On taking over as CEO in 1997, Peter Brabeck set about focusing on in-
ternal growth and initially continued Helmut Maucher’s policy with regard to
investor relations. In the first so-called “Blueprint for the Future”, in which
Brabeck outlined his ideas and plans to Market Heads assembled in Vevey,
shareholders did not merit any special mention. Influenced by the newly opened
markets of Eastern Europe and Asia, however, he set the ambitious target for
the Group – communicated both internally and externally – of an average four
per cent real internal growth, i.e. currency and price-adjusted growth exclud-
ing acquisitions. Though the announcement of the growth target was aimed
primarily at those within the company (see Box), it was also a signal to inves-
tors that he was serious about the growth strategy and was prepared to be
judged accordingly.
At the next Market Heads’ Conference a year later, Brabeck stressed that
the company had succeeded in persuading the financial markets of the valid-
ity of Nestlé’s interpretation of the shareholder principle. In other words, that
the main focus is on long-term, profitable, sustainable growth as offering the
Effects of the four key factors influencing Nestlé’s sales, 1996–2005

In %
15
10
1.0
5
2.3
5,7
0 3.4
–1.4
–5
–10
96 97 98 99 00 01 02 03 04 05 96–05* OG**
Real internal growth (RIG)

Price and other effects
Acquisitions/divestments
Exchange rates
* 10-year average
** Organic growth
50
best prospect of continuing to generate added value for the shareholders of

that company. Sustainability demands continual investment in a company’s
three main assets: its employees, its products and its brands. Hand-in-hand
with that goes an understanding of the expectations of the financial commu-
nity in terms of short-term profit growth. This, in turn, can only be achieved by
improving operational efficiency and streamlining administration, not by cut-
ting back on key strategic investments in future growth areas.29
As talk increasingly turned to the “old” and “new” economy at the end
of the 1990s, more and more people began investing in companies in the IT
industry and the view emerged that previously held assumptions about the
workings of the Capitalist economy were now obsolete, Nestlé had to redou-
ble its efforts to persuade analysts and investors of the tried-and-tested – if
perhaps somewhat understated – Nestlé way. At the same time, however, it
was important to send out a clear signal that shareholders’ expectations would
be taken seriously.
At the presentation of the full-year results in February 2001, Chief Finan-
cial Officer Mario Corti was able – after many years of internal efforts – to set
out the “value drivers” of the shareholder value concept, as expounded by Al-
fred Rappaport, and present Nestlé’s results in line with the corresponding cri-
teria for the first time. Corti had already arranged for the preliminary confiden-
tial calculations for the period from 1981 to 1996 to be done back in
September 1996.30 His aim was to be able to compare various business strat-
egies and measure them against each other.
The two main benchmarks for the company in this respect were – and
remain – sales growth and earnings before interest, taxes and amortisation
(EBITA). Up until 2003, a target was set of real internal growth (RIG) of four per
cent. In order to be better able to compare the company’s results with those
of its competitors, and as neither the press nor the financial world ever under-
stood the concept of real internal growth (RIG), “organic growth” – which also
takes account of price rises – of between five and six per cent was adopted as
The fall of the Berlin Wall

on 9 and 10 November 1989
opened up new markets in East-
51 ern Europe.
the new target. As far as the profit margin was concerned, Peter Brabeck set
the target in terms of an “annual improvement”.31
For the first time, the need on the part of investors for quicker, more up-
to-date information was met by publishing the entire Management Report on
the Internet on the morning before the start of the 2001 Press Conference,
alongside the usual press release with the relevant sales and profit figures and
dividend proposals.32 This was followed first by a conference with analysts in
Europe and then, in the afternoon, with their counterparts in the US – both of
these events taking place before the actual press briefing. Even the traditional
date of the General Meeting was brought forward by two months to the be-
ginning of April, in line with the general trend in the US and Switzerland.33
Recognising that Nestlé’s success lies largely – though not solely – in
the hands of its customers and shareholders, Peter Brabeck emphasised the
company’s two main long-term objectives at every available opportunity within
the organisation:
1. To win the trust of consumers as their preferred food and beverage com-
pany by meeting – and exceeding – their current needs and anticipating their
future needs, while
2. ensuring that Nestlé remains an attractive proposition for long-term in-

vestors with total returns above the industry average, by securing long-term,
profitable and sustainable growth combined with short-term improve-
ments.34
To the outside world, on the other hand, Brabeck set out the Nestlé model,
emphasising the company’s long-term perspective and approach: “… another
central principle of Nestlé, which we certainly do not want to change, is our
approach to revenue and profit growth. We have never managed for the max-
imisation of short-term shareholder value. It doesn’t make sense. If you want
to keep bumping up your top line and fattening up your bottom line, you are
forced to make all sorts of extraordinary one-time changes and fixes. We don’t
want that. Now, don’t get me wrong: we are committed to making a reason-
able profit each year – and I do not believe that a 7 per cent net return on sales
is a sound barrier – but our main goal must be a long-term, sustainable, and
profitable development of our business.
“This makes road shows, especially in New York and London, quite in-
teresting. The analysts and money managers put enormous pressure on you.
‘What are your goals? What are your targets? What is this? What is that?’ They
want instant results.
I always tell them the same thing. ‘Look, I will sit here for as long as you
want and explain our strategies, and the ideas and circumstances that led to
them. But you will not nail me down on an operating profit target, or a net
profit target, or any other exact number. Instead, I will show you how long-
term optimisation of shareholder value will result from our strategies.’ I am not
going to run a company based on what the market wants at any given moment
52
Peter Brabeck on Corporate Social Responsibility

at Nestlé, 2006
“Nestlé takes the concept of corporate social respon- showcase for well publicised acts of charity: it is an inte-
sibility one step further. For us, it does not end with share- gral part of how we operate, of our business model and
holders. We have always held the conviction that you can- strategy, and of the way we do business every day. Nestlé
not expect to create long-term value for the shareholder if takes pride in creating shareholder value. But we are in-
the company does not simultaneously create long-term terpreting it in a long-term perspective and this allows us
value for the societies in which it operates. Through our to take that concept a step further. We are also creating
activities as a purchaser of raw materials, equipment and shared values – opportunities, attitudes, respect, empathy
services, as a responsible employer and taxpayer, and shared with billions of consumers, millions of farmers and
finally as a purveyor of high-quality nutritious products to their families, thousands of suppliers, our 250,000 employ-
billions of consumers around the world, Nestlé adds value ees and last but not least institutions and individuals who
to the everyday life of literally millions of people. Corpo- are in contact with Nestlé.”36
rate social responsibility for us is not an add-on, not a
and make mistake after mistake because I told the analysts one thing one day
to make them happy.”35
Changes in the fields of transport, communications and information

technology
From the moment industrialisation first began, technological progress in the

field of transport and communications made distance less of an obstacle and
brought prices down in the course of the 19th century. The transition to steam,
diesel, petrol and electric-powered means of travel has revolutionised the trans-
port of goods and people by land, air and sea, making it quicker, cheaper and
more reliable. The latest phase in the process of globalisation – or global re-
gionalisation as we should perhaps more accurately call it – would have been
inconceivable without affordable, containerised transport and the general fall
in transaction costs. This has encouraged the transfer of production from the
industrialised to the developing world. The flow of goods and information has
also been optimised globally over the last few years, as evident in supply chain
management, synchronised production and delivery systems, and the move
away from intermediate storage depots.37
However, the number of factories can only be reduced insofar as there
is sufficient, appropriate transport capacity available, the total cost of which
does not exceed the savings generated. The nature of the goods also has a
bearing on whether it is worth transporting them further afield. Small, light-
weight, durable goods with high margins are generally transported over longer
distances than heavier, bulkier items with low margins. The proportion of trans-
port costs relative to gross output tends to vary from industry to industry. In
the case of building materials, for example, it is estimated at around 6.5 to 7.2
per cent, compared with 3.6 to 3.9 per cent for foodstuffs.38 Within the food
industry, in turn, it is not worth transporting products such as mineral water
as far as, say, Nestrovit on economic and environmental grounds. This has also
influenced Nestlé’s strategy in various ways, such as the decision to bottle and
distribute more water locally, rather than supplying half the world from a hand-
ful of springs.
53
The Internet and e-mail, mobile phones and videoconferencing are all in
the same tradition as conventional forms of communication such as the tele-
graph, landlines, the telex and fax machines, but with new features and addi-
tional applications. To a certain extent, they only became possible as informa-
tion technology – that is to say, the computerised processing of information
– developed and became more widespread.
The personal computer became a feature of office life in the 1980s, but
it was quite some time before things moved on from those early machines,
which were little more than glorified typewriters and rarely networked.
It was in 1993 that the WWW software was used outside of CERN, the
European Organisation for Nuclear Research – birthplace of the HyperText
Markup Language (HTML) in 1990 – for the very first time, marking the advent
of the Internet era. The number of users soon rose, from around 45 million in
1995 to more than a billion in 2005. As networking became increasingly com-
mon, e-mail burst onto the scene, making the dissemination of information
cheaper and cheaper. In 2003, it cost CHF 70 to send a 40-page document
from Chile to Kenya by normal mail, around CHF 15 by fax and just 15 cents
by e-mail.39
Thus, companies were forced to use the latest information technology
and adapt their working procedures accordingly if they did not want to lose
touch with their stakeholders. Workplaces were equipped with PCs and net-
worked, bringing new mobility to working life; secretaries became “assistants”,
no longer having to spend most of their time tidying up texts for their bosses
as the latter could now do it for themselves. Companies began producing their
own websites and Intranet pages to provide target groups with relevant infor-
mation.
In 1990, e-mail was not very common and no-one had even heard of the
Internet or intranet. Only a tiny number of staff even used PCs regularly in the
workplace, and these were rarely networked. The Videotex systems offered by
various national telecom companies, on the other hand, enjoyed a certain pop-
ularity. They were used by the holding company and various national Nestlé
subsidiaries to provide information about the company and its products, or
general tips on food and nutrition.40 Eventually, these systems were superseded
by the World Wide Web. Since 1996, information about the company has been
published from headquarters on the official website at www.nestle.com. Most
of the operating companies soon followed suit – or, in some cases, were even
quicker off the mark. Meanwhile, employees were directly informed of major
events and developments via the internal Internet – or “intranet”, as it is known
– from 1999 onwards. Commenting on the role of the intranet, the Executive
Vice President responsible, Francisco Castañer, had this to say: “Globalisation
makes it essential that all concerned are informed of Group policy and Execu-
tive Board decisions without delay and generally kept up to date with
events.”41
Up until the beginning of the 1990s, the highly limited e-mail links that
existed between headquarters in Vevey and the US and the UK were not a prob-
lem as the individual countries were producing mainly for their local market.
54
But with the advent of the common markets in Europe, Asia and America – in
which the supermarket chains were also operating on a transnational basis – 1
Nestlé had to react. It needed to have quicker access to production, supply
and sales figures in order to offer a better service to customers in these mar-
kets. So, in 1992, Nestlé launched its first ever company-wide e-mail and data
communications network and increased the number of electronic mailboxes
from 6,000 to 60,000. It was hoped that, by speeding up communication in
this way, management would also be able to make quicker decisions.42 With
the migration to Windows 95, launched at the Centre under the name START
in 1997, every member of staff at headquarters and around a quarter of all staff
worldwide had access to the Internet and could be contacted by e-mail.
Of all the IT projects, the introduction of e-mail, the Internet and intranet 2
undoubtedly had the greatest impact on the corporate culture. Not only did it
enable informal contact between employees in every corner of the globe and
across hierarchical boundaries, but it also provided access to masses of new
information. This faster, wider access has also affected the way in which the
company is managed. Now, there is less and less scope for line managers to
base their authority on selecting or restricting the information to which their
staff have access. Instead, they must ensure that those staff are better con-
nected and co-operate with other departments, making it quicker and easier
for everyone to achieve their objectives.
In order to achieve the desired increase in efficiency in its administration
and in the factories, too, it was essential that Nestlé exploit technological ad- 3
vances – even if, as an industrial company, it was seldom among the first to
use new technology and generally relied on tried-and-tested systems due to
its size.
As in other areas, each market tended to make its own decisions about
information technology, too. Activities were supposed to be co-ordinated from
headquarters and IT standards drawn up for the Group in collaboration with
the markets. With regard to procurement, Nestlé wanted to exploit economies
of scale and avoid needlessly duplicating studies, for instance.
Despite the adoption of external (Windows) and internal (supplier, archi-
tecture, etc.) standards, the rapid pace of technological developments, the spe-
cific requirements of the respective operating companies and, in particular, the
decentralised organisational structure meant that certain data – previously only
needed nationally – still could not easily be exchanged. With the amalgama-
tion of markets in the context of regionalisation and the planned creation of
smaller, globally operating product units, the establishment of accepted stand-
ards became more pressing than ever.
Peter Brabeck’s strategic objective at the turn of the new millennium was
to exploit the advantages afforded by Nestlé’s size, combined with the bene-
fits of smaller, more flexible units. To this end, the GLOBE (Global Business Ex-
cellence) project set about making ambitious structural changes within the
company and laying the foundations for this process of transformation. It was
not just a matter of ensuring that the master data available globally could be
accessed according to prescribed standards, but also defining best practice
1–3 Nestlé S.A. has had a

website since 1996. These days,
a good number of markets and
brands have their own websites.
These are the sites run by nestle.
com, Nescafé in the UK and Milo
55 in Australia.
for various processes in the form of Nestlé standards and implementing these
based on a uniform infrastructure.43
Developments in information technology also offered the opportunity for
other major changes, which Nestlé wanted to actively exploit. Two prime ex-
amples were business-to-business, or B2B, and business-to-consumer, or B2C,
relations.
In the case of B2B, it is about optimising the value chain in order to im-
prove quality at a lower cost, product availability and customer service. This
takes the form of online support with inventory planning or management for
distributors, or the opportunity to order and pay over the Internet, for exam-
ple.
1 In order to achieve all this, in 2000 Nestlé entered the world of e-com-
merce as one of the driving forces behind the electronic marketplaces Tran-
sora.com in the US and CPG-market.com in Europe, and was a major player in
both.44
In the case of B2C, Nestlé is not primarily concerned with selling prod-
ucts directly to the end user. Nestlé will continue to concentrate mainly on the
business of processing and marketing food. The existing online sales chan-
nels – Nespresso being a case in point – will remain the exception, confined to
a few niche areas. The importance of the Internet for Nestlé in this field lies,
instead, in the opportunity for direct and interactive communication with con-
sumers. Whereas, up until a few years ago, advertising was largely focused on
a small number of national TV stations, with today’s multitude of broadcast-
ers, TV advertising takes a more broad-based approach. As such, the relation-
ships built up with consumers via the Internet through the exchange of inter-
ests and concerns or shared hobbies, for example, are becoming increasingly
important. With this in mind, Nestlé hosts a huge variety of web pages, some
of them dedicated to specific topics such as child-rearing, different culinary
traditions and products, or pet care.45
Population growth and increasing purchasing power
Demographic trends and the evolution of purchasing power, combined with

social change, represent key elements of the operating environment for a glo-
bal company with a long-term perspective such as Nestlé. It is the job of man-
agement to identify long-term trends and assess the potential opportunities or
threats for the business.
Between 1985 and 2005, the world population rose from 1.7 billion to
6.5 billion people. By 2025, this figure is expected to increase by a further 1.4
billion.46
For the food industry and its strategies, the decisive factor here is the
anticipated demand for its industrially processed foodstuffs, which are bought
by people with income above a certain level, in particular circumstances (those
living in towns, working outside the home, with a certain size household, for
instance) depending on their age (infant food or coffee, for example).
1 GLOBE, launched in 2000,

whose “Business Technology
Centre” (BTC) is in Vevey, is a
programme aimed at standardis-
ing work processes, data and
systems. 56
By way of example, let us look at some of the demographic trends and

expectations from the period 1990 to 2005 that might give us an insight into
what the immediate future holds.
The world population continues to grow, particularly in the emerging
markets and in the developing world. However, the rate of growth is slowing
down. The majority of processed food sold (around two-thirds in 2005) has
been – and continues to be – consumed by a minority of the world’s popula-
tion, living in the industrialised nations. Consequently, the greatest growth po-
tential arising from the expansion of the population will be in the emerging
markets and the developing world. According to a study, the average growth
in sales of processed food between 2000 and 2005 stood at 2.9 per cent in the
developed world compared with nine per cent in the emerging markets.47 Thus,
multinational retail chains and manufacturers will increasingly focus on these
countries.48 Danone is a case in point. After years of reorganisation and con-
centration, the company is now looking to embark on a new acquisition strat-
egy in precisely those faster-growing emerging markets. Unilever, too, has seen
above-average sales growth outside of Europe and North America since 2
1990.49
Even more important for the food industry than population growth itself
is the trend in terms of the distribution of wealth. Looking at the period from
1995 through to 2015, one thing we can see is that the proportion of people
living in extreme poverty, with PPP51 of less than USD 1,500 is on the decline.
Between 1995 and 2005, the group that increased the most was the one with
a per capita PPP income of USD 1,500 to USD 5,000; in the next ten years, it
will be those in the USD 5,000 to USD 13,000 range. At the same time, the
proportion of those with a PPP income in excess of USD 28,000 is also set to
increase considerably.52
For a globally active food business, this means that growth can be gen-
erated at both the bottom and top end of the income scale if its products are
able to satisfy the very different needs of the two groups. Nestlé products start
World Population and Proportion Urban 1975–2025 50

In billions and %
4.1 4.4 4.8 5.3 5.7 6.1 6.5 6.8 7.2 7.6 7.9
8
7
6
5
4 55.9 58.3
51.3 53.6
3 49.2
47.1
2 43.2 45.1
39.2 41.1
1 37.3
0
75 80 85 90 95 00 05 10 15 20 25
2 Nestlé has developed

57 products for every generation.
to be consumed on a regular basis from a per capita PPP income of USD

1,800.53
As far as the age structure of the population is concerned, up until the
year 2025 the proportion of people aged 65 and over will continue to increase
sharply. Members of this relatively affluent age group – in the industrialised
nations, in particular – will expect the food industry to come up with ever more
products to help them maintain an active lifestyle and keep fit and healthy.
The proportion of the population aged 14 to 65 and actively employed –
who require significantly more calories overall and want to spend as little time
and effort as possible in consuming them – is also set to increase. The increase
in urbanisation and the resultant decline in direct agricultural supply is also
boosting demand for processed food.
On the other hand, the number of children under the age of 14 is stag-
nant. As a rule, this age group tends to consume less food in terms of quan-
tity but prefer products with particular added value, because adults of their
parents’ and grandparents’ generation have had fewer children and so have
been in a position to meet their material needs.54
How has Nestlé responded to these demographic factors? By the end of
the 1980s, under Helmut Maucher, Nestlé had already ascertained in a strat-
egy paper that it generated 82 per cent of its sales from just 16 per cent of the
world’s population in the non-Communist industrialised nations and that the
emerging markets of Asia and Latin America in particular offered enormous
growth potential.55 As a result, the company had stepped up its efforts to de-
velop specific products based on local ingredients, tailored to the tastes and
purchasing power of the local population. These were less sophisticated
products known internally as PPPs (popularly positioned products). They in-
cluded, for example, a drink made from soya and cow’s milk, Maggi soups us-
ing inexpensive ingredients and simple packaging, and a high-protein, soya-
based meat substitute. They may have taken longer to prepare, but these less
sophisticated products were more affordably priced.56
1 Work at the Nestlé Re-

search Centre (NRC) also focuses
on identifying the tastes and
needs of senior citizens. 58
At the 1992 General Meeting, Helmut Maucher demonstrated to shareholders

the company’s two-pronged strategy of meeting the needs of consumers in
the wealthy nations whilst simultaneously cultivating a presence in the emerg-
ing markets and the developing world based on specially developed prod-
ucts:
“In the industrialised world, in keeping with consumer expectations, we
are continuing to adapt our range of products, in which aspects such as health,
freshness and convenience are becoming increasingly important. In the devel-
oping world, we note that there is a very strong increase in demand for our
traditional products, due both to population growth and an increase in pur-
chasing power. Within the framework of a two-pronged strategy, we are also
trying to expand our range of products so that they can be made available to
ever wider social strata. Although we make no concessions from the point of
view of quality and safety, these products (based on local raw materials) are
not as sophisticated as our others; they take longer to prepare, and the pack-
aging is simpler and thus more economical. Products that correspond to local
nutritional requirements and local tastes contribute to improving the popula- 2
tion’s health by filling gaps in the local diet; and they provide new markets for
our company at the same time.”57
Nestlé’s desire for a presence in the developing world was by no means
new. As far back as the 1920s, the company had invested in milk factories in
Brazil, Argentina and South Africa, clearly underlining its strategy in this re-
spect from an early stage.
What was new, however, was the explicit reference to demographic
trends and the formulation of the two-pronged strategy, first outlined in the
1980s, then fleshed out in successive strategy papers from 1996 onwards, and
regularly refined ever since.
Although certain elements of the strategy have to be regarded as unsuc-
cessful, in the interim at least – the soya-based products developed in the Third
World and the closure of the corresponding development centres being a prime
example – the concepts of the two-pronged strategy and the popularly posi-
tioned products were retained under Peter Brabeck and pursued with renewed
vigour.58 Indeed, Brabeck explained why he attached such great importance
to demographic trends, going on the record as saying: “Demographic trends
do not respond to short-term stimuli and I believe that they will influence our
future more profoundly than we imagine.”59
Even in his very first “Blueprint for the Future” dating back to 1997 –
which he presented in his subsequently published speech to the Market Heads
assembled in Vevey shortly after taking office as CEO – he made a point of re-
minding his audience of the two-pronged strategy and the popularly positioned
products in the context of Nestlé’s internal growth potential.60
In much the same vein, nearly nine years later at the Annual Press Con-
ference in February 2006, he went on to explain to the diverse audience how
Nestlé aimed to respond to the increase in demand in the developing nations
as a result of population growth and rising purchasing power with popularly
positioned products (PPPs), whose composition, size, packaging and distribu-
2 This small round bottle of

Nestlé Pure Life, on sale in
Nigeria since 2005, gives con-
sumers in developing countries
access to products especially
adapted to their needs and
59 purchasing power.
1–4 Nestlé set up the Caquetá 2

dairy district in Colombia some
thirty years ago. It has since pro-
vided support for local projects
aimed at improving milk yields
by putting cows to graze in pas-
tures where “Brachiaria” grows.
“Brachiaria” is a local, protein-
rich grass. The cows in this
district now produce five times
more milk than they used to. 60
61
tion channels would be specially adapted to the needs of a low-income demo-

graphic group. In this way, these “new” consumers will become familiar with
Nestlé brands at an early stage. As their income rises, these low-cost products
will gradually be replaced with products that offer added value in the form of
convenience, flavour and variety, then – at a later stage – additional benefits
in terms of health, nutrition and wellness.
In addition to the re-launch of the popularly positioned products (PPPs),
Brabeck also has plans to develop this area of the business to better meet the
expectations of ageing, increasingly affluent, well-informed, active and health-
conscious consumers in the industrialised nations – and increasingly in the
emerging markets.61
Despite its longstanding presence in the developing world and the two-
pronged strategy developed in the 1980s, Nestlé still generates the vast ma-
jority of its sales in the industrialised nations. This is partly to do with the fact
that the major acquisitions between 1990 and 2005 – Perrier and San Pellegrino
in mineral water; Alpo, Spillers and Ralston Purina in animal feed; Schöller and
Dreyer’s in ice cream – were all carried out in the industrialised world, and the
company’s holdings in the pharmaceutical and cosmetics sector have also in-
creased in importance in per centage terms. By contrast, a breakdown of the
sales figures by region clearly shows that, in Nestlé’s traditional area of busi-
ness at least, the industrialised regions such as Europe have declined in im-
portance, relatively speaking. The same is also true of other European food
manufacturers such as Unilever and Danone.62
If Nestlé succeeds in increasing its sales in those countries in which it
has so far had only a weak presence – in terms of the population level and com-
pared with similar economies – to the extent it has done in other, similar coun-
tries and manages to benefit from the rise in per capita income in highly pop-
ulated emerging markets such as China, India, Indonesia and Brazil, then this
alone should result in considerable sales growth.67 The importance of the var-
ious markets – measured in terms of sales – could then shift further in favour
Breakdown of global Nestlé Sales, 1990–2005 (in %)
1990 63 1995 64 2000 65 2005 66
Americas 32.8 30.5 31.3 33.8
Europe 46.9 39.7 32.3 30.3
Asia, Oceania, Africa 16.0 18.2 19.3 17.2
Water 1.1 6.7 7.3 9.7
Nespresso, Pharmaceutical 3.2 4.8 9.8 9.0

Nestlé has developed its and Global Joint Ventures
water business through acquisi-
tions, but also through product
and distribution innovation.
La Vie, a spring water launched
in Vietnam in 1999, was the first
product sold in the large format
water distribution sector (in large
bottles or fountains) for offices
and shopping centres, etc.
(Home and Office Delivery,
HOD). 62
of the Asian and South American regions. In terms of value, however – and
thus for the company’s financial results in Swiss francs – the industrialised na-
tions with their generally more stable currencies remain decisive.
As consumer behaviour on the part of the increasingly prosperous pop-
ulation in these countries in particular has changed, so Peter Brabeck has re-
sponded by orienting the Nestlé Group towards nutrition, health and wellness.
Demand for products with specific added value in these countries is rising even
faster than demand for additional calories.68 And the growing class of affluent
individuals in the emerging markets is reinforcing this trend.
Changes in consumer behaviour
As indicated above, consumer behaviour tends to change as income rises. But

income is by no means the only factor influencing consumer behaviour. In the
following pages, we shall look at just a few examples.
During the period under review, the process of urbanisation – which has
been evident in South America for some years – intensified in Asia, too. In total,
the proportion of the world’s population living in towns and cities rose by six
per cent between 1990 and 2005 to 49.2 per cent. In another 15 years, this
figure is likely to stand at 56 per cent. As a result, people will be consuming
more processed food.
As incomes rise, so more people buy fridges and microwaves and this,
in turn, increases the demand for the corresponding products. Likewise, as
more and more people in the emerging markets own a television, so the vari-
ous programmes beamed via satellite reach a wider audience, influencing the
values and consumption preferences of the local population. As times goes
on, factors such as simply satisfying hunger and cultural tradition are playing
less and less of a role in the foods that people choose. Increasingly, these are
being superseded by considerations such as convenience, performance en-
hancement and health benefits, through to opportunities for personal devel-
opment and the desire for self-fulfilment.69
In the industrialised nations, on the other hand, the number of one and
two-person households is rising. People are increasingly taking their meals out-
side the home, either going to the takeaway or eating out in restaurants. Con-
sumers want to be able to buy and eat food anywhere, at any time. It has to
be affordable, good quality and extremely tasty, as well as healthy and nutri-
tious. People want a wide choice of food available wherever they go, but it also
has to help prevent obesity and avoid allergies, have a long shelf life and at the
same time be as fresh and authentic as possible, not to mention helping to en-
sure a healthy old age, be manufactured in an environmentally friendly and
sustainable manner and geared to individual requirements as far as possible –
and so the list goes on.
Rapidly changing consumer behaviour in itself is nothing new. The big
challenge for the food industry at the beginning of the 21st century lies in the
often conflicting and increasingly segmented nature of consumer expecta-
63
tions.70 The demand for tasty products, for example, cannot always be recon-
ciled with the expectation that they should be healthy. The office worker sit-
ting at a desk all day and doing a mentally demanding job will want a different
type of food to the amateur sportsman or woman, for instance. Likewise, the
busy person who is happy to grab a quick sandwich for lunch at work or warm
up a ready-meal in the microwave becomes a lover of gourmet food in the
evening or at the weekend.
The knack is to distinguish passing fads – often hyped up by the mod-
ern media – from long-term trends.
When the Atkins Diet was all the rage in 2003 and 2004, for example,
one American in eleven was on a low-carbohydrate diet. Suppliers of “high-
carb” products such as pasta, rice and bread, cakes and pastries found that
they had a real problem on their hands. Some of the big food companies such
1 as Coca Cola, Pepsico, General Mills and – to a very limited extent71 – Nestlé
developed their own low-carb products for followers of the Atkins Diet, often
with little success. Before long, this particular fad fell out of fashion and At-
kins Nutritional, Inc., the food company founded by cardiologist Robert Atkins
in 1989 – which had planned to branch out into Europe and float on the stock
exchange – was forced to file for insolvency at the end of July 2005.72
Changes in working patterns and lifestyle, and in attitudes to life itself,
have also led to new consumer needs. Society is becoming increasingly expe-
rience-driven and hedonistic, geared to personal self-fulfilment, with less rigid
daily routines and eating patterns. Consequently, catering outside the home –
the so-called food service industry for the hotel and catering business, can-
teens and the like – as well as “home & office delivery” and sales at petrol sta-
tions are all becoming increasingly important.
On the other hand, environmental concerns over energy, packaging, re-
cycling and water resources, and ethical and moral issues such as criticism of
the consumer society and hostility towards technology, are now high on the
agenda. It has become ever more important for companies to live up to the ris-
ing expectations of an increasingly well-informed public, to differentiate be-
tween reasonable and unachievable demands, and to engage in discussions
with key stakeholder groups on these issues. As a whole, the number of peo-
ple who feel that they have a right to demand certain behaviour of companies –
and who are in a position to do so, thanks to modern communications – has
risen. Increasingly, therefore, companies are opening up not only the economic
aspects of their business, but also its social, ethical and environmental dimen-
sions to scrutiny by the outside world. Internally, this has led to the formula-
tion of codes of conduct and the implementation of concrete measures.73
At Nestlé, the issue of environmental protection was raised by the Board
of Directors in the framework of its discussion of the Strategy Paper in March
1989. One member enquired about Nestlé’s environmental relations and ap-
proach to the issue. Helmut Maucher promised to add a relevant section to the
Strategy Paper and expressed the view that, due to its size, Nestlé should go
further than statutory requirements demanded.74 The following year, he ap-
pointed an Environmental Officer, whose job it was to ensure the co-ordina-
1 Light, readymade Lean

Cuisine products are adapted to
the requirements of a modern
lifestyle. They are low in calories
and can be microwave-heated. 64
2 Shanghai is an excellent
example of late 20th century
trends: the emergence of China
65 and vigorous urbanisation.
tion of environmental affairs, along with the relevant contacts and information.
Top priority initially was the issue of packaging and how to reduce and recy-
cle it. However, Nestlé Director Stephan Schmidheiny, who was active in var-
ious UN bodies – in particular, as the founder and Honorary Chairman of the
World Business Council for Sustainable Development (WBCSD) – was keen to
stress that other aspects such as the purchase of raw materials would also
have to be included in the company’s environmental policy in due course.75
This was duly taken into account by the Executive Board in subsequent
strategy papers, which were expanded to include environmental aspects in the
areas of “Research and Development”, “The Production, Purchase and Use of
Raw Materials”, “Manufacturing”, “Packaging”, “Marketing and Distribution”,
“Information and Training” and “Legislation and Regulation”.76
Nestlé soon became actively involved in various organisations in this
field, such as the WBCSD in Geneva, and signed up to the ICC Business Char-
ter for Sustainable Development in 1991. All the Group companies also made
a firm commitment to the principle of sustainable development, which was en-
shrined in the Nestlé Corporate Principles.
In practice, however, it took a little while for the numerous markets and
factories to implement this commitment. The initial focus was on packaging,
saving energy, replacing CFCs as coolants and monitoring emissions. In 1996,
the Nestlé Environmental Management System (NEMS) was introduced in or-
der to consolidate all the Group’s technical and organisational measures world-
wide in accordance with ISO 1400177 or the EU Eco-Management and Audit
Scheme. The Nestlé operating companies and factories were required to adopt
this system.
The results to date have been impressive. Between 1991 and 2005, for
example, the amount of packaging material used was reduced by 285,000
tonnes – equivalent to a saving of CHF 520 million. In 2006, Nestlé became the
first company in Europe to use a biodegradable alternative to plastic packaging
in the food sector.78 From 2001 to 2005, the company cut its total energy con-
1 Installation for treating

wastewater used at the El-Jadida
factory in Morocco. 66
sumption per tonne of products by almost 30 per cent and water consumption
by almost 43 per cent. In 2000, Nestlé was added to the Dow Jones Sustaina-
bility World Index79, followed by the Dow Jones STOXX Index in 2004.80
It is clearly in Nestlé’s interests to use natural resources in a sustainable
manner as the continued success of the business depends on the long-term
availability of high-quality agricultural products. With this in mind, the com-
pany has long been committed to working in close partnership with farmers.
Around two-thirds of its raw materials are bought in the developing world. In
2004, it spent around CHF 8 billion in this way and provided technical support
and advice for more than 300,000 farmers around the world.
Now, the company has gone a step further, actively initiating moves to
work with other stakeholders and create synergies. In 2002, together with 2
Danone and Unilever, Nestlé set up the Sustainable Agriculture Initiative (SAI)
to promote the development of sustainable agricultural practices with the in-
volvement of various participants in the food chain. As at 2006, the initiative
now has 21 members, who are working together to draw up a series of guide-
lines which can then be applied by every company in their particular field with
a view to improving sustainable practices.
At company level, Nestlé has various supply chain projects which it is in
the process of implementing. In the Philippines, for example, it is advising small
coffee farmers on how best to use compost and fertilizer. In Thailand, it is pro-
viding support for a beekeeping and honey production project aimed at reduc-
ing the use of antibiotics and chemicals, whilst in India it is training dairy farm-
ers in the use of a computer programme designed to record the amount of milk
produced by each cow and help increase total output.81
These are just a few examples from a long list of improvements and ad-
vances that the company has made, as demonstrated by the Environmental
Performance Indicators, details of which are published on the Internet and in
various documents.
On the other hand, there are still many potential improvements that have
yet to be achieved and examples of cases where the right balance has not al-
ways initially been struck between the expectations of environmentally aware
consumers and the various, often contradictory, external and internal require-
ments – for new packaging, for instance. Factors such as optimum product
protection, low costs, portability, consumer communication and environmen-
tal criteria have to be prioritised and sometimes concessions have to be made,
though Nestlé never compromises on quality.
In Switzerland, there was fierce criticism of the aluminium capsules used
with Nespresso coffee machines, until eventually the country’s recycling sys-
tem was expanded to the point where most consumers could access a local
collection point, of which there were more than 1,100. Once collected, the alu-
minium is melted down and the coffee grounds are composted. Similar sys-
tems are in the pipeline in other countries, too.82 There was also criticism of
the new packaging introduced for Cailler brand chocolate in Switzerland in
February 2006. Made from PET, it couldn’t be recycled and had to be disposed
of with the rest of the waste.
2 Recycling Milo tins at the

67 Agbara factory in Nigeria.
In some places, there has also been opposition to the use of water springs
in particular. In order to meet the growing demand for mineral water and clean
table water, whilst also cutting transport costs, Nestlé launched the Nestlé
Pure Life and Nestlé Aquarel international brands, which were not tied to a sin-
gle spring but could be bottled from various sources close to the consumer.
In some places – notably McCloud, California and São Lourenço in Brazil – this
increase in usage and awareness of the scarcity of resources led local activ-
ists to mount a campaign of opposition.
The food industry and the retail trade
The food industry value chain as a whole can be broken down into several sub-
sectors, as illustrated in the diagram “The Food Industry Value Chain” below.
Looking back, we can see that the importance of certain sectors in the
value creation process has changed significantly over the years. Originally, it
was farmers – as suppliers of raw materials – who played a dominant role, but
in the course of the 20th century the balance was to shift in favour of manu-
facturers and wholesalers. Over the past two decades, however, things have
changed again and retailers – in particular, the international supermarket chains
and hard discounters – have increasingly come to the fore.84
In this section, we will look at the evolution of Nestlé’s main competi-
tors and that of its customers.
Nestlé is the most universal of all the major brand-name companies in
the food industry. Its food sales stand at CHF 85 billion or USD 68 billion, ac-
counting for 93 per cent of the company’s total results. One of the defining
features of Nestlé is that its products are sold in every country in the world –
with the exception of North Korea – and it is active in many product catego-
ries. These include infant food, milk products, chocolate and confectionery,
coffee, culinary products, chilled and frozen products, water, pasta, biscuits,
Facts on the use of fresh water
Total
Percentage of Total Fresh Water Used Worldwide
(≠ Fresh Water Consumed Worldwide)
Agriculture 70%
Industry 20% (of which, the majority for hydroelectric power plants)
Households 10%
Nestlé
Nestlé Percentage of Total Fresh Water Consumed Worldwide
Nestlé Waters 0.0009%
Nestlé as a whole 0.005% (for food production and bottling)
One of the many contain-

ers made available for recycling
Nespresso capsules. 68
ice cream, breakfast cereals, nutrition, petfood, and food services. Among the
company’s internationally recognised brands are Nestlé, Nescafé, Nestea, Nes-
quik, Perrier, S. Pellegrino, Dreyer’s, Maggi, Buitoni, Purina and Friskies, to
name but a few. It also has a 29.1 per cent stake (as at the end of 2005) in the
cosmetics firm L’Oréal and owns around a 75 per cent share in Alcon, the eye
care specialists.
By contrast, most of Nestlé’s competitors are only active in a few coun-
tries and/or product categories. This means that, in most countries and sectors,
Nestlé is competing with smaller, much more highly focussed companies, and
is one of the reasons why Nestlé has begun creating autonomous, specialist
business units for certain sectors such as water, petfood and nutrition.85
Only two of Nestlé’s main competitors, namely Unilever (UK/Netherlands)
and Kraft Foods (US), are also globally active in numerous sectors.
The long-established Unilever was created at the end of the 1920s out
of the merger of a number of Dutch margarine producers with the UK-based
Lever Brothers, one of the pioneers in the field of soap manufacturing. Back
then, both margarine and soap – and later laundry and cleaning products –
were made from oils and fats and these formed the basis for what are still the
mainstay of the company’s activities to this day: food, body care and laundry
and cleaning products. Unlike Nestlé, Unilever had incorporated both upstream
and downstream businesses. As such, it had its own plantations and trading
companies, haulage companies and even an advertising agency (Lintas), as
well as a packaging firm and activities in the specialty chemicals business.
Some of these areas have since been sold off as the company increasingly fo-
cuses on its core businesses, as mentioned above. Up until just a few years
ago, the Unilever Group as a whole was bigger than Nestlé in terms of sales
and headcount, though not in the food sector.
In 2005, Unilever generated just under USD 28 billion or 56 per cent of
its sales from food. The main areas in which it competes with Nestlé are the
ice cream market, frozen and culinary products, stocks, sauces and tea, with
The Food Industry Value Chain 83
Suppliers Agribusiness Manufacturers Logistic Retailing Consumers
10–30% 10% 20–40% 10–20% 15–40% Total 100%
Food Raw Materials, First transformation, Product Development, Warehousing, Supermarkets, Households,
Packaging, Trading, Processing, Distribution, Grocery Stores, Individuals,
Machinery, Storing, Selling. Invoicing. Convenience Small Caterers.
Equipment. Transporting. and Others.
69
brands such as Magnum, Cornetto, Viennetta, Iglo, Knorr, Hellmann’s, Bertolli,

Amora, Maizena and Lipton.86
America’s Kraft Foods was created by the tobacco giant Philip Morris,
which has been operating under the name Altria Group, Inc. since 2003. Hav-
ing acquired the Miller Brewing Company in 1969, Philip Morris entered the
food business in 1985 with the takeover of General Foods. Further major ac-
quisitions followed, with the purchase of Kraft in 1988, Jacobs Suchard in 1990
and Nabisco in 2000. In 2001, Philip Morris floated its food business on the
stock exchange under the name of Kraft Foods, while retaining a controlling
share. Thus, within a few short years, Kraft Foods was to become the largest
food company in the US and the second-largest in the world, with sales of
around USD 34 billion in 2005. The focus of its activities is on coffee, choco-
late and confectionery, and dairy products. The Group encompasses traditional
brands such as Maxwell House, Jacobs, Kraft, Suchard, Milka, Toblerone, Ritz,
Oreo, Philadelphia and Post, competing with Nestlé in the market for coffee,
chocolate, biscuits, dairy and chilled products, breakfast cereals and culinary
products.87
Another of Nestlé’s major competitors, Danone of France, is in the proc-
ess of expanding its international positioning and widening the base for its
sales (around USD 16 billion in 2005), which have previously been largely con-
centrated in Europe in general and France in particular. As such, the company
is focusing its activities mainly on water (Evian and Volvic), dairy products
(Danone, Activa and Actimel) and biscuits (for the Luxembourg market).
Created in 1966 out of the merger of two French glass factories, the com-
pany – which was known as BSN back then – entered the food business in
1970 and became the market leader for mineral water, beer and infant food in
France that very same year. In 1973 came the merger with Gervais Danone,
followed – in due course – by the exit from the glass business, the takeover of
numerous small firms in Europe and finally, in 1986, the entry into the biscuit
business. In 1994, the Group changed its name to Danone.
Also active worldwide, though only in a limited number of product cat-
egories, are companies such as Cadbury Schweppes (UK), PepsiCo, Coca-Cola,
Mars, Kellogg’s, H.J. Heinz and Campbell’s Soup (all USA).
Other companies such as ConAgra Foods and Hershey (both USA), Aji-
nomoto (Japan) and Ferrero (Italy) have a very strong regional presence, while
a final, very large group of mostly small and medium-sized businesses are ac-
tive mainly at the local level.
Depending on the country and product area, Nestlé faces competition
from a few large competitors and/or numerous smaller competitors. In the case
of soluble coffee, globally this competition comes primarily from the various
brands of the company’s three main rivals, namely Kraft Foods (Altria), Folgers
(Procter & Gamble) and Douwe Egberts (Sara Lee). Though as in the Philippines,
for example, the competition can also come from local providers such as the
Universal Robina Corporation with its brands Great Taste and Blend 45.
When it comes to confectionery, on the other hand, it is mainly the likes
of Mars, Kraft Foods, Cadbury Schweppes, Hershey, Ferrero, Arcor, Lindt &
70
Sprüngli and a large number of smaller regional or local companies whose

products Nestlé has to compete with.
Looking back over the main changes that have taken place in the food
industry since 1985, it is plain to see how dramatically the landscape has
changed as a result of two striking phases of mergers and acquisitions.
The first was the series of landmark, multi-billion dollar acquisitions in
1985 – the very year in which Philip Morris set about diversifying into the food
business. First off the blocks was Nestlé, with its acquisition of US-based Car-
nation for around USD 3 billion. Just a few weeks later came the takeover of
Nabisco Brands by the tobacco company RJ Reynolds at a cost of USD 5 bil-
lion. Then, at the end of September, Philip Morris submitted a public offer for
General Foods worth USD 5.6 billion. And finally, the private equity firm Kohl-
berg Kravis Roberts & Co. (KKR) bought out Beatrice Co. in order to sell off its
constituent parts.
With a few exceptions – notably Kraft, RJR Nabisco, Jacobs Suchard,
Perrier and Gerber Products – things then went quiet, and there were no big
mergers or acquisitions for quite some time. Instead, major food companies
increasingly began entering into strategic alliances in the form of joint ven-
tures, expanding geographically in the direction of Eastern Europe and China,
and – in the second half of the 1990s – concentrating on their core busi-
nesses.
The second major wave of takeovers came in the year 2000, when sev-
eral companies changed hands for sums in excess of USD 10 billion. The hub
of this consolidation activity was the US. Far and away the two biggest of these
deals were the takeover of Bestfoods by Unilever and the acquisition of Nabisco
by Kraft Foods.
On the face of it, Nestlé’s competitive environment changed little be-
tween 2001 and 2005. There were only a few, relatively small takeovers. The
company’s main competitors continued with their strategy of divestment, sell-
ing off less profitable business areas and further focussing their portfolios.
Major Acquisitions in the Food Industry (2000) 88

In USD billions
Buyer Company Amount Buyer Company Amount
Unilever Bestfoods 24.3 Kellogg’s Keebler 3.6

Slim Fast 2.3 ConAgra International Home Foods 2.9
Ben & Jerry’s 0.3 Procter & Gamble Iams* 2.3
Kraft Foods Nabisco 18.9 Cadbury Schweppes Snapple 1.5
PepsiCo Quaker Oats 13.4 Danone McKesson 1.1
General Mills Pillsbury (from Diageo) 10.5 Nestlé Ralston Purina** 10.3
Numico GNC* 2.5
Rexall Sundown 1.8
* 1999
** concluded in 2001
71
However, the biggest change between 1990 and 2005 was not in the
company’s traditional competitors but on the retail front. During this period,
private or own-brand labels – particularly those of the major supermarket and
discount chains – became Nestlé’s main competition.
For a long time, retail chains had confined themselves solely to national
markets. But with global liberalisation, they too began doing business on an
international basis. The supermarkets saw their share of the national food mar-
ket increase, particularly in the fast-developing emerging markets of Asia and
Latin America. Today, the list of the world’s top 100 businesses in terms of
sales features six international chain stores in the form of Wal-Mart (USA), Car-
refour (France), Metro (Germany), Ahold (the Netherlands), Tesco (UK) and Kro-
ger (USA) – all of which include food amongst the products that they sell –
whilst only one actual food company made it onto the list, namely Nestlé in
53rd place.
Since it was first founded back in 1962, Wal-Mart has become the sin-
gle biggest employer in the world, with a workforce of 1.8 million in 15 coun-
tries in 2005 and a turnover of more than USD 310 billion. As such, it ranks as
the second-biggest company in the world according to the Fortune Global 500
list.89 If we look back to 1994, we can see that the company had “just” 600,000
employees and a turnover of USD 83 billion.
In order to create customer loyalty, retailers have increasingly been
launching their own brands. In the food industry, these items now account for
17 per cent in the US, between 20 and 40 per cent in most European coun-
tries, and as much as 50 to 60 per cent in Switzerland. Of the 100 best-selling
items at Wal-Mart, for example, 50 are own-brand.90
The process of consolidation within the retail sector, the resultant in-
crease in the power of the big chain stores and the strong position of own
brands is intensifying pressure on manufacturers’ sales volumes, and also on
their profit margins. What’s more, discounters – in Europe, in particular – are
gaining further market share at the expense of traditional retailers. Overall, the
market share held by discounters rose from 9.4 per cent in 1991 to 17.6 per
cent in 2004. In countries such as Norway and Germany, that figure was even
higher, at something like 40 per cent in 2003. While discounters were achiev-
ing annual growth of between 5 and 10 per cent, traditional retailers could only
manage something in the region of 1 to 3 per cent.91 Faced with this challenge,
the industry’s search for improvements in productivity has become a perma-
nent feature in every area, from production and distribution to marketing and
sales.
The successive new cost-cutting programmes that have followed one af-
ter the other at Nestlé since 1997 are a result of this increase in competitive
pressure, which has forced the company to make the most of every techno-
logical advance and explore every avenue in pursuit of potential savings.
However, the price war – or even the possible demise of manufacturer
brands – feared by US investors in the wake of “Marlboro Friday” – has not
materialised. The term “Marlboro Friday” was coined in marketing circles to
refer to the Friday in April 1993 when Philip Morris announced that it would
International supermarket
chains are both important part-
ners and ever-stronger competi-
tors in the food industry as a
result of the sale of own-brand
products. 72
be cutting the price of its Marlboro cigarettes by 20 per cent to win back mar-
ket share from the makers of cheaper, generic cigarettes. Investors interpreted
this move as an admission by Philip Morris that it could not justify or sustain
the higher prices charged for its traditional brands compared with own-brand
labels. As a result, the share price not just of Philip Morris, but also other brand
manufacturers such as Heinz, Coca Cola and RJR Nabisco fell. Even Nestlé felt
the fallout, with the price of its shares dropping after six solid years of growth
due to profit-taking and the effects of “Marlboro Friday”.92 However, it soon
became apparent that the fears were unfounded. Firstly, there is far less of a
price difference between brand names and own-brand or private labels in the
food industry than in the case of cigarettes. And secondly, quality – which can
be much more effectively influenced by the research and development activi-
ties of leading brand-name manufacturers – plays a far more important role.93
And so, despite everything, for the rest of the decade consumers continued to
go for brand-name items.
The steps taken by Nestlé have gone much further than the pure cost-
cutting measures mentioned here. As well as constantly improving product
quality, a great deal of attention has been devoted to packaging, convenience,
building the brand, communication and – last but not least – product
availability.
Growth comparison of the largest retailers and companies

of the Food & Beverage industry between 1993/94 and 2005
Sales in USD billions
Retailers 1993/4 94
2005 95 F&B Industry 1993 94
2005 95
Wal-Mart Stores (USA) 83.4 (1994) 315.7 Nestlé (Switzerland) 39.1 74.7
Carrefour (France) 21.7 (1993) 94.5 Unilever (UK/Netherlands) 40.4 49.6
Metro (Germany) 48.4 (1993) 72.8 Kraft Foods (USA) – 34.1
Tesco (UK) 12.9 (1993) 71.1 PepsiCo (USA) 25.0 32.6
Kroger (USA) 23.0 (1994) 60.6 Coca-Cola (USA) 14.0 23.1
Royal Ahold (Netherlands) 14.6 (1993) 56.4 Mars (USA) – 18.0 96
Sara Lee (USA) 14.6 19.7

Danone (France) 12.3 16.5
ConAgra (USA) 21.5 15.5
73
Part II
Strategies and their Implementation
3. Key Managers and Strategies 77

The people 77
Strategy formulation 79
Elements of Nestlé’s strategy under Helmut Maucher 83
Background and strategic considerations of Peter Brabeck 88
4. Business Mix and Brand Policy 97

Changes to the product portfolio 97
The growth sectors of water, pet food and ice cream 100
Divestments 108
Nespresso: from black sheep to model student 109
Brand policy 131
5. Geographic Expansion: Zones and Markets 139

Threshold and industrial countries 139
China 141
Central and Eastern Europe 144
6. Organisational Change 151

The Nestlé organisation in 1990 151
Nestlé invites McKinsey in 155
The role of the Centre 160
“Nestlé 2000”: the creation of the strategic business units (SBUs) 161
A new look for the Zones 165
Rationalisation … 168
… decentralisation and autonomy 171
Regional business units … 173
… and new joint ventures 174
The Executive Board 174
Outlook: agile fleet not supertanker 180
74
7. GLOBE 183
Introduction 183
Why GLOBE? 184
Programme design 186
Programme costs 187
Lessons learnt from GLOBE 188
Outlook: expanding GLOBE’s benefits 189
8. Research and Development 191

Nestlé Research in 1990 191
Centralised basic research … 192
… and decentralised development 194
Difficulties with the implementation of research results 196
LC 1 – a missed opportunity … 197
… which led to new insights 201
From Recos to Product Technology Centres (PTCs) 204
New responsibilities for R&D centres and NRC 210
Lessons learned 213
Food safety is non negotiable 216
Outlook: going the same way as pharmaceutical research? 217
75
76
Part II Strategies and their Implementation
3. Key Managers and Strategies
The people
The main personalities responsible for shaping the develop-

ment of the Nestlé Group between 1990 and 2005 were two
from within the company, Helmut O. Maucher and Peter
Brabeck-Letmathe, along with a third, who despite being an
“outsider” was always completely in the picture about all the
major events of this period – Rainer E. Gut.
With their long association with Nestlé, their personali-
ties and their standing, all three have shaped the strategy and
the fate of the Nestlé Group in their own individual way.
77
Helmut Maucher, who as CEO was responsible for the Executive Board from
1981 onwards, also became Chairman of the Board in 1990. He held this dual
function until 1997 when Peter Brabeck took on the role of CEO, while Maucher
remained active Chairman until 2000. This meant that Brabeck then had sole
authority in around 80 per cent of all decisions, while those concerning the
company’s top two managerial levels, major acquisitions or fundamental
changes to strategy, had first to be discussed with the Chairman. This arrange-
ment had been agreed in advance by the two men. Conversely, in the 18 months
leading up to Brabeck’s appointment as CEO, Maucher had discussed all key
decisions in advance with his successor.1 After 16 years as CEO and 10 years
as Chairman, Maucher was appointed Honorary Chairman of Nestlé in 2000 in
recognition of his extraordinary services to the company.
The way in which this succession planning was implemented is in many
ways a reflection of the oft-quoted “Nestlé culture”. Although two extremely
strong personalities were involved, they succeeded – in the years both before
and after the handover – in working together and ensuring continuity. Ultimately,
1 Maucher’s successor had been determined around two years before the an-
nouncement was made. Instead of the one obstructing the other, they tried to
make important decisions by mutual agreement in order to take the company
forward and make any necessary changes. For this to work, each had to respect
the other and abide by certain rules. This included, for example, that Maucher
generally stopped giving interviews in Switzerland once he had stepped down
as Chairman, was rarely seen at headquarters and as Honorary Chairman no
longer attended Board meetings.3 This created the requisite distance and gave
his successor the opportunity to quickly develop his own profile.
Naturally, there were differences in managerial style and emphasis. This
was unavoidable, if only because the world was changing rapidly, adjustments
had to be made more quickly than ever and, together with Brabeck – who was
17 years Maucher’s junior – a new generation of managers took over the helm.
Under Brabeck, for example, a more systematic approach was taken to re-
assigning managerial roles as the need arose. Relations with investors were
Helmut O. Maucher was born in 1927 in the German Market Head and was responsible for the entire German
region of Allgäu, where he also grew up. After graduating Nestlé Group. In 1980, the Board of Directors called him
high school, he completed a commercial apprenticeship to Vevey at a time when the company was facing difficul-
at Nestlé’s Eisenharz factory, where his father worked as ties as a result of the oil crises and management at the
a master dairyman. His career path took him to Nestlé’s headquarters was in the process of being restructured. He
German headquarters in Frankfurt am Main, where he also became a member of the Executive Committee, and was
began studying business management at the university appointed CEO one year later.2 As CEO (1981–1997) and
and went on to graduate in 1958. In 1960/61, he completed Chairman (1990–2000) he pursued a systematic acquisi-
a management training programme at the Institut pour tion strategy, which strengthened Nestlé’s position as a
l’Etude des Méthodes de Direction de l’Entreprise (IMEDE, leading food company and took the company into new
now IMD) in Lausanne, before taking up various manage- dimensions.
rial posts within Nestlé Germany. Ultimately, he became
1 Helmut O. Maucher was

CEO of Nestlé from 1981 to 1997
and Chairman of the Board from
1990 to 2000. 78
Peter Brabeck-Letmathe was born in 1944 in the Austrian management programmes at the IMEDE (IMD) in Lausanne.
town of Villach, where he attended grammar school until In 1987, after having gained considerable experience in
1962. At the age of 24, after graduating from the Vienna the emerging markets, he returned permanently to Vevey
University of Economics and Business Administration, he as Head of the Culinary Division and developed, among
began his career at Nestlé Austria. From 1970 onwards, other things, a concept for Maucher’s idea of PPPs
with short intermissions, he held various posts in South (Popularly Positioned Products)6. At the beginning of 1992,
America, including that of Sales Manager and Marketing he was appointed Executive Vice President with responsi-
Director in Chile until 1980. This was followed by two years bility for one of the two newly created SBGs. He has held
as Market Head in Ecuador and four years in the same role the post of CEO since 1997, and was appointed Vice-Chair-
in Venezuela. Like Maucher before him, he also completed man in 2001 and Chairman in 2005.
strengthened and the company’s strategy was developed further, with empha-
sis placed on nutrition and wellness. Links between managerial and non-man-
agerial staff were improved, organisational structures were brought up to date
in line with the latest requirements and earnings were enhanced.
Brabeck, who took over as CEO in June 1997, had arrived at Nestlé’s
headquarters in Vevey ten years earlier as Head of the Culinary Division. In
1991 he took on responsibility for one of the two new Strategic Business
Groups (SBGs)4, and at the beginning of 1992 was appointed Executive Vice
President for Products, Marketing and Communication. In this new function,
he had already worked closely with Maucher on the formulation and imple-
mentation of a new product and brand strategy. Maucher once referred to him
as his personal “think tank”, one who “defined which products we need and
the marketing strategy to match, as well as the approach we should take to
communication”.5 He seems to have seen Brabeck as a successful marketing
strategist, but also as someone who combined what he considered to be the
most important characteristics of a CEO. Brabeck spent over three years as
CEO-designate, half of this time as Maucher’s official successor, preparing for 2
his new role.
When Helmut Maucher stepped down as Chairman in 2000 after reach-
ing the age limit and handed the reins to Rainer E. Gut, he did this after con-
sulting with and obtaining the full agreement of Brabeck, who thought it too
soon for him to take on the role of Chairman himself. He believed Gut was the
ideal candidate, as not only was the chemistry right between the two, but Gut
also knew the company extremely well. Gut had been a member of Nestlé’s
Board of Directors since Maucher became Chairman in 1981, joined its “inner
circle”, the Committee of the Board of Directors, in 1988 and was appointed
first Vice-Chairman in 1991. It was also important to Brabeck that Gut was
someone who was available for a longer term of office, thus ensuring that the
highly important relationship between CEO and Chairman was not disrupted
again after just a short period of time. Last but by no means least, the new
Chairman brought the company valuable additional skills and experience from
his own wide-ranging career.7
Strategy formulation
The Board of Directors and the Executive Board are responsible for strategy.
At Nestlé, like other companies, it is one of the duties of the Board of Direc-
tors to discuss and approve the long-term strategy of the Group.9
2 Peter Brabeck-Letmathe
became CEO of Nestlé in 1997
and was in addition elected
79 Chairman of the Board in 2005.
Rainer E. Gut was born in 1932 in Baar, Switzerland, and Chairman of Credit Suisse and Credit Suisse Group, he be-
completed his academic and professional education in came Honorary Chairman of the two and went on to per-
Zug, Paris, London and Zurich. At the age of 31, he went form the role of Chairman of Nestlé until 2005. In addition
to New York as a representative of the former Union Bank to various other boards of directors, he had been a mem-
of Switzerland (UBS), and was made a General Partner in ber of Nestlé’s since 1981, before joining the Committee
the investment company Lazard Frères & Co. some four in 1988 and being appointed first Vice-Chairman in
years later. In 1971 he became Chairman and CEO of Swiss 1991.8
American Corp., an investment subsidiary of the former Rainer E. Gut formed part of a long tradition of Board
Schweizerische Kreditanstalt (SKA). From 1973 onwards, members from Schweizerische Kreditanstalt and later
he continued his career as a member of the Executive Credit Suisse who sat on Nestlé’s Board, a tradition that
Board of SKA in Zurich, before being appointed CEO in began back in 1901 with Wilhelm Caspar Escher on the
1977 and Chairman in 1982. In 1983 and 1986 respectively, Board of Directors of Anglo-Swiss Condensed Milk Co.,
he also became Chairman of SKA’s successor bank Credit which under Escher’s supervision merged with Nestlé in
Suisse and its holding company (CS Holding, from 1997 1905. Conversely, Nestlé representatives regularly sat on
onwards CS Group). In 2000, having stepped down as the Board of SKA/CS from 1926 onwards.
Various people are involved in defining strategy, and many more in its
implementation. However, the main responsibility vis-à-vis the Board of Direc-
tors is borne by the Executive Board and ultimately the CEO, who is more fa-
miliar with the day-to-day business than any member of the Board of Direc-
tors, whose role is more to warn of certain implications and highlight
particular aspects. The influence of the CEO is far greater than that of anyone
else involved, greater in any case than many people realise or acknowledge:
“Asking who creates value in a company is futile. The question is much more
about who influences which value drivers in which way. Top management, the
CEO in particular, is able to significantly influence value creation. They can, for
example, propose acquisitions to the Board of Directors and push up the price
during sales negotiations. We looked into the influence of top management on
the performance of the company in the USA, and discovered that in the first
year the influence was around 20 per cent, while over five years it rose to 80
or even 90 per cent.”10
Maucher expressed this phenomenon typically succinctly in a 1990 in-
terview: “The boss isn’t everything, but without him there’s nothing. That’s
just how it is. Without my ten years of activity, Nestlé would look quite differ-
ent today. At the same time, it was only possible to change so much because
Nestlé has so many people who work with such enthusiasm, passion, loyalty
and professionalism. If it weren’t for all those people, then I couldn’t have done
what I did. But without me they couldn’t have done it either.”11
Under Maucher and Brabeck, Nestlé never had a separate unit that was
responsible for strategic planning for the company as a whole. Instead, a com-
bination of the “bottom-up” and “top-down” principles was applied within the
markets, regions and Strategic Business Groups (SBGs). In order to make this
approach more effective, Maucher established two important events: the an-
nual Glion Strategic Conference in the autumn and the half-yearly Key Market
Conference at the headquarters in Vevey.
The Glion Conference, which replaced similar events at other locations,
is attended by Executive Board members plus various other managers with the
aim of discussing in an informal setting the future long-term strategic orienta-
tion of the individual business areas. Depending on the matter at hand, a sec-
ond stage is then initiated that involves obtaining the opinions of the markets
Rainer E. Gut, a member

of the Nestlé Board of Directors
since 1981, was Chairman from
2000 to 2005. 80
and the Zones. These opinions are then processed and consolidated by the
SBU and presented to the Executive Board.
Equally important for the process of idea gathering, strategy formulation
and ultimately implementation is the second event, the Key Market Conference
(KMC) with the heads of the ten biggest markets plus, where appropriate, some
rapidly growing markets and the independent global business units. At this
event, the CEO has the opportunity to discuss central issues directly with those
responsible for the major markets. This enables him to communicate ideas and
receive feedback quickly, as well as forcing managers to take time to think
about the matters he believes to be important. At the same time, an event like
this also encourages a culture of teamwork.
Initially, the Executive Board in Vevey was sceptical about this closer
involvement of the markets, and complained that Maucher was setting up
his own personal “senate”. Within two or three years of its introduction, how-
ever, people had warmed to the idea and the event had become much more
popular.12 In addition to these conferences with the heads of the key mar-
kets, every 18 months the heads of all markets – big and small alike – all meet
in Vevey.
The presentation of an actual comprehensive strategy paper at Group
level took place for the first time at the Board meeting of 22 March 1989. The
document was received with great interest by all the members of the Board
and was welcomed by all sides, generating so many follow-up questions and
additional requests that a separate meeting had to be arranged purely for this
purpose. For the first time, the Board of Directors now had a comprehensive
document that set out the Group’s overall direction and main themes.13
These strategy papers, which have since been refined on an ongoing ba-
sis, generally contain a short review of the main developments of the last ten
years, together with a main section outlining the strategies in all product areas,
Zones and functional business areas such as IT, Finance, Supply Chain, HR,
Technical and R&D. While the papers were initially updated only sporadically,
Chairmen, Vice-Chairmen and CEOs,1981–2005
Years Chairman of the Board Vice-Chairman Chief Executive Officer (CEO)
1981–1982 P. Liotard-Vogt H. R. Schwarzenbach H. O. Maucher

1982–1984 A. Fürer H. R. Schwarzenbach H. O. Maucher
1984–1986 P. R. Jolles H. R. Schwarzenbach H. O. Maucher
1986–1990 P. R. Jolles 1) F. Dalle, 2) P. de Weck H. O. Maucher
1990–1991 H. O. Maucher P. de Weck H. O. Maucher
1991–1997 H. O. Maucher 1) R. E. Gut, 2) F. Leutwiler H. O. Maucher
1997–2000 H. O. Maucher 1) R. E. Gut, 2) F. Gerber P. Brabeck-Letmathe
2000–2001 R. E. Gut F. Gerber P. Brabeck-Letmathe
2001–2005 R. E. Gut P. Brabeck-Letmathe P. Brabeck-Letmathe
2005– P. Brabeck-Letmathe 1) A. Koopmann 2) R. Hänggi P. Brabeck-Letmathe
81
since Brabeck became CEO in 1997 they have been rewritten or revised every
other year. The CEO writes a paper in advance, outlining the main aspects of
the long-term strategy and thus the central focus of the Group. This informa-
tion represents the “backbone” of the strategy paper itself, which is fleshed
out by the other members of the Executive Board with strategic elements from
their respective areas of responsibility. At its November meeting, the Board of
Directors discusses the strategy paper and proposes changes or additions
where necessary.
1 As a source of inspiration for strategy development, Brabeck – like
Maucher before him – draws on a large number of encounters and conversa-
tions with a wide range of people both within and outside the company, as
well as travelling a great deal and studying statistics and reports. When asked
how he made important strategic decisions such as the one to expand the wa-
ter business, Helmut Maucher once responded: “In the beginning were intui-
tion and creativity. Intuition is the creative interpretation of information. Some
people learn a lot without ever really achieving any insight. For me, every trip
I’ve ever made in the world has been a source of information. In the case of
the water business, it really wasn’t so difficult. People are moving away from
soft drinks and alcohol, so water consumption has to rise, and water fits in at
2 Nestlé, because it contains nutritional elements – I didn’t need to do any mar-
ket research to work that out! Half of the people thought I was mad. In fact, I
had just seen things a little earlier than anyone else. It didn’t take hordes of
administrative staff, although even I read the statistics and market research re-
ports. But I didn’t need any consultants, and definitely no gurus.”14
Unlike Maucher, his successor is more inclined to record his ideas and
plans in writing, and communicates them through all available channels. Soon
after taking office, he set out his thoughts on the future direction of Nestlé in
a first “Blueprint for the future” for the Market Heads gathered in Vevey. On
this subject, Brabeck says: “... I had put down on paper a blueprint for the fu-
ture. Normally, my predecessor would have communicated such a plan by
speaking with the people involved. But I wrote it out and made it available to
everyone in the company. We put it on our intranet, and we showed it to the
outside world – our competitors, everyone. Seeing where we were going like
that, black on white – well, it scared some people. I couldn’t care less. I wanted
to make it clear to people where we were going and how we were going to
get there. And with that, we started off.”15
Six further editions of the “Blueprint for the future” had been published
by autumn 2006, with the subheading indicating the main theme each time.16
Every 18 months or so, Brabeck put together a new edition for the Market
Heads Conference in Vevey, presenting his strategic vision for the development
of the Nestlé Group in a first draft and opening it up for discussion, some ele-
ments of which were then incorporated in the strategy paper. To an interview
question concerning possible doubts, Brabeck responded: “Naturally, ques-
tions are raised in the process of defining a strategy. In this case, I first write
1 A work session underway a basic document, a ‘blueprint for the future’, in which I broadly outline the di-
in an auditorium at the IMD Busi- rection in which we want to go. I present this document to the Executive Board
ness School in Lausanne in 1997
during the conference of the
Nestlé Market Heads.
2 Nestlé moved into the

water business by acquiring a
stake in Vittel in 1969. Water
became an important area of
activity for the Group’s future
development in 1989. 82
and the Board of Directors for open discussion. And then comes the initial in-
put, the questions and the concerns. Are we really ready for this? Is the tim-
ing right? Have we taken the reactions of our competitors into account? But
I’m not the only one in this company responsible for strategy. I sketch the ba-
sic outline of the tree, while the strategic managers of each business area work
out how the leaves and the branches should look.”17
Rainer E. Gut was an important contact person during his five years as
Chairman, with his aim being to discuss in advance with Brabeck any matters
that came before the Board of Directors. The pair were therefore in almost daily
telephone contact.
Elements of Nestlé’s strategy under Helmut Maucher
In order to understand a given strategy, it is important to consider the situa-

tion in which it arose. Although this is only possible to a limited extent here,
we must briefly go back to the beginning of Helmut Maucher’s time as CEO
in order to better understand the 1990s.
Thinking back to the situation at Nestlé before he took on the role of CEO
in 1981, Maucher himself commented: “Everyone knows that before I came
to Vevey, the company was becoming an increasingly bureaucratic organisa-
tion. Cracks kept appearing. Nestlé was still good, but it was no longer in good
shape. People were frustrated, things weren’t going the way they should, there
was bickering among senior management and no progress was being made.”18
Nestlé’s profitability suffered in various countries. In view of the unstable eco-
nomic situation, the rapid expansion in third-world countries carried serious
risks. Unexpectedly high losses in Argentina led in 1980 to a considerable drop
in consolidated net profit. In this situation, the Board of Directors took action
and appointed Maucher as CEO.
His strategy consisted primarily of two phases, whose elements ran in
parallel for quite a long time. He first set himself the goal of restoring, by means
of internal measures, Nestlé’s profitability and dynamism as a basis for future
growth. This was followed, from 1985 onwards, by an increased focus on ac-
quisitions.19
The improvement in profitability and dynamism was achieved through a
series of measures ranging from the rationalisation of structures and methods
to the sale of less profitable or even loss-making business areas. Between 1980
and 1984, headcount fell by 10 per cent while sales volume rose during the
same period. Spending on general costs was generally shifted to areas that
would support future growth. While the costs of the headquarters fell slightly
from 0.9 to 0.8 per cent as a proportion of sales between 1980 and 1988, those
for research increased from 0.7 to 1.3 per cent, while advertising and media
expenditure was up from 2.8 to 4.0 per cent. From 1981 onwards, Nestlé grad-
ually sold off its catering holdings. It also parted with areas in which it could
add little value and in which the final products remained close to the original
raw materials, such as canned fruit and vegetables from Libby, sauces and
83
condiments from Crosse & Blackwell, certain frozen products from Findus and
milk products from Carnation and others.20
Helmut Maucher had set himself a second, ambitious goal of transform-
ing Nestlé into the world’s largest food company, one that is in a position to
play an important role in global competition. He was fully aware that this goal
could not be achieved by internal growth alone – in the eighties (1982–88),
average internal growth was 1.7 per cent.21 Internal growth is achieved under
a company’s own steam, by developing new products and improving the qual-
ity and geographical distribution of existing ones. Acquisitions were another
alternative, not to bring growth for the sake of growth but to reduce Nestlé’s
strong dependence on Nescafé and rectify geographical and product-related
1 weaknesses. Maucher had already successfully pursued this strategy in 1985
with the acquisition of Carnation in the US, the world’s most important mar-
ket, thus plugging the biggest geographical gap and moving closer to the goal
of achieving a more even distribution of sales between Europe, the US and the
rest of the world.22 With a price tag of USD 3 billion, this acquisition was at
the time the largest ever to have been made in the US outside the oil industry.
It enabled Nestlé not only to expand its milk products and food services busi-
nesses but also to enter into areas such as pet food, which at the time was
new territory for Nestlé. Three years later, Nestlé was faced with the challenge
of responding in a timely manner to the emergence of the world’s second-larg-
est market – the EU single market – at the end of 1992 and positioning itself
in a way that would enable it to benefit fully from the opportunities on offer.
“1992 is now,” said Maucher back in 1988: “And we have to act now.”23 Clearly,
Nestlé was not alone in this regard. The US group Philip Morris had just con-
siderably strengthened its position in Europe via the acquisition of General
Foods and Kraft, and the British/Dutch firm Unilever was also expanding its
European food business with the single market in mind. Although Nestlé was
still one-third bigger than the food division of the tobacco company Philip Mor-
ris and twice the size of Unilever’s even after these manoeuvres, it was never-
theless vital to avoid falling behind. Nestlé was particularly apprehensive about
Philip Morris, which could potentially invest its profits from the tobacco busi-
ness in the food industry in its usual style and ultimately cause trouble for
Nestlé. This fear was not totally unfounded, as further acquisitions (Jacobs
Suchard, Nabisco) by Philip Morris revealed.
Accounting for over 40 per cent of global sales, Europe remained the
most important region for Nestlé, whose presence was concentrated in the
two largest EU member states of France and Germany, with room for improve-
ment in the other two big members, namely Italy and the UK. The opportunity
presented itself in both countries in 1988 with the purchase of the Italian firm
Buitoni-Perugina, which brought not only pasta, pizza products, panettone and
olive oil but also the well-known chocolate brand BACI into the Nestlé range,
and the British chocolate group Rowntree with its world-renowned brands such
as KitKat.24 These two large-scale acquisitions enabled Nestlé to achieve the
desired geographical balance and to double its chocolate business, branching
out from traditional slab chocolate into popular “countlines” (bars) and sup-
1 The acquisition of Carna-

tion in 1985 allowed Nestlé to
consolidate its operations in the
United States and to enter the
pet food market. 84
plementing its culinary range with fashionable and healthy Mediterranean cui-
sine, a market that was experiencing rapid international growth. Furthermore,
the entry into the pasta business was in line with Maucher’s commitment to
avoiding animal products in the manufacture of food wherever possible: “You
can’t feed 15 billion people with beef steak.”25 2
When he took on the additional role of Chairman in 1990 while remain-
ing CEO, Maucher did not make any fundamental changes to strategy, look-
ing rather to implement the existing one in an even more systematic manner
in the first half of the 1990s. Nevertheless, there were still some major shifts
of focus, shaped by changes in the environment.
Maucher continued to strive for market leadership or a strong number
two position in all markets and product categories in which Nestlé was active.
The ambition of a global presence meant that Nestlé had no time to waste once
the markets in Eastern Europe and Asia opened up. The company also needed
to develop a strategy for strengthening its competitive position in the emerg-
ing markets. As before, Nestlé continued to generate less than 20 per cent of
its sales in non-industrialised countries, where around 80 per cent of the world’s
population actually lived.26 Large food companies as acquisition candidates,
however, were almost impossible to find. Growth had to be achieved in a dif-
ferent way. And so Helmut Maucher, together with Peter Brabeck who had just
returned to the Centre from South America, came up with the concept of “Pop-
ularly Positioned Products” (PPPs) in order to provide low-income populations
with nutritious and tasty products at reasonable prices that would still gener- 3
ate a profit. Individual PPP products with a good cost/benefit ratio were also
developed for industrialised countries.
Nestlé consciously pursued a two-pronged strategy that took the needs
of the populations of developing countries and emerging markets as well as
those of industrialised countries into account.
For reasons relating to competition law, an increasingly restrained acqui-
sition policy was called for in the industrialised countries of Europe and North
America. Instead of carrying out acquisitions, Nestlé increasingly entered into
collaborations with other companies in the form of joint ventures. At the same
time, certain traditional products appeared to be stagnating in these markets.
Nestlé reacted with a policy of adaptation that involved realigning products
with changing consumer requirements – for example by launching ready-to-
drink products (Nescafé in a can) for consumption on the move or freshly
roasted coffee with improved convenience features in a new, long-life format
(the Nespresso system) – and by strengthening sectors that offered better op-
portunities for growth (e.g. frozen products, breakfast cereals, pet food, iced
coffee/tea, mineral water and ice cream). As there was still room for improve-
ment with regard to profitability in most of these sectors, Nestlé was obliged
to achieve this over the medium term or withdraw from the business. Despite
a certain amount of scepticism, Maucher accepted that the new management
trends, which after years of diversification had turned towards “strategic alli-
ances” and focusing on a single core business, were not far off the mark.27
The 1990s saw conscious expansion in the ice cream, water and pet food sec-
2 The acquisition of Buitoni

in 1988 brought Perugina’s Baci
chocolates with it.
3 KitKat is one of bestsell-

ing products formerly manufac-
tured by Rowntree, which Nestlé
85 acquired in 1988.
tors – all areas in which Nestlé had previously only been active to a limited ex-
tent because they had only joined the Group as part of the “dowry” that had
accompanied certain acquisitions (pet food with the acquisition of Carnation,
1985), were based on a minority shareholding (30 per cent stake in Vittel, 1969)
or never really got off the ground (ice cream) because the market leader Uni-
lever was too dominant. At the same time, however, Nestlé parted with hotels
and restaurants, sold off its wine and canned goods businesses and reduced
its range of frozen products in Europe. Although Nestlé spent around CHF 40
billion on acquisitions and participations during Maucher’s time as CEO and/
or active Chairman (1981–2000), it also sold off parts of the business worth a
total of CHF 9 billion during the same period.28 Nestlé ultimately moved on
1 from the concept of “product management” to the broader one of “brand man-
agement” and redefined the role of its brands (cf. “Brand policy”, p. 131).
Once the important markets in the US, UK, France and Italy had been re-
structured and consolidated following the acquisitions carried out there,
Maucher was able to concentrate on the new enlarged economic blocs (the
EU, NAFTA, ASEAN and Mercosur) that were to become an important factor
in his long-term strategy. On the whole, he expected these developments to
have a positive impact on the purchasing power of the population29. Although
this optimism was severely tested by the recession of 1993/94 in Europe and
the financial crises of 1997/98 in Asia and 1998 in Russia and Brazil, it was not
fundamentally called into question. While other companies reduced their hold-
ings in Russia, Nestlé continued to build up its position during this period by
means of acquisitions.
The emergence of new economic blocs prompted those responsible at
2 Nestlé to embark on further restructuring of production facilities. In order to
leverage the benefits of large-scale production to the full, factories became in-
creasingly specialised, their numbers were reduced and some of them were
relocated to new sales markets. In line with the two-pronged strategy in emerg-
ing markets and industrialised countries mentioned above, Nestlé carried out
its investments with a view to meeting the needs of the individual regions. The
investments aimed at expansion represented a considerable proportion of to-
tal investments in the Zones “Asia-Oceania-Africa” (AOA) and “Americas”
(AMS) in particular (at Nestlé, a Zone is a collection of several markets grouped
according to geographical criteria into an organisational unit). In Zone “Eu-
rope” (EUR), on the other hand, the majority of investments were replacement
investments. Naturally this does not mean that plant and equipment were ex-
changed like for like, but each time they were replaced with new technologies
that increased productivity.
With a view to exploiting the new growth potential from both an organ-
isational and a qualitative perspective, the aim was to adapt the organisational
structure in order to bring administrative and research work closer to day-to-
day operations, speed up the decision-making and implementation process
and develop the larger economic blocs in a more efficient manner (cf. Chapter
6, “Organisational change”). To this end, Nestlé created various Strategic Busi-
1 The first Popularly Posi- ness Units (SBUs) aimed at promoting integrated thinking. In addition, the
tioned Products (PPP) were de-
veloped in Latin America. The
thinking behind PPPs is to give
consumers in emerging coun-
tries access to reasonably priced
quality products.
2 Nescafé in cans sees sol-

uble coffee move out of the
home environment. 86
number of Zones was reduced from five to three, administrative procedures

were simplified further, horizontal collaboration was intensified and the number
of hierarchical levels was reduced. The role of the Centre was reviewed, and
focussed on strategic tasks. Sub-regions were formed within the Zones, mean-
ing that some smaller markets no longer reported directly to headquarters but
to a larger neighbouring market with which they shared various services. At
the same time, the Group’s IT system was modernised. Strategies relating to
products and individual regions and markets will be discussed later in sepa-
rate chapters (cf. Chap. 4 and 5).
This has been a brief summary of some of the key features of the strat-
egies pursued and measures implemented by Nestlé during Helmut Mauch-
er’s reign. When he stepped down as CEO in early summer 1997 in order to
focus on his role as Chairman, he had every reason to be proud of his 16 years
as CEO of Nestlé. Sales had risen from CHF 27.7 billion in 1981 to 60.5 billion
in 1996, and they increased further still to 81.4 billion by the end of his time
as Chairman in 2000. By 1996, net profit had increased from almost CHF 1 bil-
lion to 3.6 billion, and ultimately rose to 5.8 billion by 2000. Thanks to this im-
pressive achievement, the company’s market capitalisation rose from CHF 5.2
billion in 1981 to 57 billion in 1996 and 147 billion by 2000. The business world
was full of respect for Maucher and the way in which he had taken Nestlé into
new dimensions. Nestlé had been likened to a “sleeping elephant”, which
Maucher had awoken from its slumber and transformed into a dynamic and
highly regarded food and beverage company.31
Investments, 1986–1996
excluding pharmaceuticals and water 30
In CHF millions
Zone EUR Zone AMS Zone AOA
1986 1996 1986 1996 1986 1996
Replacement investment 393 814 322 413 90 272
Investment in expansion 86 96 257 282 88 202
Investment in new products 26 137 36 100 73 177
87
Background and strategic considerations of Peter Brabeck
Taking over from such a successful manager who continued to perform the
role of Chairman must have been a huge challenge. It was precisely the ele-
ment of continuity, which had been repeatedly mentioned and was also rein-
forced in the pair’s joint appearances after the announcement of Brabeck’s ap-
pointment, that made it not easy for Peter Brabeck to develop his own profile
vis-à-vis the outside world. Interested observers and employees were there-
fore keen to see which strategies Brabeck would hold on to, where he would
place different emphases or strike out in a new direction.
Blueprint 1997 – Four-pillar strategy – Nutrition Division

Peter Brabeck’s first major appearance as CEO came in the week after his
appointment. Speaking before the Market Heads responsible for the various
national subsidiaries gathered in Vevey in June 1997, he set out his agenda in
his first “Blueprint for the future”.
Having closely examined all possible options with regard to Nestlé’s fu-
ture development, he said, he had decided to leave the grand visions behind
him and concentrate pragmatically on Nestlé’s strengths. As the world’s lead-
ing food manufacturer, he continued, Nestlé was in a better position than any
of its major competitors to exploit future opportunities. He believed that the
way forward was to concentrate on the many existing ideas and plans that still
had to be adjusted, strengthened or updated in order to maintain their rele-
vance in a changing external environment.32 In this phase, Brabeck focussed
primarily on the battle against complacency, the greatest enemy of success.
He made it clear that for him there was no such thing as a saturated market,
only saturated managers, and warned against closing factories all too readily:
“Closing a factory is a very painful exercise – painful, of course, to the people
involved, painful also in financial terms. You spend money to destroy value.
But, most painful of all is the evidence that we were not able to handle a busi-
ness at least as successfully as some others, or that we were incapable of ad-
justing processes and products in such a way as to attract consumers at rea-
sonable prices. I am not saying that we do not have to restructure and adapt
our structures continuously. Sometimes however, I get the feeling that we give
in too lightly – especially when far away from the markets and the factories –
to the easier solution of closing rather than making the hard choice of creat-
ing new products that could keep these assets running profitably for longer.”33
At the same time, he posed to the managers a series of critical questions whose
answers hinted at the focal points of his future programme as CEO. For exam-
ple: Is an aggressive external growth policy compatible with successful inter-
nal growth? He provided the answer by clearly placing the focus back on in-
ternal growth, which was to become a key element of his strategy. The area
of nutrition was identified as having good internal growth potential. This in-
cludes all products that offer additional nutritional benefits that have been
identified by research in the areas of infant food and clinical and performance
88
nutrition. Factors indicating additional business opportunities in this area

included growing consumer awareness of the impact of nutrition on health,
wellbeing and performance, the ageing population in industrialised countries,
the baby boom resulting from increased purchasing power in the emerging
markets, and rising healthcare costs. With the aim of exploiting these oppor-
tunities more efficiently, Brabeck created a separate Nutrition Strategic Busi-
ness Division that reported directly to him. As a result of this move, Nestlé’s
oldest business area – namely infant nutrition – which had also been promoted
under Maucher with its own Nestlé Nutrition research programmes34 gained 1
new strategic significance, together with the new areas of clinical and per-
formance nutrition.
Other questions revolved around quality and efficiency (“We’re the big-
gest, but are we also the best?”), communication with consumers and the
availability of Nestlé’s products. Under the motto “If we can be competitive in
Europe we can be competitive anywhere”, there was a certain amount of re- 2
focusing on Nestlé’s competitiveness in mature markets. In the background is
also the fact that, due to currency fluctuations and inflation, sales growth in
the emerging markets does not necessarily lead to earnings growth in Swiss
francs. In order to secure sustainable, global competitiveness, Brabeck there-
fore launched a four-pillar strategy whose elements were not new as such but
had been given a new focus. The aim was to:
1. implement low costs and efficient operations in both production and

administration;
2. drive forward the development of new products and the improvement of

existing ones (innovation and renovation) that perform well in the 60/40+ com-
parison with regard to both taste and nutritional value;
3. increase the availability of products, which must be fresh and available

to consumers whenever, wherever and however they want them;
4. improve communication with consumers in order to reinforce the emo-

tional and functional benefits of the brands.
Numerous different measures and projects were implemented over the follow-
ing few years with the aim of achieving targeted improvements in these
areas.
The Nestlé model

As in Maucher’s time, however, the core recurring question was how consumer
confidence can be won over and over again, day in and day out. Brabeck there-
fore identified this maxim as one of the two overarching objectives for his stra-
tegic focus. Consumer confidence in the food industry is based primarily on 1 Peter Brabeck-Letmathe
safe, high-quality products. Consumer sensitivity has increased in view of cri- took over from Helmut
O. Maucher as CEO of Nestlé
at the Ordinary General Meeting
of Shareholders in 1997.
Maucher remains Chairman
of the Board of Directors.
2 Nestlé Nutrition, originally

a business division, became an
autonomous global organisation
89 at the end of 2005.
ses such as those surrounding BSE, CJD and bird flu, while tolerance has
1 declined despite – or perhaps because of – increasingly accurate analysis meth-
ods and ever-stricter regulation. For sales of CHF 95 billion to be generated,
over a billion free choices in favour of Nestlé’s products must be made every
day.35 The wellbeing of the company and – depending on their degree of
involvement – its stakeholders depends on the success of this undertaking.
2 As the second objective, Brabeck wanted to ensure that through its ac-
tivities Nestlé remained an attractive investment proposition for long-term in-
vestors, while not forgetting the ongoing improvement of short-term results.36
This objective became significantly more important after 1997.
Investors pay for growth.37 This is why the question of where and how
Nestlé could and should achieve its growth became increasingly important.
Should it aim primarily for volume growth by, for example, selling more tradi-
tional products such as Maggi cubes in emerging markets, or should it pro-
mote super-premium products such as Nespresso primarily in industrialised
countries with the aim of creating more value growth?
In the second half of the 1990s, various competitors selected a strategy
of consolidation in the light of the discussion about increasing shareholder
value, attempting to maximise their profits in this way. Some streamlined their
product portfolio and concentrated on the most profitable areas, succeeding
in quickly driving up their profit margins but not achieving any real growth. Or
else they restricted themselves geographically to a particular area, or even
combined both these strategies. Hershey, for example, concentrated firmly on
the US and ultimately on the chocolate industry by selling its pasta business
in 1998. Danone on the other hand opted for a strong internationalisation strat-
3 egy, but kept only three of its original nine areas: fresh dairy products, bever-
ages (water) and biscuits. It sold, among other things, its pasta, grocery and
culinary products divisions. Unilever, for its part, sold off its specialty chemi-
cals business for around USD 8 billion in 1997, while Philip Morris, via its Kraft
subsidiary, confined itself increasingly to the three areas of coffee, chocolate
and confectionery, and cheese and milk products.38 Other companies stream-
lined and trimmed down so much in the name of margin growth that they ul-
timately became takeover candidates. A prime example is Ralston Purina, which
took the concept of profit maximisation so far and spun off or sold so many of
its constituent parts (food, ski resorts, battery manufacture, etc.) that the pet
food business was ultimately presented “like a filet mignon” on a plate and
Nestlé was able to acquire it in 2001.39
Instead of streamlining and consolidating to the nth degree – although
some areas were sold off – Nestlé continued to invest in its product portfolio
and, during the 1990s, expanded the three relatively new business areas of
water, pet food and ice cream mentioned above.
The implications of this strategy are reflected in the sales and EBITDA
figures of the individual companies. (cf. p. 91, 93)
In a long-term comparison from 1994 to 2004, Nestlé’s sales rose by an
average of 5.3 per cent per annum. During this time, this trend was only out-
1–3 The acquisition of performed by General Mills, which acquired Pillsbury in 2000. This is all the
Ralston Purina in 2001 is the
largest ever concluded by Nestlé.
The agreement was signed by
Rainer E. Gut, Chairman of
Nestlé, and Patrick McGinnis,
CEO of Ralston Purina, in
St. Louis on 16 January 2001 in
the presence of William P. Stiritz,
Chairman of Ralston Purina,
and Peter Brabeck-Letmathe,
CEO of Nestlé. 90
more noteworthy given that Nestlé’s sales were diminished by an average of

almost 3 per cent annually due to exchange-rate influences.
This, however, was only a part of what Brabeck would later dub the
“Nestlé Model” but had called for earlier in his objectives.40 In addition to in-
ternal growth of 4 per cent (to be replaced later by organic growth of 5–6 per
cent) the company also had to work towards the ongoing improvement of its
EBITA margin. This combination (top-line growth and EBITA margin), it was
said, would lead to the acceleration of EBITA growth in monetary terms, be it
in Swiss francs or in US dollars.
Some of Nestlé’s main competitors saw higher EBITDA margins over a
certain period, among them those that had gone for much more radical cost-
cutting. In monetary terms, however, Nestlé’s EBITDA growth remained un-
surpassed.41
Transformation: “Wellness” and the GLOBE project

In October 1998, Brabeck opened his speech to the Market Heads with the
words: “On the brink of a new millennium and in spite of the latest financial
turmoil, a new economy is being created, driven by technology and powered
by ingenuity. Globalisation, although still controversial, is no longer a choice,
it is a fact. The choice we have is: how to shape the powerful forces released
by this new opportunity…”.42 At the core of this new global economy – which
was based strongly on ideas whose powers of persuasion drove share prices
ever higher but for some companies disappeared in a puff of smoke just a few
years later – Brabeck saw the impact on the majority of the world’s popula-
tion, including the influence on eating habits and the change in consumer per-
ceptions in the context of food safety, health and ethical and environmental
concerns. To conclude his speech, he repeated what he saw as the central is-
sue: “the new economy is no longer a choice, it is a fact”. He now saw him-
self faced with the question of how to prepare Nestlé for this new economy at
Sales Evolution, 1994–2004 Average Yearly Sales Growth,

In USD billions 1994–2004
In %
70 94–99 99–04 94-04
60
Nestlé 3.4 7.2 5.3
50
Unilever –0.3 3.6 1.6
40 Kraft na 6.5 na
30 PepsiCo 2.5 7.5 5.0
Coca Cola 2.8 5.5 4.2
20
Sara Lee 2.1 2.5 2.3
10
Danone 0.3 3.9 2.1
0 General Mills –1.9 18.0 7.6
94 95 96 97 98 99 00 01 02 03 04
91
a time when investors were expecting ever higher returns but the food market
as a whole was seeing only low rates of growth (one study quoted mentioned
2.5 per cent a year until 201043) and there was strong competition focussing
1 increasingly on a small number of profitable areas.
Brabeck became convinced that, in view of this situation, his company
would also have to undergo a comprehensive transformation: “The increas-
ingly transient nature of things at all levels of our business is creating greater
uncertainty and ambiguity. Our past business models and our wealth of expe-
rience have less significance. We need new and innovative thinking to succeed
in the changing business environment.”44 Or, to put it another way: “1999 was
not only the last year of the millennium, but one of the last years where the
old business practices will suffice.”45
Against this backdrop, Brabeck evaluated new adaptation options for the
company, which ultimately led to transformations on two levels: one on the
strategic and another on the operational level. The strategic transformation
saw Nestlé move away from being primarily a processor of agricultural com-
modities towards becoming a producer of food with added benefits and ulti-
2 mately a provider of a wide range of products and services in the areas of
nutrition, health and wellness. The operational transformation, on the other
hand, consisted of the creation of smaller operational business units with au-
tonomous responsibility for profit and loss, which are able to react more flex-
ibly and are tailored more specifically to the needs of their respective areas of
business.
His original intentions, however, went further than that. In an essay enti-
tled “The Wellness Company” and written when Rainer E. Gut took over as
Chairman in 2000, Brabeck presented his strategic ideas on the subject of well-
ness to the Board of Directors.46 In this essay, he expressed his conviction that
after years of restructuring and searching for cost reduction and improvements
in operational efficiency, most food and beverage companies were now at the
point where the only growth they were able to achieve was top-line growth.
3
Impact of Exchange Rates, 1990–2005

In %
–9.0 –5.0 –0.5 –1.2 –6.9 –9.8 1.4 8.1 –5.6 –0.6 5.0 –4.7 –8.0 –7.6 –3.5 1.8
10
4 7.5
5
2.5
0
–2.5
–5
–7.5
–10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
1–4 Nestlé is active in the
food, health and wellness sec-
tors. Business operations also
include cosmetics products
(minority interest in L’Oréal),
health products (Clinutren’s
health nutrition), sweet foods
(Häagen-Dazs ice cream) and,
since 2005, diet products with
the Australian Jenny Craig diet
concept and foods. 92
P. Brabeck on Strategic Transformation, 2005
Looking back over the last few years, what has been your transforming a 140-year-old food company into a nutrition
greatest challenge? and life-science firm based on research and development.
Brabeck: “During my time as CEO I had to spend the We want to take an ensemble that has been used to play-
first few years focussing on improving performance. I being in a rather romantic style and build an orchestra that
lieved that our company had even more potential than we feels equally at home with twelve-tone music and more
had exploited in the past, and we speeded things up a lit- modern compositions. That is what you call strategic trans-
tle and improved results. Over the last two or three years formation.” 53
we have changed the strategy: We are in the process of
However, in view of price pressure and the increasing significance of private

labels, he wrote, in many areas this was difficult. At the same time, he contin-
ued, the area of personal care was growing, as was the area of health products,
and at an even faster rate. In his essay he set out his vision of a wellness com-
pany that would bring together food, cosmetics and pharmaceuticals under one
roof. This transformation, however, was viewed by the Board of Directors and
the investment banks as being too radical. The strategy took as its premise a
majority stake in L’Oréal and acquisitions in the pharmaceutical industry, with
the pharmaceutical component having a completely different risk profile to the
other areas.47 He therefore amended his plan with a view to a more moderate
adaptation of the company without the pharmaceutical component.
Two main elements underpin the focus on nutrition, health and wellness.
Firstly Nestlé Nutrition, which was created in 1997 and has been operating au-
tonomously since 2006, responding to the demand for an improved quality of
life by providing scientifically developed products and services for people with
special nutritional needs at all stages of their life. This concept includes per-
sonalised nutrition for overweight people (the Jenny Craig brand), diabetics,
the young and the old, sportsmen and women (PowerBar), etc. The second el-
ement is the “B-Wellness” initiative that anchors the aspects of nutrition, health
and wellness in Nestlé’s traditional business areas and ensures that products
not only taste good but also offer added nutritional benefits.48
In addition, a venture fund worth CHF 200 million was set up in 2001
with the aim of supporting start-ups in the area of wellness, and in 2005 the
EBITDA Evolution, 1994–200441 Average Yearly EBITDA Growth,

In USD billions 1994–2004
In %
12 94–99 99–04 94–04
10
Nestlé 3.0 9.3 6.1
8 Unilever 4.3 8.6 6.4
Kraft na 4.0 na
6
Pepsico –0.8 11.2 5.0
4 Coca Cola 3.4 6.7 5.0
Sara Lee 3.5 3.4 3.5
2
Danone 3.8 3.2 3.5
0 General Mills 4.7 15.0 9.7
94 95 96 97 98 99 00 01 02 03 04
93
Nestlé Growth Fund was established with EUR 500 million to promote prom-
ising businesses in the field of science and nutrition. Both funds are intended
to aid Nestlé’s expansion in the areas of nutrition, health and wellness.
All these initiatives show that Brabeck and the Board of Directors see the
health and wellness aspects as long-term trends and not just passing fads. It
is also worth pointing out that Nestlé had already begun addressing these is-
sues back in 1989, as underlined in a strategy paper stating that Nestlé wanted
to respond to specific nutritional needs and focus on the “grey area”, as it was
known internally, between food and pharmaceutical products and offer “health
food”.49 The more systematic and broad-based transformation from a food
company to one of nutrition, health and wellness being pursued under Brabeck
is now also communicated to the general public. However, Nestlé is by no
means alone in this strategic reorientation process, with the terms “health”,
“nutrition” and “wellness” being at the top of the lists of many industry play-
ers. Unilever, Kraft Foods, Danone, PepsiCo, Mars, Wrigley – they are all offer-
ing products based on this formula.50 This is not at all surprising, given that it
revolves around one of the most rapidly growing product categories.
The story is different in the context of operational transformation, how-
ever. In contrast to some of its competitors, Nestlé did not follow the model
of consolidation with the aim of increasing efficiency and margins, which ul-
timately stymies any further growth. Instead, Nestlé’s concept was: “complex-
ity can be combined with efficiency”.51 With this in mind, in 2000 Brabeck also
launched the highly ambitious and unprecedented GLOBE project, which is
dealt with in detail in a separate chapter (cf. chapter, “GLOBE”).
Good strategic decisions are not the only factor in securing successful
results – equally important is the way in which these decisions are implemented
in practice. A study investigating the growth potential of European food man-
ufacturers, taking into account the product categories in which each company
is active, concluded that Nestlé, in the period 2000 to 2005, outperformed the
average category growth by +0.4 per cent with regard to “execution” (includ-
ing management qualities, brand strength, competitive environment, innova-
tions, etc.), compared with Danone at +0.1 per cent and the underperformers
Cadbury at –0.7 per cent and Unilever at –1.4 per cent. The main determinants
of absolute sales growth, however, are the individual product categories in
which a company is active. The food areas in which Danone is active saw av-
erage growth of 6.5 per cent in 2000–2005, Nestlé’s 5 per cent, Cadbury’s 4.4
per cent and Unilever’s 3.8 per cent. The switch from slow to faster-growing
categories takes many years. Nestlé began back in the 1980s under Maucher,
while Cadbury and Danone set about the task just a few years ago. What is
more, the latter achieved its success thanks more to sell-offs than acquisi-
tions.52
94
96
4. Business Mix and Brand Policy
Changes to the product portfolio
The composition of a food company’s product portfolio has a

considerable impact on its growth, a fact borne out by the
results of the study of European food companies mentioned
above.1 It is unsurprising, therefore, that food producers try
to concentrate on the most lucrative and fastest-growing
product categories. The resulting risk, however, is that when
everyone wants the same thing, there’s not much of the cake
left over. Hence it is highly important to think long and hard
about where a company’s strengths really lie and where it can
hold its own at the top.
97
Under Helmut Maucher, Nestlé aimed to achieve a balance in the distribution

of its activities and thus also its risks.2 Although it is always tempting to con-
centrate a considerable proportion of resources on a specific product (or coun-
try) that is highly successful at a given time, the company strived to reach a
1 balance based on a long-term perspective and risk compensation – among
products in particular. Up to and including the Second World War, Nestlé was
highly dependent on milk products, baby food and chocolate. After the war,
however, falling demand for condensed and powdered milk saw the focus shift
increasingly towards Nescafé. Culinary products from Maggi and Crosse &
Blackwell offered a certain counterbalance, as did the 25 per cent stake in the
cosmetics firm L’Oréal acquired via Gesparal in 1974 and the takeover of Al-
con in 1977.
In particular, Maucher succeeded in reducing Nestlé’s extensive depend-
ence on Nescafé by promoting other areas. Following the acquisitions men-
tioned in the 1980s, this included above all expansion into the areas of water,
ice cream and pet food from the beginning of the 1990s onwards.
For Peter Brabeck, too, it was clear that the business portfolio had to be
continuously adapted. However, it was less about risk compensation, which
2 was already in place for the large part, and more about achieving the ambi-
tious growth target together with constantly improving the EBITA margin. This
meant placing greater emphasis on business areas that promised increased
added value and higher category growth. These targets were set against the
backdrop of a market for processed foods that was growing at a rate of around
just 2.4 per cent. In emerging markets, however, growth rates were much
higher.3 In view of the rapid commoditisation of food products and increasing
competition from private labels, the product mix had to be adapted in line with
these changes. Areas in which Nestlé was able to contribute little value added
were therefore sold. UHT milk is a good example; here a large part of the
product value lies in the packaging, which is provided by a packaging manu-
facturer and whose technology comes from machine suppliers. With this prod-
uct, the brand itself is of relatively little importance. In view of this fact, the
business was sold by Nestlé in 1992.4 The company takes a very different ap-
3 proach, however, to areas in which it can make a considerable value added
contribution and thus create value for its consumers and its shareholders by
means of its research, its special food production know-how, add-on services,
brand management, etc. A prime example is the Nestlé HomeCare service5, a
healthcare service in the area of clinical nutrition that was set up in France at
the end of 2000 and has since been expanded in other countries. In this case,
a Nestlé carer visits patients at home once they have been discharged from
hospital and provides enteral feeding services with Nestlé products.
Against this backdrop, Nestlé has pursued the following product mix ap-
proach under Brabeck:6
1. Renewal of traditional brands and products: The focus has been, and
continues to be, on comprehensively revising brands and products belonging
to traditional business areas on an ongoing basis. These products continue to
1–3 The Nestlé strategy is

to update traditional products,
as with the launch of Nescafé
Cappuccino, to strengthen the
position of well-established
products such as ice cream, and
to launch new varieties, as in the
case of Nespray. 98
account for the majority of sales and profits, and include instant coffee, milk
and other powdered drinks, culinary products, chocolate, etc. Not only indi-
vidual products are being constantly renewed, however, but also entire prod-
uct areas such as Nespresso (cf. section on “Nespresso”, p. 109–113) in the
area of roasted coffee.
2. Expansion of fast-growing segments: The proportion of faster-growing

business areas has been increased considerably. This includes in particular pet
food, water and ice cream, but also areas that focus on catering for those “on
the move”, such as FoodServices and Chef America, Inc. (cf. p. 119), which
also benefit from the trend towards smaller and more frequent meals.
3. Investment in and strengthening of up-and-coming areas and examina-

tion of new business opportunities: Business areas in which Nestlé was able to
contribute little value added with its specific know-how have been sold and
are being replaced with new areas that now need to be expanded and strength-
ened, or are still being examined. Areas to be developed include for example
performance food (PowerBar, acquired in 2000), the medical care and nutri-
tional services mentioned above and the weight management company Jenny
Craig (2006). These are all parts of Nestlé Nutrition that have recently been set
up or acquired.7 Product lines with specific nutritional characteristics (less salt,
fewer calories, etc.) and tailored services are intended to help health-conscious
consumers achieve their individual nutritional targets (e.g. weight-manage-
ment or low-cholesterol diets).
Forays into or the examination of new business opportunities are being
carried out for example with the joint venture Innéov operated together with
L’Oréal or via the venture and growth funds.
The most important implications of this policy for Nestlé’s product port-
folio have been as follows: In terms of total sales, the growth areas of pet food,
water, ice cream and pharmaceutical products increased considerably between
Strategic transformation: the driver of longer term Food & Beverages’

performance improvement
1. Core business Extend & defend Imperatives

(e.g. Soluble coffee) – Defend and extend current business;
– Set foundation for future growth
2. Emerging business Build & strengthen Imperatives

(e.g. Ice cream) – Build new market segments and capabilities;
– Develop future growth drivers
3. Nutrition, Health Create viable Imperatives

and Wellness future options – Drive industry change and paradigm shifts;
(e.g. Healthcare Nutrition) – Explore options outside market boundaries
99
1990 and 2005. The share of pet food in Nestlé’s total sales was around 12 per
cent in 2005 (compared with 4% in 1990), while that of water was 10 per cent
(3%), ice cream 8 per cent (2%) and pharmaceutical products 6.5 per cent
(3%).8 From being a marginal provider at the beginning of the 1990s, Nestlé
has developed into the global leader or co-leader in these three areas. Despite
the strong growth of the areas mentioned and the necessary streamlining of
others, soluble coffee (Nescafe) has maintained its position in the internal port-
folio thanks to constant investment in both the brand and the product. At the
same time, however, shelf-stable milk and culinary products have declined in
significance as a result of various divestments. Soluble coffee has also main-
tained its leading position in terms of the contribution of the various product
categories to Nestlé’s earnings (EBITA, i.e. before interest, taxes and the
amortisation of intangible assets), followed by pharmaceutical products, milk
products and pet food.9
While acquisitions have played a major role in the growth of the areas of
water, pet food and ice cream, the pharmaceutical division has seen above-av-
erage internal growth.
The growth sectors of water, pet food and ice cream
Nestlé and the water business

Up until the end of the 1980s, bottled water was a niche product for Nestlé,
which only accounted for 3% of the total sales. Since 1969, the company had
held a 30 per cent stake in Vittel, the third-largest mineral water brand in France,
which was then the world’s most important market for bottled water. Various
further acquisitions (Deer Park, Montclair, Rietenauer Mineralquellen, Blaue
Quellen, etc.) followed. While the water business was largely owned by local
Nestlé subsidiaries, the Products Department at Vevey had included a co-or-
dination structure for this area since 1973. Despite this, the water business
Proportion of total sales by main product group, 1992/1995/2000/2005

In CHF billions and in %
92* 95 00 05
CHF % CHF % CHF % CHF %
Beverages 13 521 24.8 16 215 28.7 23 044 28.3 23 842 26.2

Milk Products, Nutrition and Ice Cream 14 890 27.3 15 239 27.0 21 974 27.0 23 235 25.5
Prepared dishes, Cooking aids and other products and activities 15 718 28.8** 14 655 25.9** 20 632 25.3** 16 673 18.3
Chocolate, Confectionery and Biscuits 8 598 15.8 8 217 14.6 10 974 13.5 10 794 11.9
PetCare 10 569 11.6
Pharmaceutical Products 1 773 3.3 2 158 3.8 4 798 5.9 5 962 6.5
Total 54 500 56 484 81 422 91 075
* Before 1992 and the

implementation of the SBUs the
product groups were set up
differently
** Including PetCare
100
Launched in 2005, Vittel

Vitalitos is a range of flavoured
mineral waters specially
designed for children, with no
101 sweeteners or preservatives.
was still far from having any strategic significance for Nestlé. Although Nestlé
acquired a 52 per cent majority stake in Vittel in 1988, it sold two sources in
North America, namely Deer Park and Montclair, in 1989.
In 1989, however, this all changed. In November of that year, almost
simultaneously with the fall of the Berlin Wall, the water business was put on
the agenda for the first time at the annual closed meeting of the Executive
Board in Glion, the village above Montreux in which Henri Nestlé had spent
his retirement and donated a source and a well for local water supplies shortly
1 before his death.10 The then head of the water business presented on behalf
of his boss, Camillo Pagano, a forward strategy that defined water as a future
focal point of Nestlé’s business activities. Water sales had been booming world-
wide during the preceding years, and water fitted perfectly into Maucher’s
strategy of focussing more closely on products with added health benefits that
was in the process of being implemented in other areas. Mineral water was
benefiting from three different consumer trends for low-calorie, healthy, alco-
hol-free cold beverages.11 Lively discussions followed, with the supporters and
detractors seeming to balance each other out. The “opposition” focussed
mainly on the argument that mineral water bore little relation to Nestlé’s
existing business activities, because it was not an industrially manufactured
product but rather a natural one. Maucher ultimately decided in favour, and
water was immediately raised to the status of a strategic business.12
Agnelli reaches for Perrier…

At first, however, little happened in this new area, with Nestlé still being too
busy integrating the large-scale acquisitions of the second half of the 1980s
and setting up new joint ventures and alliances13. It took an outside event to
force Nestlé to take a further step towards the water business: On 28 Novem-
ber 1991, the Italian industrialist Giovanni Agnelli, Chairman of Fiat, announced
his plan to submit a friendly takeover bid for the French holding group Exor,
which in addition to the prestigious Château Margaux wine and Roquefort
cheese also owned the Perrier Group in particular with its mineral water of the
same name, as well as the brands Contrex, Vichy and Volvic and a series of US
sources such as Oasis, Zephyrhills, Ozarka, Arrowhead and Poland Spring – all
in all almost 20 water brands, which were sold in 120 countries. With an an-
nual turnover of 8.6 billion French francs (approx. CHF 2.2 billion), the Perrier
Group was the world’s largest provider of bottled water, more than four times
the size of Vittel with its 1.9 billion French francs (CHF 0.5 billion); figures are
from 1990. Agnelli’s bid triggered a takeover battle that was to occupy the
stock market, banks, authorities, courts and media in France and beyond for
months on end and became a European cause celèbre due to the intervention
of the EU Commission. Ultimately Nestlé, with the support of BSN (Danone),
took over ownership of the Perrier Group and proceeded to sell Volvic to BSN
and a series of smaller sources and brands (Vichy, Saint Yorre, Thonon and
Pierval) to the French group Neptune. While Nestlé and BSN were competitors
in the area of chilled milk products, they were also partners, having recently
1 Henri Nestlé began selling

lemonade and mineral water in
1843, along with a whole range
of other products, before going
on to develop the infant formula
that was to make his name. 102
entered into a joint venture in the area of chocolate and biscuits in Czechoslo-
vakia. After divestments and the planned sale of Roquefort, the purchase of
Perrier cost Nestlé around CHF 2.5 billion.14
Nestlé had achieved its goal, but there were some surprises still to come.
Up until the decision was made by the EU Commission on 22 July 1992 in
Brussels, which examined the takeover from a competition perspective and ul-
timately approved it subject to certain conditions, Nestlé was unable to access
Perrier’s files due to EU merger regulations and, as a self-declared opponent
of Nestlé, the head of Perrier had been anything but co-operative. One of the
surprises was that Helmut Maucher was destined to find out via a question 2
from a journalist at the annual press conference in May 1992 that Perrier held
a 20 per cent stake in the Italian mineral water brand San Pellegrino. Until re-
cently, the stake had been as high as 35 per cent, but the head of Perrier had
reduced this stake before the acquisition, to the great displeasure of the future
owner.15 In addition, not until after examining Perrier’s books did Nestlé dis-
cover that two of the sources that it was required by the EU Commission to
sell didn’t even belong to the Group at all: In the case of Thonon and Vichy,
Perrier had only been the licence-holder, not the owner.16
Closer examination of Perrier’s accounts also revealed the deep wounds
suffered as a result of the “benzene crisis”17 of 1990: In 1989, the Perrier source
in Vergèze (Gard) had produced 1.2 billion bottles. While in 1990 the figure still
stood at one billion, in 1991 – the first year after the crisis – it fell to 761 mil-
lion, signalling a decline of 40 per cent in just three years. The forecast for 1992
was around 750 million bottles. In France sales gradually returned to their orig-
inal levels before the crisis, while US customers continued to shun the little
green bottle, which in the 1980s had been a yuppie status symbol. In the eu-
phoria of the moment Perrier had built, for CHF 35 million, a new bottling plant
in Vergèze with a capacity of 1.5 billion bottles, which entered into operation
precisely in 1990 – the very year the crisis struck. The benzene crisis had al-
ready forced the existing Perrier management to draw up plans to reduce the
headcount in Vergèze, but these plans were shelved due to the takeover ne-
gotiations. Nestlé, however, was now obliged to tackle this problem, which
was ultimately to take more than a decade to solve (cf. chapter 10, p. 269).
Looking back, Maucher told the Board of Directors that the acquisition
had been a very good operation despite all the difficulties and surprises, even
if it had cost a little more than planned and would take a little longer to turn in
a profit. While the management in Vergèze had been poor, he said, production
facilities were good.18 Maucher also had little difficulty justifying the acquisi-
tion of Perrier to the outside world, responding as follows to a question from a
Swiss journalist at the beginning of 1993, for example: “Yes, you could say we
bought a pig in a poke, but we still knew more or less what we were in for.”19
Right from the start, Maucher had underlined the strategic importance
of this acquisition, which for him had always been more than just the purchase
of a prestigious brand, namely the entry into a business area in which the fo-
cus was on health, nature and nutrition. His ambitious gaze was fixed beyond
France and Europe, and above all on the US.20 In order to also get across to
2 The naturally sparkling

mineral water Perrier, in its
instantly recognisable little
green bottle, has been on sale
103 since 1903.
those within the organisation his conviction that water suited Nestlé because
of its nutritional elements, Maucher had to be very persuasive indeed: “Half of
the people thought I was mad. In fact, I had just seen things a little earlier than
anyone else. Perrier was the most difficult acquisition I ever made, and it never
would have worked if it hadn’t been for all my contacts.”21 As in his earlier ac-
quisitions, Maucher was again able to rely on his extensive network within the
highest echelons of business and politics, established thanks above all to his
active participation in the European Roundtable of Industrialists (ERT) and the
International Chamber of Commerce (ICC). This network gave him the oppor-
tunity to reach for the phone in sensitive situations or to meet his contacts at
short notice for discreet and informal discussions on “neutral” territory.
1 With the acquisition of Perrier, Nestlé became the world’s largest pro-
vider of bottled water and set up a new business unit, Nestlé Sources Interna-
tional (NSI). This unit was renamed Perrier Vittel in 1996 in order to strengthen
its major international brands. Once Nestlé had acquired a series of further
leading regional brands in North America in particular but also in Eastern
Europe, Asia and South America, it began at the end of the 1990s to acceler-
ate its expansion into the home-and-office delivery (HOD) segment.
For a long time, one major disadvantage of bottled water was the diffi-
culty of transporting it over long distances. This heavy and fragile cargo gen-
erated huge transport costs, which were reflected noticeably in the retail price.
It was for this reason that a collection of numerous small local brands had by
far the greatest market share and only few, like Perrier, succeeded in becom-
ing nationally or internationally known. An initial improvement concerning the
weight and stability of the bottles was made with PVC packaging, which Vit-
tel introduced for the first time in 1968, followed a few years later by PET bot-
tles.22 An important step towards internationalisation, on the other hand, was
made with the concept of the so-called “multi-site brands”, which are not tied
to a specific bottling location but can use water from various sites. This means
that water bottled locally in various countries can be sold under the same brand.
This was also a response to the private-label water distributed nationally or in-
ternationally by the supermarkets. In 1998 in Pakistan, Nestlé launched Nestlé
Pure Life, a brand of filtered and remineralised drinking water that bore the
same characteristics wherever it was bottled. Further markets outside Europe
soon followed: after Brazil came China, Mexico, the Philippines, Thailand and
Argentina, followed in 2001 by the Middle East and ultimately by 2005 by Rus-
sia, Canada and the US. In Europe in 2000, along the same lines, Nestlé
launched the Nestlé Aquarel brand for spring water that was bottled at various
locations. By 2002, due to the way in which the brand strategy had evolved,
Perrier Vittel was renamed Nestlé Waters. In 2005, with sales of CHF 8.8 bil-
lion, Nestlé Waters achieved an estimated global market share of 18 per cent,
and now has over 75 brands and 103 factories in 36 countries, with a total
1 Nestlé acquired a stake headcount of around 30,000.23
in Vittel in 1969 and bought out
the company in 1990. That same
year, traditional glass bottles
gave way to PVC, which in turn
was replaced by PET in the
course of the 1990s.
Nestlé Pure Life, the company’s
very first spring water under its
own name, was launched in
Pakistan in 1998.
Perrier was acquired in 1992,
and is now available in glass
bottles and PET.
S. Pellegrino joined the Nestlé
Group in 1998. 104
Pet food
In 2005, Nestlé’s pet food and pet care division, which had been in existence
for just 20 years, posted sales of CHF 10.6 billion, almost the same amount as
the chocolate and confectionery division that had formed part of Nestlé for over
100 years (CHF 10.8 billion). These two businesses make the largest contribu-
tion to Nestlé’s total sales in terms of value, accounting for 12 per cent each.
When, in the mid-1950s, industrially manufactured food for domestic
cats and dogs was presented at the entrance to a circus tent, for many chil-
dren it was just as unfamiliar and hence as strange as the clowns they were to 2
encounter during the performance.24 Hardly anyone could imagine back then
that these products would ever be distributed on a larger scale. However, there
were companies in both Europe and the US that had been successful in this
segment since the end of the nineteenth century (cf. text boxes about Ralston
Purina and Spillers, p. 125–127).
When, in 1974, Nestlé’s Marketing Director was asked by a young em-
ployee at a presentation whether Nestlé would ever be able to sell products
for animals, the director – astonished that anyone would ask such a question –
responded with a resounding “No!” In 1985, just some 10 years later, the ac-
quisition of Carnation, which was active primarily in the dairy business, saw
the addition of the first pet food products (Friskies) to Nestlé’s portfolio. This
was new territory for the company, and the question arose as to whether this
marginal area should be sold or expanded. Helmut Maucher, and later his suc-
cessor Peter Brabeck, decided in favour of the latter and expanded this new
area in a targeted manner with acquisitions aimed at achieving critical mass:
Dr Ballard (Canada) in 1987, Alpo (USA) in 1994 and Spillers (UK) in 1998. Var-
ious smaller acquisitions also helped to bring the business forward in Europe
and the US.25 Despite all this progress, however, Nestlé was still way behind
the global market leader Mars with its pet food and pet care products. While 3
Mars was also very strong in Europe, Ralston Purina had the greatest market
share in the US. In order to achieve the targeted market leadership, Nestlé had
to continue to rely on acquisitions.
At the end of November 2000, Brabeck got together with a representa-
tive of the family that owned Ralston Purina for a private meeting in an apart-
ment, with a view to discussing the potential takeover of Purina by Nestlé. By
now, Ralston was concentrating exclusively on pet food after having parted
with its food division, ski resorts, battery manufacturer and other areas, and
as such had become an attractive takeover candidate. Shortly before Christ-
mas there was another meeting, this time also attended on Purina’s side by
Ralston Purina’s Chairman and CEO Pat McGinnis, as well as on Nestlé’s side
by the acquisitions manager. Price negotiations were also held at this meet-
ing, but for Brabeck the figure was too high. When Brabeck signalled that he
was about to walk away without any agreement having been reached, Pat
McGinnis offered to continue managing the company for a limited period in
order to achieve the targets that had been set. For Brabeck this was the decid-
ing factor that ultimately motivated him to carry out the biggest acquisition in
Nestlé’s history. In mid-January 2001, the two companies publicly announced
2 Friskies dry dog food from

Carnation has been sold in the
US since 1934.
3 Pro Plan dog food from

Purina has been developed to
105 help keep animals fit and healthy.
Criteria for acquisitions by Nestlé
The role of acquisitions is particularly clear with regard to 2. focus on growth categories that generated added
the growth of the ice cream category, and as a result cri- value
teria have been developed within the company to serve as 3. create value for shareholders
a guideline. 4. own strong brands in leading positions
5. promote sales growth, cash flow and earnings
A potential acquisition candidate should growth
1. help the company to achieve the number one or a 6. demonstrate high potential for successful integra-
strong number two position in a given category tion.
the transaction. For USD 10.3 billion (around CHF 17 billion), Nestlé acquired
the leading manufacturer of pet food in the US and world-leading manufac-
turer of dry food for domestic cats and dogs. This range represented a more
or less perfect complement to that of Friskies, Nestlé’s pet food division, whose
strength lay in wet food. What is more, this all came about at a time when the
trend among premium products was heading more in the direction of dry
food.
This acquisition put Nestlé more or less on a par with the market leader
Mars (Pedigree, Whiskas, Royal Canin, etc.), with each occupying a market
share of around a quarter. Both were thus ahead of private-label brands and
other global providers such as Procter & Gamble (Iams) and Colgate-Palmolive
(Hills). The new organisation was given the name Nestlé Purina Pet Care (NPPC)
and was headquartered in St. Louis, Missouri. Patrick McGinnis, Chairman and
CEO of Ralston Purina, took on these functions at the new NPPC. The follow-
ing year, new NPPC units were set up in the Zones Europe (UK), AOA (Aus-
tralia) and AMS (Venezuela) zones and, at the beginning of 2003, the corre-
sponding SBU was relocated from Vevey to St. Louis, where R&D management
was also based. In mid-2004, the two NPPC units for North and South Amer-
ica were brought together in St. Louis.
Following the takeover of Purina, its brands also increased considerably
in importance in Europe and enabled costs to be cut, with nine factories in
Europe alone being closed between 2002 and 2005.26
Ice cream
In the ice cream segment, Nestlé was in a comparable position at the begin-
ning of the 1990s as in pet food and water. The company was not strong enough
to successfully take on the world number one, Unilever. In 1990, Nestlé sold
around 212,000 tonnes of ice cream for a total of CHF 756 million, roughly
equivalent to its sales of water or cold sauces.27 As the market leader in ice
cream, Unilever posted sales of around CHF 3.5 billion (GBP 1.4 billion) with
a market share of 14 per cent, compared with Nestlé’s 3 per cent.28 Up until
1991, Nestlé owned only a few smaller companies that it had acquired as far
back as the beginning of the 1960s and whose presence was limited to Europe
and South America.
In 1991, Nestlé under Maucher embarked on a deliberate acquisition
strategy aimed at a series of medium-sized acquisitions.29 The acquisitions be-
gan in 1991 in the US with Alco Drumstick and extended across all continents.
By 1997, Nestlé’s market presence had increased from 10 to 40 markets, with
106
sales having multiplied by a factor of 3.5.30 These markets included countries

such as Italy (Italgel), China (Dairy Farm, Guangzhou Refrigerated Foods, fac-
tories in Tiandjin, Djindao, etc.) and Australia (parts of Pacific Dunlop). Between
1998 and 2000 followed a phase that saw the consolidation of the acquired
companies, followed by a limited number of selected larger acquisitions from
2000 onwards. Market share (in terms of value) to start off with was as fol-
lows: Unilever remained the clear market leader with 17 per cent, followed by
Nestlé in second place with 9 per cent and Dreyer’s (USA), Schöller (Germany)
and Häagen-Dazs (USA) with around 2 per cent each.31
In order to catch up with Unilever, Nestlé was aiming for acquisitions in
both Europe and the US, announcing in summer 2001 that it was in negotia-
tions with Südzucker for the acquisition of Schöller in Germany. In the autumn, 1
the acquisition was announced subject to the approval of the relevant author-
ities, which was duly granted in 2002. In the same period, Nestlé also acquired
the Häagen-Dazs brand in Canada and the US via the complete takeover of Ice
Cream Partners USA, the joint venture that had been set up two years earlier
by Nestlé and Pillsbury/Diageo and which comprised Nestlé’s ice cream busi-
ness in the US and Häagen-Dazs. In December 2001, Nestlé acquired the 50
per cent stake from Pillsbury and created the Nestlé Ice Cream Company LLC
(Häagen-Dazs, Drumstick, Nestlé Crunch, Butterfinger).
In June 2003, Nestlé took the last step in the ascent to the top of the
world’s largest ice cream market, merging its US ice cream business with that
of Dreyer’s Grand Ice Cream Inc., the acquisition of which it had announced a
year previously. However, the wait for approval from the Federal Trade Com-
mission in the US delayed the completion of the deal by a year.32 This marked
the final realisation of an acquisition proposed by the local management over 2
ten years earlier with the aim of establishing a strong position in the US. Drey-
er’s had resisted the takeover and offered only a minority stake, which Nestlé
acquired in 1994 (17.2%). Following Dreyer CEO T. Gary Rogers’ visit to Nestlé’s
research centre in Beauvais, he adopted the “slow-churned” process (see chap-
ter “Research & Development”) and developed it further. This improvement in
relations was only temporary, however, and in 1999 Nestlé set up a joint ven-
ture with Pillsbury/Diageo, intensifying the competition once more. In 2001,
Nestlé acquired a further stake in Dreyer’s, with both parties ultimately agree-
ing on the arrangements for a transition, in the form of a reverse acquisition,
in 2002: Dreyer’s purchased Nestlé’s ice cream business, continued to be listed
on the Nasdaq and paid with its own shares, meaning that Nestlé then held a
majority stake (67%). Following a transition period lasting until 2006, Nestlé
will ultimately own Dreyer’s outright.
The purchase of Dreyer’s gave Nestlé a leading share in the world’s most
important market. By 2005, this status was also achieved on a global basis.
Within the space of just fifteen years, Nestlé worked its way to the top in terms
of sales and is now in the process of improving its profitability.
1–2 Ice cream production at

107 the factory in Shanghai in 2002.
Divestments
Between 1990 and 2005, Nestlé spent almost CHF 49 billion on acquisitions
and participations. In the same period the company divested business areas
worth over CHF 12 billion, almost exactly a quarter of spending on acquisi-
tions.33 Divestments carried out in 2002 brought in by far the most, with the
partial IPO (around 25%) of Alcon and the sale of the wholly owned subsidiary
Food Ingredients Specialities S.A. (FIS) to the perfume and aroma manufac-
turer Givaudan. With increasing numbers of orders coming in from third par-
ties, FIS needed greater independence in order to be able to grow and was
therefore sold to Givaudan. In return, Nestlé acquired an equity interest of some
1 10 per cent in Givaudan. Within the space of 30 years, FIS had established an
excellent profile in savoury flavours for soups, sauces and readymade meals.
This transaction also saw a change of owner for the former Maggi factory in
Kemptthal.
In many cases, the deciding factor in divestments was not so much the
profitability of the area in question, but the issue of whether it formed part of
the company’s core business and whether Nestlé had the core competencies
to manage it. Brabeck commented in an interview: “We look at every area of
the business and ask ourselves how much growth potential it still possesses.
We look at the value it creates for shareholders, and ask ourselves ‘If the area
was an independent company, what would we do with it?’ Recently [in 1995]
2 we decided that our investment in the wine business was not of a strategic
nature. Although the financial return was good, we did not have the core com-
petence. For us, core competence means knowing more about particular ar-
eas of a business than anyone else in the world. We make our decisions by
comparing ourselves with the market leader. In order to be a major market
player in the pet food business – even as number 2 after Mars – we needed
core competence.”34
Divestments were carried out throughout the entire period, from 1996 in
particular. Larger-scale divestments included Stouffer hotels and restaurants,
Wine World Estates (Beringer), parts of Herta (fresh meat), Contadina and Lib-
by’s (canned food), roasted coffee in the US, Laura Secord (confectionery) in
Canada and Findus frozen products in Europe and frozen potato products in
the US.
Nestlé also, however, parted with activities such as milk and cocoa
processing in Italy and Malaysia, outsourced services and sold fixed infrastruc-
ture such as factories and distribution centres. Between 1997 and 2004 alone,
220 factories were closed or sold.35
1 On 9 September 2004,
Rainer E. Gut, Chairman of the
Board of Nestlé S.A., opened the
new Nescafé production line in
Orbe (Switzerland) in the pres-
ence of Mrs Jacqueline Maurer-
Mayor (left), State Councillor for
the Canton of Vaud, and Swiss
President Joseph Deiss (middle).
2 The Orbe site is home to

a Product Technology Centre,
a Nescafé factory and the only
Nespresso Production Centre.
As such, Orbe is the Group
competence centre for coffee. 108
Nespresso: from black sheep to model student
There was only one kind of coffee at Nestlé until the 1980s: Nescafé. Only then
did Vevey turn its attention to coffee in its “original form”, i.e. roast and ground
(R&G) coffee. There were several reasons for this: against a background of
stagnating Nescafé sales in the US, it seemed wise to minimise Nestlé’s de-
pendence on a bestseller that had generated half of consolidated profit in 1980
and still as much as one-third in 1988.36 As electric coffee machines became
increasingly popular, European households were also tending to move away 3
from soluble coffe and back to roast and ground coffee.
Furthermore, the move into this area of business coincided with the pre-
vailing trend towards diversification. Thus Maucher approved the acquisition
of a number of roast and ground coffee companies in the mid-1980s, includ-
ing Hills Brothers and M.J.B. in the US, plus a stake in Dallmayr in Germany.
However, he regarded these acquisitions and investments as a limited opera-
tion which was not by any means intended to impinge on the importance of
Nescafé.37 He believed that the company should be strong in other coffee ar-
eas besides soluble, but by the end of his time as CEO he had come to the
view that roast and ground coffee was not a Nestlé business.38 In contrast to
the Nespresso system, Nestlé had too little added value to contribute. The ma-
jority of the corresponding areas were sold in 1999.
Whilst reflecting on roast and ground coffee, someone at Vevey recalled
that back in 1974 Nestlé had acquired a previously unknown technology from 4
the Battelle Institute in Geneva, that of filling roast and ground coffee into her-
metically sealed capsules designed to ensure perfect preservation of the cof-
fee’s many hundreds of aromas until the moment of consumption. Specially
developed espresso machines then perforated the capsules, sending steam
and water through the coffee blend and a special filter on the bottom of the
capsule – all at just the right time, pressure and temperature – to create an es-
presso coffee of consistently high quality.39 Nestlé researchers at the Central
Laboratory in La Tour-de-Peilz had been working on perfecting this technology,
which was closely related to the aseptic packaging developed by Nestlé.40 But
in 1978, the then CEO, Arthur Fürer, ordered them to stop working on this
project, fearing that the new product, which had not yet been named, might
one day represent a competitive threat to Nescafé. Ironically enough, Nescafé
had almost suffered the same fate itself just over forty years earlier. One of the
espresso researchers, Eric Favre, decided to develop the capsules and related
machines on a private basis. He was able to interest Rudolf Tschan, the then
Market Head of Japan, in a consumer test which went ahead successfully in
1984. Tschan was transferred to Vevey as Head of Zone Asia & Oceania soon
afterwards, where he tried to gain support for the concept, which had been
dubbed Nespresso during his time in Japan. He found an ally on the Executive
Board in the person of Camillo Pagano, Head of the Products Department, who
was convinced of the potential of the Nespresso concept. Helmut Maucher
was sceptical at first, in spite of his diversification strategy in the direction of
roast and ground coffee, but agreed in 1986 to give the idea a go. This was the
3–4 Nespresso capsules have

evolved over time. Today, the
range comprises 12 varieties of
coffee, including two decaffein-
ated and three Lungo coffees,
specially designed to be enjoyed
in a large cup, along with two
109 limited editions each year.
green light for the birth of Nestlé Nespresso S.A., a wholly owned subsidiary
of Nestlé S.A., headed up by Eric Favre and staffed by an initial workforce of
just five. It was deliberately set up as a separate legal entity to create a certain
distance between it and the parent company. This separation became visible
to the outside world when the new company moved into its own headquarters
in Pully, near Lausanne, three years later.
Maucher knew instinctively that Nespresso was a revolutionary concept,
but viewed it as a niche product which at least had the virtue of enhancing
Nestlé’s image among a young, sophisticated public.41 It also fitted in well with
the popular Italian lifestyle trend which Nestlé had tuned in to at that time
through the acquisition of Buitoni. Maucher still, however, maintained a cer-
tain personal distance with regard to the new product. He remained true to
Nescafé, and ensured that this was the only coffee served to his guests in the
Executive Restaurant.42 Yet he kept a protective hand over the new business
throughout his time in office. When Pagano retired at the end of 1991, he asked
Rupert Gasser, one of Nestlé’s top coffee specialists, to step in as “godfather”
1 to the new baby. Maucher gave him full and sole responsibility, and allowed
him a largely free rein. Gasser remained in this role until his retirement in 2002,
managing Nespresso at arm’s length throughout the entire period, with the
company operating both formally and factually as an autonomous business
outside the existing Nestlé structures.43 This autonomy was in fact a practical
necessity as Nespresso’s needs differed from Nescafé’s, both in terms of its
supplies of raw coffee and its production. Furthermore, Nespresso adopted its
own personnel policy and system of compensation from the outset and all prof-
its – which only started coming in in 1995 – were reinvested in the new com-
pany. Nevertheless, Nespresso was able to tap into Nestlé’s decades of coffee
research experience, skilled staff and infrastructure. Nespresso production op-
erations were accommodated in the Nescafé factory in Orbe for the first fif-
teen years, until Nespresso finally moved into its own production facility right
next door in 2003. It is the only Nespresso production site worldwide thus far,
and in 2005 it produced 1.7 billion capsules. Thus Nespresso was able to com-
bine the advantages of belonging to a large, global Group with those of being
a small, flexible business.
The first ten years were difficult, and Nespresso found itself standing on
the edge of a precipice on more than one occasion. As with all inventions, the
first job was to make the transition from technology to marketing. After Eric
Favre left the company in 1990, the operational management transferred to
marketing people recruited from outside Nestlé. The Nespresso business started
out concentrating on supplying offices before spreading its net to include pri-
vate households, though it must be said that in the early 1990s there were very
few people who could afford a Nespresso machine given that the cheapest
model cost over CHF 600.44 But as the machines became cheaper and the choice
wider, the private household market grew from year to year. The Nespresso cap-
sules and machines, which were initially designed and manufactured by Tur-
mix and then by other well-known companies on behalf of Nespresso, formed
a closed system: the capsules would only fit the Nespresso machines.
1 The Nespresso coffee

machines – designed by the
acclaimed Ateliers Du Nord of
Lausanne – have received a
number of awards for their
innovative design, in particular
this model, launched in 2001,
available in several colours. 110
Furthermore, consumers could only purchase capsules, which were ini-

tially available in four varieties, including one decaffeinated blend, if they were
members of the Nespresso Club. The club was founded in 1989 and member-
ship was conferred automatically with the purchase of a Nespresso machine.
This was why Pagano said in 1991 that Nespresso was more about selling a
system than selling coffee.45 The club only had about 2,000 members at that
time, most of whom were in Switzerland, but internationalisation began that
same year with first tentative attempts in Italy, the home of the espresso, and
in Japan, where the successful trials of the 1980s provided a good base. In
1991, Nespresso also moved to set up a recycling system for the aluminium
capsules.46
In the mid-1990s, sales of Nespresso were still regarded as “marginal” 2
compared to Nescafé.47 Then came a slow increase that gradually picked up
pace, with growth rates of up to 30 and 40 per cent per year – far above those
in any other Nestlé business. The range of capsules was expanded, new ma-
chines and accessories were introduced and the geographic coverage was ex-
tended – not only horizontally, to over forty countries at present, but vertically
as well: certain prestigious airlines now had Nespresso machines in their first-
class cabins. By 2005, some 1,500 aircraft were equipped in this way. From
1997 onwards, the operational management reverted to Nestlé’s own coffee
specialists, but still under Rupert Gasser’s watchful eye. The number of club
members rose to over 200,000 in the same year. This prompted Peter Brabeck,
in his first year as CEO, to set the ambitious goal of increasing Nespresso sales
to CHF 1 billion within the next ten years.48
Nespresso started the 21st century by moving into new headquarters in
Paudex, near Lausanne, and by opening its first Nespresso boutique, which
was followed by almost eighty others in major cities around the world. Nes-
presso was thus linking in with a trend started by competitors such as Star-
bucks, a trend which catered for changing consumer habits among younger
coffee drinkers in particular: away from traditional coffee, with its limited
choices – black, white, with or without sugar – towards a wide choice of vari-
eties such as cappuccino, latte macchiato, moccaccino, etc. Coffee had been
transformed from a commodity into a special product; emotions and individ-
ual preferences played an increasing role in this product and consumers were
prepared to pay a premium for it. Nespresso coffee portions captured the mood
of the moment and the 2001 strategy paper noted with satisfaction: “Nes-
presso is certainly one of the most beautiful Nestlé babies.”49 But to remain at
the top and fend off growing competition, the choice of coffee varieties and
machines had to be enlarged further still. Between 2001 and 2004, no fewer
than seven new Nespresso machines by as many different manufacturers were
launched, all of which also had to meet growing consumer expectations in
terms of aesthetic appeal and user-friendliness.50 In 2005, Nespresso sold one
million machines in sixteen models made by eleven different manufacturers
including such well-known names as Krups, Alessi, Gaggia and Siemens.
It was obvious, then, that all the big coffee companies would move into
the coffee portion business sooner or later, and that the competitive situation
2 Online orders for Nes-

presso may have topped the mil-
lion mark, but underpinning this
are 40 or so boutiques in around
30 countries worldwide, where
clients are guaranteed a personal
welcome and the opportunity
to discover for themselves the
111 superb coffees on offer.
would become more aggressive after expiry of the Nespresso patents in 2011
and 2012. Faced with these challenges, Nestlé decided to steer Nespresso
more and more towards a “super premium” product profile in the same league
as other prestigious brands such as Louis Vuitton, Yves Saint Laurent and Mer-
cedes.51 This goal was further served by sponsorship of the America’s Cup in
2004, and co-sponsorship of Alinghi, the yacht that was defending the title. In
2003, knowing also that consumers of premium products tend to pay particu-
lar attention to their origins and the production methods used, Nespresso en-
tered into an agreement with the Rainforest Alliance, an NGO dedicated to pro-
moting fair trade, and became a partner of its AAA-Sustainable Quality
programme. This programme ensures that over 4,000 coffee growers in Costa
Rica, Guatemala and Mexico receive 75 per cent of the export revenues gen-
erated by their products, as well as benefiting from advice dispensed by Nestlé
experts.52 Nespresso was thus able to add a special “AAA Edition” to its exist-
ing eleven espresso varieties – known as “Grands Crus”, a reference to fine
wines.
1 Twenty years down the line, Nespresso has become adult and is now
firmly anchored and fully accepted within the Nestlé family. The black sheep
has become a model student. The annual sales target set by Brabeck in 1997
– CHF 1 billion – was achieved a year early, and although Nespresso now
already reaches around one-eighth of the sales generated by Nescafé, the fear
of product cannibalism has subsided. There is an understanding that the two
products are different but complementary, and even reinforce one another.
Over and above the resultant commercial success, investing in Nespresso
was a worthwhile exercise in that the company was new, unconventional and
lay outside traditional structures. As such it became a laboratory, and its en-
thusiasm for experimentation, its pioneering spirit and its willingness to take
risks gave fresh impetus to the entire Group. The peripheral role which Nes-
presso occupied, and indeed still occupies, in relation to the parent company,
encouraged ideas which were often able to flourish and grow faster outside
the usual confines of a large enterprise. In many regards, Nespresso was, and
still is, the antithesis of Nestlé: with its club system and boutiques, both of
which allowed it to cut out intermediate distributors, it broke through the oth-
erwise long-established taboo of vertical integration. From the outset, Nes-
presso retained full control over the entire value chain: from production all the
way through to consumption, plus direct access to every individual consumer
beyond that. This not only provided valuable information about consumer hab-
its, but also saved advertising costs, as word-of-mouth advertising proved the
most effective. Nespresso thus gained valuable direct marketing experience
which benefited other Nestlé businesses as well. Nespresso became, espe-
cially with the advent of systematic use of the Internet from 1998 onwards, a
forerunner in B2B operations (business-to-business, in dealings with large cus-
tomers) and B2C (business-to-consumer, when selling to individual consum-
ers). These days over half the 2.2 million club members order their capsules
via the Internet. From the very outset, Nespresso made “consumer insight”
the starting point for all its deliberations. This focus on – and anticipation of –
1 Nespresso was one of

the main sponsors of defending
champions Team Alinghi at the
America’s Cup in 2004. 112
the consumer’s wishes inspired other business areas such as ice cream, in its
deliberate orientation towards premium products, Nescafé in relation to fair
trade, and Foodservices and Nestlé Waters with regard to the “Home-and-Of-
fice” business. Nespresso also became a model for other units – Nestlé Nutri-
tion, for example – which the Group chose to transform into autonomous busi-
nesses. Thus Peter Brabeck, speaking at the 20th anniversary celebrations, was
able to say that Nespresso was an excellent example with lessons for the en-
tire Nestlé Group.53
2 In 2003, Nespresso
teamed up with the NGO Rain-
forest Alliance to launch the
AAA Sustainable Quality Pro-
gramme in Costa Rica, aimed
at promoting the sustainable
production and supply of high-
113 quality coffee.
L’Oréal metics with strong ethical credentials (The Body Shop

2006).
In 1907, the chemist Eugène Schueller would spend his The luxury market: The first venture into this sector
nights making hair colorants, which he would then sell to came in 1964 with the acquisition of Lancôme and contin-
the hairdressers of Paris under the name of L’Aureale. That ued with the takeover of various facial care (Biotherm 1970,
same year, he patented his invention and in 1908 he went Helena Rubinstein 1989), makeup (Shu Uemura 2003), per-
on to found the Société Française des Teintures Inoffen- fume (Fidji 1966) and other companies. Thus, in 1984, for
sives pour Cheveux. Within a year, he was selling his prod- example, Nestlé financed the acquisition of Warner Cos-
ucts in several countries. His success was bolstered by the metics, the US distributor of Armani, Vanderbilt and Ralph
trend for women to wear their hair shorter in the 1920s, Lauren.
as a result of which large numbers of hair salons were Pharmacies: The range available through this chan-
springing up all over Europe. In 1939, the firm became a nel includes dermatological (Vichy 1974 and 1980, La
public limited company under the name of L’Oréal and in Roche-Posay 1989) and skin engineering products (Bi-
1963 it was floated on the stock exchange. omédic 2001, SkinEthic 2006) as well as research com-
In the field of professional hair colorants, L’Oréal pounds such as those produced by Laboratoires Innéov
went on to gradually build up a product range spread (2002) and Synthélabo.
across four major sectors, defining a coherent brand strat- In 2005, L’Oréal – the leading global cosmetics firm
egy for the entire range, from professional products with a workforce of more than 52,000 worldwide – gener-
through to those for home use, as well as luxury and med- ated sales of 14.5 billion euros; around half of that figure
ical products. in Europe. As at 31 December, Nestlé held a 27 per cent
Professional hair care products: The original hair col- stake in L’Oréal, in which it has had an indirect holding via
orants on which Eugène Schueller first built his business Gesparal since 1974 and a direct holding since 2004.
formed the basis of this sector, which was expanded
through brands such as Imédia Liquide (1929), Oréol (1945)
and Kérastase (1964), along with acquisitions such as that Nestlé shareholding
of Redken Laboratories (1993) and Matrix (2000).
Products for home use: Through these hair and body Following protracted negotiations, Nestlé CEO at the time
care products – available direct to the consumer from de- Pierre Liotard-Vogt signed a deal with Liliane Bettencourt –
partment stores and retail outlets – the company estab- the daughter of L’Oréal’s founder, Eugène Schueller, and
lished a foothold in a growth market. Following on from owner of the company – in 1974. The deal guaranteed her
the first soap-free hair shampoo (Dop 1934) came the sun ownership of the company during her lifetime and stipu-
lotion Ambre Solaire in 1935, which came onto the mar- lated that her shares could not be sold by Nestlé for a pe-
ket at just the right time, with the introduction of paid riod of 20 years, as well as guaranteeing pre-emption
leave in France in 1936. This, in turn, was followed by hair rights. Under the terms of the deal, Liliane Bettencourt
lacquer (Elnett 1960), facial skincare (Plénitude 1982) and owned 51 per cent and Nestlé 49 per cent of the holding
makeup (Gemey 1973, Maybelline 1996, Unisa and Jade company Gesparal which, for its part, owned a majority
1997). Bringing us right up to date, reflecting the latest stake in L’Oréal. Her husband André Bettencourt and
trends, are a range of ethnic hair care products and cos- L’Oréal Chairman François Dalle both held seats on the
metics (SoftSheen 1998, Carson 2000) and natural cos- Board of Directors of Nestlé. With this alliance, Nestlé was
hoping to diversify its activities. Nestlé’s decision to es-
tablish a foothold in the non-food sector was driven by the
dynamism and growth prospects of the cosmetics market,
whose products offer higher profit margins than pure food
items. The deal with Nestlé enabled L’Oréal to secure the
long-term stability of its shareholder base, sort out the is-
sue of succession in the event of Liliane Bettencourt’s
death, protect the company against the threat of national-
isation under a new government, tap into new markets and
develop existing ones, in particular the USA.
When the original 20-year agreement came to an end
in 1994, the parties concerned decided to extend it. This
time round, however, there were certain changes in the
Lindsay Owen-Jones
(right), CEO of L’Oréal, and his
successor as CEO, Jean-Paul
Agon (left), with Marc Menes-
guen (L’Oréal), pictured in front
of the famous perfumery Doug-
las in Milan in January 2006.
114
distribution of the capital: several L’Oréal subsidiaries most dermatology business, a niche market accounting for 3.5
notably the US distributor Cosmair managed by L’Oréal per cent of the total pharmaceutical market. By 2001, Gal-
and majority-owned by Nestlé – were assigned to Gesparal. derma was sixth in the rankings with a market share of 4
At the same time, L’Oréal took over the Swiss firm Lorsa- per cent, having achieved organic growth of 15.7 per cent
Fagel and 30 per cent of Spain’s Procasa – both manufac- in 2000. The dermatological research units of Alcon are
turers of hair products for salons and home use – from also involved in this.
Nestlé. Looking to enhance research-related synergies in the
2004 brought a new round of negotiations – handled field of food (Nestlé) and dermatology (L’Oréal), in 2002
for Nestlé by Chairman Rainer E. Gut – as a result of which the two companies teamed up to create the joint venture
the intermediate holding company Gesparal was incorpo- Laboratoires Inneov. The company’s aim is to develop the
rated into L’Oréal. The Bettencourt family now held a 28 fast-growing market for “cosmeceuticals” – nutritional
per cent share in L’Oréal, Nestlé 27 per cent. Both parties supplements designed to promote beautiful skin, hair and
undertook to keep their shares for a period of five years. nails. Though this product concept had long been present
The two Groups’ joint ventures (Galderma and Laboratoires in the Group, the first real evidence of a link between health
Innéov) were not affected by this agreement. and nutrition came with an epidemiological study begun
in 1994 by the name of SU.VI.MAX. Since then, research
into application opportunities in the field of dermatology
Research and collaboration with Nestlé has been ongoing. In the case of nutritional supplements,
these are governed by European guidelines that came into
Both Nestlé and L’Oréal have a long tradition of research. effect in 2002. In the framework of the joint venture Lab-
The success of various new products launched by the oratoires Inneov, Nestlé is responsible for development
L’Oréal Group is based on the research spirit ingrained in and production. Based on the distribution network of the
the company by its founder and kept alive ever since. Be- cosmetics division of L’Oréal, Inneov products are sold in
tween 1950 and 2005, the number of researchers rose chemists and drugstores. The first product came onto the
from around 100 to almost 3,000. market in 13 countries in 2003: Inneov Firmness, a skin
With the acquisition of Synthélabo in 1973 – active supplement based on Lacto-LycopeneTM aimed at improv-
in specialty pharmaceuticals and medical supplies – L’Oréal ing the skin firmness of women over the age of 40. This
definitively established its scientific credentials. Pharma- was followed in 2004 by Innéov Densicap – a preparation
ceutical research is carried out at the Laboratoire d’Etudes containing taurine, designed to promote thicker, fuller
et de Recherche Synthélabo (LERS). In 1999, Synthélabo hair – which was launched in nine countries. Next up, in
merged with Sanofi (owned by Elf-Total) to create Sanofi- 2005, were Innéov Hautaufbau skin replenishing capsules
Synthélabo. In 2003, Sanofi-Synthélabo launched a hos- with Omega-3 and Omega-6 fatty acids, available in seven
tile takeover bid for Aventis, leading to the creation of countries. And finally, in 2006, Innéov Sonne came onto
Sanofi-Aventis – the world’s third-largest pharmaceutical the market in four countries. In 2005, Laboratoires Innéov
company – in 2004. posted sales of 23 million euros, up 23 per cent on the pre-
The cosmetics business received a boost in the form vious year.54
of a cosmetology research centre in Aulnay-sous-Bois,
with applied research concentrated at the two centres in
Clichy and Chevilly-Larue. Since Nestlé acquired Alcon
(see text) – active in the fields of ophthalmology, derma-
tology and cosmetics – in 1977, these research units have
generated numerous synergies. From then on, Nestlé’s in-
terest in this business was aroused. So, in 1979, the Inter-
national Centre for Dermatology Research (CIRD) was es-
tablished in Sophia-Antipolis, near Antibes in France. The
CIRD carries out research into the treatment of diseases
of the skin, an area that the pharmaceutical companies
have only explored in a limited way. The product innova-
tions that emerge from the CIRD’s research in this field are
sold under the name of Galderma, a joint venture of Nestlé
and L’Oréal created for this purpose in 1981. The declared
aim of this joint company is to become number one in the
115
Alcon a smaller scale in the ear care business. International sales

amount to 37 million US dollars. It has a presence in 50
In 1945, pharmacists Robert D. Alexander and William C. different countries, with 57 per cent of its total consoli-
Conner teamed up to open a pharmacy in Fort Worth, dated sales of 81 million US dollars being generated in the
Texas. The name they chose for the new company was US. The company employs 2,000 people, of which 260 are
made up of the first two letters of each of their surnames: scientific and technical personnel. Annual earnings growth
Alcon Prescription Pharmacy. They sold medicines that is 22 per cent per year. In addition to the US, the company
they mixed themselves based on prescriptions from doc- is present in Belgium, Italy, Brazil, Canada, Mexico, Argen-
tors, and attempted to produce sterile vitamins that could tina, Spain, Germany, France and Puerto Rico, and via a
be administered by injection. In order to promote their joint venture in Japan.
products, they contacted doctors and asked them to rec- Negotiations began around the time when the found-
ommend their pharmacy to their patients. It was during ers of Alcon started thinking about their retirement. At this
such a discussion that they discovered that there was no time, Nestlé, headed by Arthur Fürer, was looking to make
pharmaceutical industry active in the manufacture of oph- a first-class acquisition – an innovative business with a
thalmic products. In conditions that left a lot to be desired strong reputation, market profile and sales. Nestlé had its
as far as hygiene was concerned, pharmacists generally sights set on a company that was already established in
mixed distilled water with the active substance prescribed several countries including the US, and that was not in-
by the doctor, often giving rise to medical complications volved in wholesale distribution. With Alcon, Nestlé was
for the patients. As a result, the two men decided to start able to reinforce its position in the US in an area that was
manufacturing sterile ophthalmic products. not too far removed from its existing activities, while at
In 1947, the company changed its name to Alcon the same time managing to avoid falling foul of US anti-
Laboratories and increased its capital. trust laws. The strengthening of the pharmaceutical busi-
In 1962, sales of ophthalmic products reached 3 mil- ness enhanced the scientific credibility of the group’s prod-
lion US dollars. During the same year, Alcon International ucts, as well as improving the outlook for research and
was created and the company headquarters relocated from development, particularly with regard to the toxicological
the chic Chicago suburb to Fort Worth, Texas. effects of food products and cosmetics on the body. In ad-
In 1970, Alcon began expanding its activities, first dition, this reinforcement permitted Nestlé to distribute its
by creating a joint venture with FMC (the Food Machinery products via new channels such as pharmacies and drug
and Chemical Corporation) under the name Avicon Inc. to company representatives, and the acquisition was to cre-
develop and market Avitene, a haemostatic product used ate a synergy with L’Oréal – and its pharmaceutical unit
in connection with surgical sutures. This highly promising Synthélabo in particular (see box). The latter thus opened
product was launched in 1976, followed by the acquisition up the markets of North and South America which until
of Center Laboratories, manufacturer of products used by then had been difficult to access, and benefited from Al-
GPs and hospitals to identify allergies. con’s existing infrastructure in various other countries.
This strategy was pursued further with the acquisi- L’Oréal was able to develop new opportunities in skincare
tion in 1972 of Webcon, a manufacturer of urological and with Owen and Mahdeen, a small cosmetics company.
paediatric products, and of Owen Laboratories, a Dallas- At the beginning of January 1978, 97.4 per cent of
based company specialising in the manufacture of OTC the shares in the company were purchased by Delaware
dermatological products for hair, skin and scalp (sold to Bay Co., a company belonging to Nestlé USA, for approx-
Galderma in 1996). Mahdeen, a manufacturer of profes-
sional skin and hair products sold in beauty salons, also
formed part of the group acquired. Mahdeen also owned
the exclusive US sales rights for Schwarzkopf products,
which were sold following the takeover by Nestlé due to
the company’s links with L’Oréal.
In 1977, when negotiations first began with Nestlé
concerning a potential takeover, Alcon was the US market
leader in ophthalmic products. The development of these
products often involves the use, under licence, of com-
pounds discovered by other laboratories. Alcon also de-
velops implements for administering its products, such as
plastic eye-drop dispensers. The company is also active on
With a long track record

in the field of ophthalmic
products, Alcon successfully
branched out into eye surgery
in 1989.
116
imately 270 million US dollars. Alcon thus became a com- The acquisitions continued in 1994 with Laborato-
pany of the Nestlé group. rios PLOS, an Argentine company active in ophthalmol-
Following the takeover, Alcon built a number of fac- ogy, and Laboratorios CUSI in Barcelona. Links were es-
tories in the US, Belgium, Spain, Mexico, Brazil and France. tablished with the Flint Bank for control of AMCIS, a
It also went on to carry out several acquisitions of pharma- company active in the Swiss chemicals industry.
ceutical laboratories in the US (Burton & Parsons, Texas In 1997, Galderma and Alcon acquired Basotherm,
Pharmacal, Allecrene Dubarry, Person & Covey) and Brazil a German firm from Biberach that was active in ophthal-
(Biosynthetica). The research sector, benefiting from the an- mology and dermatology, and part of Boehringer Ingel-
ticipated synergies, began to expand. Ophthalmology was heim. This acquisition reinforced Nestlé’s position in Ger-
by far the most profitable sector. The increasing popularity many, Europe’s biggest dermatology market.
of soft contact lenses generated new demand (the lenses In 2000, Alcon posted total sales of 2.6 billion US
themselves, care products, artificial tears, etc.) and new dollars, employed a total of 11,000 people and was active
products, whose prices were not subject to pharmaceuti- in 170 different countries.
cal legislation. This success was also clearly aided by sci- In March 2002, a 25 per cent package of shares in
entific discoveries concerning glaucoma and its treatment. Alcon was placed on the New York Stock Exchange for a
It was these discoveries that prompted Alcon to create the price of 33 US dollars per share. Nestlé’s aim here was to
Alcon Research Institute in 1981, a virtual institute grant- make the true value of Alcon more visible to its sharehold-
ing funding to researchers in the field of ophthalmology. ers, just like that of its food and beverage business. At the
In 1988, Galderma – a joint venture between Nestlé same time, the proceeds provided greater financial flexi-
and L’Oréal – slowly took over the business and dermato- bility for consolidating the firm’s strategic business, as well
logical research of Alcon. as strengthening its AAA credit rating.
In 1989, CooperVision Surgical, a producer of in- In 2005, Alcon achieved organic growth of 10.6 per
traocular lenses for the replacement of the crystalline lens cent, and accounted for 6.2 per cent of the total sales of
as a result of cataracts, joined the group. The same year the Nestlé group.55
also saw the arrival of Thilo, a German company special-
ising in ophthalmic products, as well as Biophysic Medi-
cal Inc., based in California, and its European branch based
in Clermont-Ferrand in France, both of which specialised
in lasers and ocular imaging. In 1991, the Irvine Technol-
ogy Center was opened, with the aim of developing and
manufacturing new ophthalmic instruments and devices
and training customers in how to use them. In 1993, the
acquisition of Visioptics Inc., which developed a system
of transcribing corneal topography, ultimately enabled Al-
con to access the world of refractive corneal surgery and
the development of laser surgery procedures (the excimer
laser, for example), a sector consolidated by the acquisi-
tion of Summit Autonomous in 2000. Alcon thus became
one of the market leaders in ophthalmic microsurgery.
117
PowerBar to recharge their batteries in order to make it through a

long and arduous working day. He also expanded the range
At the end of the 1970s, while in his twenties, the Cana- of products with the launch of Powergel (1996), Harvest
dian athlete Brian Maxwell (1953–2004) became the (1998), Proteinplus, Perform Sports Drink and Essentials
world’s third-best marathon runner. He noticed that hav- Energy (1999). At the same time, the distribution network
ing gone through the “wall” at around the 30-kilometre was expanded to include supermarket chains, Wal-Mart in
mark in a marathon, he tended to suffer stomach pains particular (since 1995). This broader-based approach ena-
and dizziness, apparently due to hunger. He surmised that bled the brand to encroach on rival territory, and the strat-
this was down to a lack of energy, and so he hit on the egy soon bore fruit, with sales climbing to 135 million US
idea of developing a cereal bar that he could carry with dollars in 1999.
him during the race to help solve this problem. The bar Nestlé acquired PowerBar in 2000 for the sum of 375
would have to be rich in vitamins, proteins and carbohy- million US dollars, including the company’s US, Canadian
drates, but low in fat in order to ensure easy digestibility. and European branches. PowerBar sells its products in the
In 1983, having sought the advice of a biochemist US, Canada, Brazil and Mexico, Australia and Japan, and
and a student nutritionist, Jennifer Biddulph, who later be- in Europe, where a branch in Germany manages the EU
came his wife, he started to mix together natural ingredi- side of the business. The acquisition of PowerBar came at
ents such as oat bran, milk protein and fructose to create an important stage in Nestlé’s realignment as a company
a kind of paste. focused on the health and wellbeing of its consumers. Nu-
In 1986, satisfied with their efforts, the couple be- trition, the unit to which PowerBar belongs, is a strategic
gan producing their high-energy bars in Brian’s kitchen in business division that was created in 1997 and became an
Berkeley, USA, where he worked training sports students. organisation in its own right under the name of Nestlé Nu-
He then went on to invest his savings, together with a lit- trition at the beginning of 2006. PowerBar is its first brand
tle money borrowed from his father, in creating the com- in the field of performance nutrition. In 2002, the acquisi-
pany PowerBar Inc. They were soon producing 35,000 bars tion of Sporting Sportlernahrung GmbH – a German com-
a year of the same name. The couple travelled the length pany based in Munich which posted sales of five million
and breadth of California in their car, stopping at sporting euros in 2001 and specialises in sports nutrition – ex-
events along the way to sell their invention direct from one panded the horizons.
athlete to another. The PowerBar brand has grown rapidly since being
By the end of the 1980s, the product was being man- acquired by Nestlé: 2001 saw the launch of Pria, a prod-
ufactured in a small industrial setup in Berkeley and sold uct specially designed for women, followed the year after
in drugstores. Advertising was guaranteed by high-profile by Energybites and Carb Select, in response to the latest
athletes suggesting that their sporting performance de- dietary theories (the Atkins Diet). In 2004, Beverage Sys-
pended on specific nutrition such as that provided by the tem, Complete Nutrition and Triple Threat were launched,
PowerBar. Stands were set up in sports shops, underlin- while other lines were discontinued in an attempt to repo-
ing the strong link with the world of physical perform- sition PowerBar as a performance food targeted at ath-
ance. letes.
In 1990, the product was sold abroad for the first In 2006, the company left Berkeley for Glendale,
time. Nestlé’s US headquarters.56
Four years later, with the business going from
strength to strength, a bigger factory was built in Idaho,
Boise (USA), which was still meeting all the company’s
production needs in 2005.
In 1995, a branch was opened in Canada, followed
a year later by one in Europe. This was also the time of the
first diversification attempt in the form of Powergel. From
focusing on performance snacks aimed at a target audi-
ence of endurance athletes (cyclists and long-distance run-
ners in particular), i.e. a niche product, Maxwell developed
his marketing strategy around the concept of performance
in the more general sense. He thus introduced his product
into the everyday diet of people who push themselves
hard, be they top triathletes or senior managers needing
118
Chef America sessed two major brands of frozen dinners in the US. With
the purchase of Chef America, Nestlé completed its busi-
Chef America was founded in California, US, in 1977 by ness with products specifically targeting on-the-go con-
two brothers, David and Paul Merage, with the support of sumption. The leading brand of the fast growing frozen
their father. The company entered the foodservice chan- sandwiches category provided Nestlé access to new and
nel by producing and selling pre-baked Belgian waffles to younger consumers and offered expanded usage opportu-
restaurants and other food service outlets. Three years nities. With Chef America, Nestlé acquired a proprietary
later their first product, a frozen stuffed sandwich, the product with highly developed processing technologies
Tastywich, was launched. In 1983, stuffed sandwiches us- and specialised manufacturing systems. The company
ing perfected microwaveable dough technology were achieved an annual sales growth rate of above 10 per cent
launched in grocery and convenience stores under the from 1996 to 2002 and its profit level is in the top tier of
brand Hot Pockets. The brand was gradually launched the US food companies.
across the US and full distribution was achieved in 1986. Chef America became the Hand-held Foods Group
Lean Pockets, a lean stuffed sandwich, were launched (HHFG) business unit of the Nestlé Prepared Foods Com-
by Chef America in 1987. They are designed to provide the pany with its key brands Stouffer’s, Lean Cuisine, Buitoni
“same great taste as Hot Pockets, but with only 7 grams and Ortega. The business retained its Denver headquarters
of fat”. Other new products were the Croissant Pockets, location. In January 2006 the Nestlé Prepared Foods Com-
launched in 1995, and the Hot Pockets Pizza Minis, pany announced the move of the HHFG to a commercial
launched in 1996, the latter representing Hot Pockets’ first model organisational structure. Supply chain, operations
entry into the bite-sized frozen snacks category. and other non-strategic functions were consolidated into
Between 1977 and 1983 the waffle products and the the Prepared Foods Company. A focussed commercial or-
initial stuffed sandwich production were manufactured in ganisation, centred on marketing and product development,
a plant in Van Nuys, California. In 1983, due to a fire that will continue to run the business from its Denver headquar-
damaged the Van Nuys plant, Chef America moved its pro- ters. HHFG sales will move into the Nestlé Sales Division
duction to a facility in Sylmar, California. In 1988 a produc- and will be the final step to fully leveraging the size and
tion facility was built in Chatsworth, California. The com- scale of the largest frozen food company in the world.
pany headquarters are also located on the grounds of this Chef America was the instigator of the frozen sand-
site. In 1993 a second production facility opened in Mount wiches category in the US. It had the first mover advan-
Sterling, Kentucky. In early 1994, a decision was made to tage in a growing, on-trend category and it benefited by
move Chef America’s corporate headquarters to the Den- having a product that was consistent with some of the key
ver suburb of Englewood, Colorado. Only two years later trends that have changed US consumer eating habits since
a major expansion of the Mount Sterling facility, nearly the 1980s and 1990s. Nestlé believed in the potential to
doubling the plant size, took place. expand the Hot and Lean Pockets brand into a global busi-
In September 2002 Chef America was sold to Nestlé ness and introduced them into several new countries. They
Holdings, Inc., a US subsidiary of the Nestlé Group, for 2.6 were launched in Canada as Stouffer’s Bistro Crustinis and
billion US dollars. In 2003 Chef America employed around in Latin America as Hot Pockets. A manufacturing facility
2,100 people and generated sales of 806.8 million US dol- in France supplies the European markets, where Hot Pock-
lars. This acquisition enhanced Nestlé’s frozen food port- ets are sold under the Maggi brand, except in Switzerland
folio. With Stouffer’s and Lean Cuisine, Nestlé already pos- where they are sold under the Findus brand.57
Chef America launched

Hot Pockets on the US market in
1983.
119
Perrier From 1962 to 1990, Perrier was responsible for the

production and distribution of Pepsi in France. Also in the
Ever since the Middle Ages, the residents of the French town 1960s, the company entered the confectionery and choc-
of Vergèze, which is located between Nîmes and Montpel- olate sector, taking on stakes in one company that special-
lier, have known about the benefits of bathing in the effer- ised in milk collection and bottling, and another that pro-
vescent mineral water of the Bouillens spring. In 1863, hav- duced Roquefort cheese. In 1972, this segment represented
ing been granted the right to use the spring water for 50 per cent of sales.
commercial purposes, the then owner Alphonse Granier set Following the acquisition of the mineral waters Vichy
up a company to sell the bottled mineral water. and St. Yorre in 1968, the company took on a holding struc-
In 1894, Dr Louis Eugène Perrier, a local specialist in ture, and mineral water activities were transferred to the
mineral water and thermal baths, was recruited to man- Société Générale des Grandes Sources d’Eaux Minérales
age the new company. He studied the therapeutic bene- Françaises (SGGSMF).
fits of the spring, and set about optimising the bottling In 1973, in order to promote sales of water in dis-
process. In 1898, he took over ownership of the spring and posable bottles, Perrier opened its own bottle production
created a new company, for which he sought major invest- facility, the “Verrerie du Languedoc” in Bédouin, right next
ment partners. to its plant. In the same year, a new bottling plant was
In 1902, he met a young British gentleman by the built.
name of St. John Harmsworth, who had been sent by his Leven’s second strategy was aimed at conquering
brother Alfred, Editor-in-Chief of the Daily Mail, to Paris in new markets, above all in the US. Perrier acquired Poland
order to learn French and set up a French edition of the Spring in 1972, Oasis, Puro and Calistoga between 1980
British newspaper. Harmsworth invested in the company, and 1982, and Zephyrhills in 1986/87. These acquisitions
and became the sole leaseholder of the spring. From this enabled the company to access the market for home and
point onwards, the company was in British hands, while office services. In 1976, an office was opened in New York,
Dr Perrier took on an advisory role as well as assuming re- followed in 1979 by the announcement of the creation of
sponsibility for quality assurance. Despite his no longer Great Waters of France. In 1988, Perrier was responsible
being the owner, the public limited company founded in for 80 per cent of the mineral water imported by the US.
1906 still adopted his name: Compagnie de la Source Per- In 1972, the Group set up a subsidiary in Germany
rier. The British were the main target market for the min- and acquired a stake in Sanpellegrino in Italy, followed by
eral water, where the company created Perrier Limited in one in Spain’s San Narcisso in 1973. Further stakes were
1907 and generated 93 per cent of its sales. As official sup- purchased in Iran and Brazil (São Lourenço, 1974).
plier to the Royal Family, Perrier also benefited from an ex- Between 1986 and 1989, a new bottling plant was
clusive image. built and the Sellier-Leblanc Group, with its Volvic and
Under Harmsworth, the production facilities were Oasis brands, was acquired in France. At the same time,
modernised and, after the First World War, increased ef- Leven established contact with Exor Holding, a distributor
forts were made to develop the French market. As the and owner of the Château Margaux wine estate. By 1990,
sponsor of medical conventions and sporting events (Tour this holding had acquired a 35 per cent stake in Perrier.
de France 1923; Roland Garros 1927), Perrier nurtured When Leven stepped down the same year, Exor boss
close links with health and sport. Jacques Vincent succeeded him at Perrier, which by this
Following the death of St. John Harmsworth in 1933, point had become the world’s leading producer of mineral
his brother and nephew merged the company with the water with around 20 brands in over 120 countries.
smaller Société d’Eau Minérale de Vergèze to form Source
Perrier S.A. in 1936.
In 1947, the company was taken over by a group of Acquisition by Nestlé
shareholders led by the young Parisian stockbroker Gus-
tave Leven, who floated the company on the Paris stock In November 1991, FIAT Chairman Giovanni Agnelli an-
exchange in 1949 and had a new factory built in 1950. In nounced his intention to make a friendly takeover bid for
1952, output reached 150 million bottles. Exor. Agnelli was expecting to be able to acquire the shares
In 1954, Gustav Leven embarked on a new phase of held by Jacques Vincent, who headed up both companies.
acquisition and diversification with the purchase of Con- He also anticipated the agreement of Antoine Riboud, head
trex and the launch of the soft drink Pschitt. He also took of Boussois, Souchon, Neuvesel (BSN) – which later be-
over other local springs, and expanded production of soft came Danone – as well as the owners of Evian and Badoit,
drinks in particular. whom he offered his stake in Italian mineral water compa-
120
nies in return for their 6 per cent share of Exor. Ultimately, In January of the following year, in compliance with
Nestlé was informed of Agnelli’s plans by Bank Indosuez, the conditions laid down by the European Commission,
which held a 10 per cent stake in Exor. Nestlé, under the the Group sold Volvic, St. Yorre, Vichy, Thonon, Pierval and
leadership of Helmut Maucher, initially reacted by acquir- Roquefort – and thus 20 per cent of the capacity of the
ing 96 per cent of the capital of Vittel (following 30% in French market – to BSN and the Castel Group.
1969) in order to strengthen the Group’s position in the Helmut Maucher described the Perrier acquisition as
mineral water business. the most difficult he had ever been involved in, and one
It became clear to Nestlé that this could be a good that would never have taken place without the personal
opportunity for consolidation, but a unilateral approach contact that had been established.
was ruled out. In December, Maucher contacted Riboud. Nestlé’s trials and tribulations were not over, how-
On 20 January 1992, Nestlé and the banks Crédit Ag- ever. The head of Exor, who had opposed the takeover right
ricole and Compagnie de Suez submitted a takeover bid from the start, sold some of the company’s shares in San-
for the Perrier group that exceeded the one made by pellegrino, reducing his stake from 35 per cent to 20 per
Agnelli, having set up a company called Demilac for this cent just before the acquisition.
purpose. It was also agreed that, in the event of a takeo- Ultimately, the dominant trade union at Perrier – the
ver, Volvic would go to BSN. In response to this bid, Exor Confédération générale du travail (CGT) – rejected the
boss Jacques Vincent filed a complaint against Nestlé and planned productivity improvements drawn up by the new
BSN with the competition authorities in Paris, accusing owner, which had presented a restructuring plan based
the two of intending to establish a duopoly. Although the partly on early retirement. The unions called a strike, with
case was rejected, it led the European Commission, a few a range of accusations including the fragmentation of the
months later, to focus its considerations on the issue of group, an increase in temporary employment, the out-
the potential duopoly. sourcing of certain activities and a loss of identity due to
In March, a compromise was reached: Agnelli re- the changeover from glass to plastic bottles, amongst oth-
ceived the renowned wine brand Château Margaux along ers. In 1995, they succeeded in forcing the cancellation of
with the Parisian real estate of Felix Potin, Exor’s prede- several redundancy plans, having taken the matter to the
cessor group, while BSN received Volvic and Nestlé re- Paris court of appeal. Productivity per employee at Perrier
ceived the rest. was a third of that of Sanpellegrino staff. In 2004, the sit-
This agreement was reached on 12 May. Demilac uation became so strained that Nestlé was on the verge of
held 96.9 per cent of the shares. parting company with Perrier. It was not until Nicolas
However, the European Commission – which two Sarkozy, French Minister for Economic Affairs, Finance and
years earlier had been granted greater powers of control – Industry, intervened that movement was brought into the
objected to the agreement and did not give its approval gridlocked situation and an agreement was reached, based
until 22 July 1992 after a bitter struggle, and even then on the voluntary early retirement of 356 out of the total
with a multitude of conditions. Nestlé acquired 98 per cent 1,954 workers by 2007 and the introduction of new pro-
of Perrier, but was obliged to part with various brands duction methods. The Verrerie du Languedoc glass factory
whose total value made up 7 per cent of Group sales. As was acquired by Financière de la Croix Blanche in
a result of this agreement, the purchase price fell from 3.5 2006.58
to CHF 2 billion. Following the takeover, Nestlé became
the world’s leading producer of mineral water.
Perrier launched Fluo, a

mineral water based drink low in
sugar, in three flavours in 2002.
This came shortly after the intro-
duction of the new bottles made
from PET.
121
Sanpellegrino In 1956, with the aim of promoting its mineral wa-

ter, the company put together a cycling team and organ-
The church of Sancti Pellegrini, built in 1250, lends its ised the first San Pellegrino multi-stage tour over a dis-
name to both the spring and the village of San Pellegrino, tance of 1,000 kilometres, which was won by the boss’s
located in the Brembo valley at the foot of the Dolomites, son-in-law, Giuseppe Kerry Mentasti, in 1959. This was the
70 kilometres from Milan. The water emerges naturally company’s first foray into sports sponsorship, and was fol-
here at a temperature of 26°C. The spring has been visited lowed by sponsorship of cyclists such as Gino Bartali and
since the Middle Ages, but did not become known for its the 1960 Olympic Games in Rome.
healing properties until the 18th century. In 1957, the company acquired Panna and Mentasti
In 1849, a flood caused serious damage to the pub- took over the reins. The same year, with the aim of assur-
lic installations and forced the authorities to sell three- ing the quality of its soft drinks, the company Salas was
quarters of their share. The remaining quarter however created to specialise in the production of concentrated fruit
stayed open to the public, free of charge, which is still the juice, and to bring together growers committed to culti-
case today. The owners were then able to invest in the vating their fields in a particular way.
spring and create a real spa resort, as well as a cultural In 1960, the company acquired shares in Arges, a
and artistic centre based on the attraction of the site for firm specialising in aroma production, and set about build-
artists and members of high society. ing a new factory.
In 1899, the spring was sold to the Società Anonima In 1970, the company adopted the name of Sanpel-
delle Terme di San Pellegrino. This new public limited com- legrino.
pany, headed by Cesare Mazzoni, had the clear aim of de- At the beginning of the 1970s, the decision was
veloping the concept of the thermal bath and embarking taken to stop using mineral water to produce soft drinks
on the business of bottling water. and replace it with industrially treated water instead, al-
One year later, in 1900, the company sold 35,000 lowing production at different locations. It was with this
bottles, including 5,000 abroad. It is worth mentioning aim in mind that the Anguillara factory was then ac-
here that the water sold in those early years was not spar- quired.
kling. The “sparkle”, a natural gas from Tuscan springs, In 1973, Perrier acquired 35 per cent of Sanpel-
was added later on to mask the mineral taste of the wa- legrino, the Italian market leader with production of 600
ter, or so it is said. million bottles.
In 1901, the company’s capital had doubled to one From the 1980s onwards, the range of soft drinks
million lira. Business was so good that, in 1905, a new bot- and non-alcoholic aperitifs was expanded with the launch
tling plant was built. Bottles of San Pellegrino were even of Pompelmo, Cedrata, Cocktail, Dore, Sanbitter Dry, Old
served on board the Titanic during its ill-fated transatlan- Tonic, One-o-one and Spell, as well as the acquisition of
tic crossing in 1912, underlining the pre-war growth and the mineral water brands Giara and Claudia.
international fame of the brand. In 1984, Paolo Luini joined the company and was
The arrival in 1925 of the shareholder Ezio Granelli soon to become its Chairman and CEO.
gave a new lease of life to the company, whose capital In 1990, a new Panna Tione factory close to Orvieto
subsequently increased to six million lira. Granelli began was opened.
by renovating the baths and giving them a clear medical When Perrier-Exor was acquired by Nestlé in 1992,
focus. He also set about modernising the bottling plant, the French company had just sold 15 per cent of its shares
which was soon producing 120,000 bottles a year.
Subsequently, he had the idea of developing soft
drinks: Aranciata Sanpellegrino, made from the juice of Si-
cilian oranges, whose semi-opaque bottle protected the
contents from the sun and round shape resembled an or-
ange, in 1932; Aranciata Sanpellegrino, a blend of orange
juice and medicinal extracts, in 1949; Chinotto Sanpel-
legrino, made from the juice of the chinotto – a type of cit-
rus fruit – and other plant extracts, in 1957; Limonata the
same year; Bitter Analcolico, a bright red, non-alcoholic
drink with spices, citrus fruit and medicinal plants in a dis-
tinctive pyramid-shaped bottle, in 1961, renamed Sanbit-
ter in 1968.
San Pellegrino Terme

harbours a natural spring which
gave rise to the thermal baths
and bottling plant of the same
name around the turn of the
19th century.
122
in Sanpellegrino, bringing its remaining holding down to different plants, including two in Cuba, producing thirteen
20 per cent. The following year, in 1993, the increase of brands of mineral water (San Pellegrino, Limpia, S. Ber-
Nestlé’s stake in Sanpellegrino to 25 per cent resulted in nardo, Ulmeta, Levissima, Lora Di Recoaro, Pejo, Vera,
an agreement whereby Perrier Vittel would market S. Pel- Panna, Tione, Claudia, Sandalia and Giara) sold in 90 coun-
legrino in France and Belgium. tries worldwide, representing 13.5 per cent of consolidated
That same year, the suicide of the owner of Garma, sales and employing 1,964 people. Sales amount to 136
an Italian agrofood group active in the mineral water, fro- billion lira (74 billion after amortisation).
zen products, coffee and biscuits segments, led to the sale To complete its range of soft drinks and non-alco-
of the company. Garma, with its mineral water brands Re- holic aperitifs, in 2002 the company launched San Pel-
coaro, Levissma, Pejo and Vera, was an attractive pros- legrino Mandarino and Sanbitter Smile. It also developed
pect – as far as water was concerned – for the managing Belte Vera iced tea, launched in 1992, in a recyclable plas-
director of San Pellegrino, who approached the head of tic beaker and Chino Energy, its first energy drink.
the water sector at Nestlé, Ramón Masip. Masip decided In 2006, the firm has been seeking to establish a pro-
to support the project by means of a minority stake. In or- file as a brand that reflects the Italian way of life, and is in
der to do this, in 1994 Sanpellegrino and Nestlé Sources the process of reviving the thermal bathing business at its
International created the Compagnie Financière du Haut- roots – which first secured its international fame back at
Rhin holding company, based in Luxembourg and 49%- the beginning of the 20th century, with 2,500 visitors a
owned by Nestlé, with veto rights over the remaining year – as part of the health and wellness strategy pursued
shares. Globally, this holding, with the Nestlé shares, owns by Nestlé since the creation of its Corporate Wellness Unit
89 per cent of Sanpellegrino. in 2004.59
With Sanpellegrino regaining control of the Garma
group, Nestlé’s share in the capital of Sanpellegrino in-
creased via the stake held by the Compagnie Financière
du Haut Rhin (CFHR).
In 1998, the repurchase of shares by the Mentasti
family, owners of Sanpellegrino, was approved by the com-
petition authorities. Sales increased to 750 billion lira (CHF
624 million). Perrier Vittel became Italy’s number one min-
eral water producer thanks to other brands from the Ital-
ian group. San Pellegrino was perceived by Nestlé as com-
plementing its two flagship brands, Perrier and Vittel, as a
slightly sparkling water that can be consumed as a table
water, unlike Perrier, which is more likely to be drunk be-
tween meals.
Sales of Sanpellegrino amounted to CHF 724 million
in 1996, of which 11 per cent were attributable to exports
(to 50 different countries) for the production of 1.8 billion
bottles at eight different locations. Two years later, pro-
duction had increased to three billion bottles at thirteen
123
Alpo had realised that his company was too small to hold its
own against the major, established pet food manufactur-
A merchant by trade and with just 200 US dollars in cap- ers. And so, in November 1964, he accepted a 12 million
ital to his name, Robert Hunsicker started business in a US dollar offer from the Liggett & Myers Tobacco Com-
humble cellar in Allentown, Pennsylvania in 1936. The pany and sold his business. Hunsicker himself remained
business consisted of little more than a few basic pieces in charge of the newly formed subsidiary until his retire-
of equipment – a mincer, a mixer and an oven. That same ment in 1970.
year, Hunsicker produced the first conventional wet food The Allen Products Company remained true to its
for dogs in the form of a meat loaf made from 100 per cent roots as a manufacturer of wet dog food and, through the
meat. Sales in the first year were far from brisk – hardly ALPO brand, continued to dominate the canned dog food
surprising given the high cost of the ingredients. But Hun- segment in the USA until the 1980s. The firm was bought
sicker believed fervently in his product and spent the first out by British-based Grand Metropolitan PLC in 1980 and
two years selling it from door to door himself. He hired his renamed Alpo Petfoods, Inc. three years later. In 1983,
first employee in 1937 and named his business the Allen Grand Metropolitan went on to buy the Reward Company,
Products Company. From 1941, dog owners were able to Inc. of New Mexico – manufacturers of pet snacks – and
buy Hunsicker’s dog food from pet shops, vets and breed- the rights to the Tabby brand of cat food.
ers in Pennsylvania and New Jersey. In the summer of 1994, Alpo Petfoods, Inc. – with
From 1948 onwards, Hunsicker began working sales of 430 million US dollars – was acquired by Nestlé,
closely with a Philadelphia-based food brokerage firm. Sell- which paid in the region of half a billion dollars for what
ing Hunsicker’s products through supermarket chains and was then the seventh largest manufacturer of dog food in
grocery stores, this firm was to become Hunsicker’s offi- the United States. Alpo was duly integrated into the exist-
cial distributor. As a result, Hunsicker decided that the time ing Friskies business, which has been owned by Nestlé
had come to register the All-Pro brand name – derived from since the acquisition of Carnation in 1985 and which laid
the company name, “Allen” and “Products” – with the US the foundation for Nestlé’s entry into the US pet food mar-
Patent Office. However, his patent application was con- ket.60
tested by rival firm Borden, which already had a brand on
the market featuring “Pro” in the name. As a result, Hun-
sicker agreed to relinquish the “L” in “All” and the “R” in
“Pro”, creating the brand name Alpo, the first recorded use
of which was in August 1944.
Sales of Alpo products – wet and dry dog food, dry
cat food – continued to go from strength to strength
throughout the 1950s. In 1958, Hunsicker approached
Connecticut’s biggest supermarket chain to see if they
would be willing to sell his products through their outlets.
Unfortunately, the deal fell through when the buyer re-
sponsible for pet food asked Hunsicker how much he spent
on advertising. The answer: not a dime! At this point Hun-
sicker was contacted by advertising expert Sid Tannen-
baum. Tannenbaum needed Hunsicker’s business and
Hunsicker, for his part, needed Tannenbaum’s experience.
So a high-profile advertising campaign was launched, fea-
turing newspaper ads with the slogan “Your dog needs
meat (not promises). Alpo is 100 per cent meat.” The cam-
paign soon began to pay off: by 1952, sales of Alpo were
topping a million US dollars. From 1959, Hunsicker also
began using the medium of television, launching a major
advertising campaign aimed at capturing market share in
the western USA. The concept seemed to be working and
Alpo saw its US sales rise by 40 per cent.
However, 1964 was to prove a turning point in the
history of the Allen Products Co. By now, Robert Hunsicker
Alpo carved its success

on recipes made from 100%
meat.
124
Spillers quisitions followed in the 1960s: Scottish Animal Products

Ltd, with its Arthur’s and Kennomeat brands, in 1964; Tyne
It was in 1829 that Joel Spiller, a corn merchant, set up Brand Products Ltd, a company engaged in canning food
his milling business in Bridgewater, UK. Together with his both for human and animal consumption, in 1967; and
partner, Samuel Browne, he opened England’s second Wright & Company (Liverpool) Ltd in 1969.
steam-driven mill in the 1840s. Following the imposition of purchase tax in 1969 and
In 1856 the company diversified for the first time, ac- the slowdown in the growth of the pet food market, Spill-
quiring a bakery in Cardiff to make ships’ biscuits, corn ers set about reorganising its production sites, closing a
biscuits that could be stored for long periods for consump- number of factories. In the same year, Spillers established
tion at sea. Later, a number of additional lines were intro- its nutritional centre and pet care unit.
duced, specifically for feeding to dogs. In 1974, Spillers held over 70 per cent of the UK mar-
In 1890 the firms Spillers and William Baker & Sons ket for dog biscuits and food, with a product range con-
merged to form Spillers & Bakers Ltd. Together, they pro- sisting of 21 varieties of dog food and ten varieties of cat
ceeded to grow, acquiring seven more companies between food.
1899 and 1923. In 1980, Spillers Ltd was acquired by the Dalgety
Spillers & Bakers Ltd soon began specialising in the Group, which went on to expand its cat food business by
production of dog biscuits. In 1907 the brand Shapes, a purchasing the Felix European pet food brand from Quaker
coloured biscuit for dogs, was introduced. Just seven years Oats Co. in 1995.
later, the company was manufacturing 18 different types Nestlé purchased Spillers Petfoods from Dalgety Plc
of dog biscuit in factories in Cardiff, Bristol, London, New- for CHF 1.73 billion in 1998, thus gaining access to some
castle and Birkenhead. of the leading brands in the UK pet food market. Along-
Winalot, a dog food produced specially for grey- side its good position with Friskies in southern Europe, this
hounds (“win a lot of races”), was launched in 1927. Both purchase enabled Nestlé to expand its position in north-
Shapes and Winalot soon became the main brands of Spill- ern Europe and the UK. With the purchase of Spillers,
ers & Bakers Ltd in the UK. Nestlé was able to add Felix, Arthur’s and Choosy for cat
In 1926 Spillers was awarded the Royal Warrant, be- food and Bonzo, Fido and Winalot for dog food to its brand
coming the official supplier of dog food to the Royal Fam- portfolio. The Spillers business was integrated into the
ily. In the same year, the company changed its name to Friskies Group and renamed Friskies Europe. At the time
Spillers Ltd. of the acquisition, Spillers employed a total of 3,500 peo-
In the 1930s, Spillers became the UK market leader ple in 13 factories in the UK, France, Germany, the Neth-
with its Winalot, Shapes and Saval brands. erlands, Italy and Spain. In 1997, Spillers generated net
In 1958 Spillers made its first attempt to enter the sales of 715 million British pounds.61
canned dog food market with the product Wagalot, which
was manufactured under contract. However, the product
failed to take off and was soon withdrawn. Two years later,
Spillers made a renewed attempt to enter the canned food
market, this time with success. In 1960, Spratts Patent Ltd
– manufacturer of both canned dog food and Bonio, the
original bone-shaped biscuit – was purchased. Further ac-
Spillers may have been the first

company to start making dog
biscuits, but Felix is very much
its flagship brand.
125
Ralston Purina the company’s overall turnover of 208 million US dollars.

The cereals business, meanwhile, continued to recede into
William H. Danforth established the Robinson-Danforth the background despite the launch of new brands such as
Commission Company in St. Louis, USA in 1894 together Wheat Chex (1937), Rice Chex (1950) and Corn Chex
with two business partners, whose shares he later ac- (1958).
quired. The company initially produced feed for farm ani- In 1926, Ralston Purina began selling dog food pro-
mals such as horses and mules. Having watched the up- duced to meet the special requirements of hunting and
and-coming names in the food industry at the end of the working dogs. In the 1950s, Purina decided to make use
nineteenth century such as Campbell’s, Heinz, Kellogg’s of this experience in the manufacture of food for domes-
and Quaker Oats, Danforth also decided to branch out into tic dogs. Following five years of development and a suc-
this sector. Four years after founding the company, Wil- cessful trial introduction, the dry food Purina Dog Chow
liam Danforth launched a range of flours and breakfast ce- was launched on the US market in April 1957 for sale in
reals under the Purina brand. The name was derived from supermarkets. Just one year later, Purina Dog Chow was
the company slogan “Where purity is paramount”, intro- the leading dry food for dogs in the US, a position that it
duced in 1898. still holds to this day. In 1962, with the same concept, Pu-
As a self-proclaimed supporter of the health move- rina introduced Purina Cat Chow, followed by Puppy Chow
ment of the period, in 1898 William Danforth contacted in 1963. With Tender Vittles, Purina launched the first wet
Dr Ralston, a well-known health guru, and convinced him food for cats on the US market in 1971.
to work with him. Dr Ralston went on to endorse the ce- Despite the recession, Ralston Purina saw sales and
reals produced by the Robinson-Danforth Commission Co. profits increase throughout the 1970s. The company ac-
and in return Danforth agreed to rename his cereal, whole- quired the Missouri Arena Corp., St. Louis Blues National
wheat and flour products “Ralston”. By 1902, the brands Hockey League Franchising (both in 1977) and the Bremner
Ralston for food and Purina for animal feed were so suc- Biscuit Corp. (1978), whilst parting company with less prof-
cessful that the company was renamed Ralston Purina. At itable business areas. The assets released were used in the
the same time, the black-and-white – later red-and-white – mid-1980s to acquire various companies in the consumer
checkerboard pattern became the trademark and logo of packaged goods industry (Continental Baking 1984, Ev-
the renamed company. eready Battery Co. 1986, Beech-Nut Nutrition 1989, from
On a visit to the UK, Danforth came across a new Nestlé). At the same time, Purina became a holding com-
type of animal feed, manufactured and served in a new pany with a divisional structure encompassing the Conti-
and innovative way, which he went away and used to cre- nental Baking Co., Eveready Battery Co., Ralston Purina
ate his 1921 product Purina Chow. The various ingredients International, Grocery Products and Protein Technologies
of the animal feed were pressed into small cubes, and this International. Ralston Purina International expanded its pet
innovation quickly proved to be a success. Soon, most an- food and cereals business in Europe and the Far East. With
imal feed manufacturers were producing dry feed for live- the creation in 1990 of Pro-Visions Pet Specialty Enter-
stock in the form of pellets. Another important watershed prises, a new pet food division, this overall area acquired
in the history of the company was down to the determina- greater weight within the holding structure. The aim of the
tion of Donald Danforth, the son of the company’s founder, newly created company was to boost growth in the highly
who joined his father’s firm in 1920. Despite initial doubts promising premium pet food business.
of Danforth senior, Ralston Purina opened its first livestock A reorganisation process was begun in the 1980s,
farm in Gray Summit, Missouri in 1926 on Donald’s initia-
tive. A scientific approach could now be taken to research-
ing the production of animal feed, with feeding experi-
ments and nutritional tests carried out. The Purina Pet Care
research centre is one of the oldest and biggest of its kind
in the US to be devoted exclusively to the research of an-
imal feeding and husbandry.
In 1932, in the midst of the Great Depression, Don-
ald Danforth took over the struggling firm and proceeded
to focus on expansion and decentralisation despite the dif-
ficult economic situation. By 1935 he had opened nine new
mills and decentralised production and distribution. In
1947 the Purina Chow brand accounted for 91 per cent of
Thanks to its long history

of research into the physiology
and nutrition of domestic pets,
Purina was very soon able to de-
velop food specifically tailored to
the needs of cats and dogs
throughout their lives.
126
and continued until 2000: In 1994, the cereal, baby food, At the end of 2001, the merger was complete. Nestlé
food and resort businesses were spun off to form an inde- paid 10.3 billion US dollars for Ralston Purina Company in
pendent company called Ralcorp. The remaining compa- the biggest acquisition in the history of the Nestlé Group
nies were then brought together under the name Ralston to date. The new organisation was renamed Nestlé Purina
Purina Pet Products Group. Ralston Purina parted ways PetCare Company and is based in St. Louis, USA. Follow-
with its animal feed business following the spin-off of Agri- ing the merger, the pet food business of the Nestlé Group
brands International Inc. in 1998, followed by Eveready generated a turnover of 6.3 billion US dollars, double its
Battery Co. in 2000. Meanwhile, Ralston Purina was in the business in this area before the Ralston Purina acquisition.
process of acquiring companies in the pet food and care By 2005, Nestlé Purina was generating a turnover of
business: Golden Cat Corporation, the leading producer of CHF 10.569 billion, with 50 factories employing a total of
cat litter Tidy Cats in North America in 1995; Edward Baker approximately 14,500 people around the world.62
Petfoods, a leading producer of dry food in the UK and
main supplier of branded pet food in northern Europe in
1997; in the same year Bonnie Pet Foods and in 1999 Can-
brands, a cat litter producer, both in Australia.
Nestlé, which had entered into the pet food business
with Friskies following its acquisition of Carnation Co., Los
Angeles, in 1985 and had expanded further with the ac-
quisitions of Alpo in 1994, Spillers in 1998 and the pet food
business of Cargill (Argentina) in 2000, found in Ralston
Purina – the number one in the North American pet food
market – the ideal partner to add to this division. In Janu-
ary 2001, Nestlé announced the merger of its US Friskies
business with Ralston Purina Co. The two companies com-
plemented each other with regard not only to their prod-
uct range – Ralston Purina is the largest producer of dry
food for cats and dogs and a leading manufacturer of cat
litter in the US, while Friskies is one of the big names in
wet food for cats – but also their geographical focus. With
the aid of the strong market position occupied by Friskies
in Europe, the aim was to achieve the rapid introduction
of Ralston Purina brands, in the premium segment in par-
ticular. Added to this was the new Purina Veterinary Diets
product range, available exclusively from vets and selected
outlets. This range includes primarily dietary products and
products with special ingredients used to treat or prevent
various conditions – an area with great growth potential,
which was to be expanded in Europe and Asia in particu-
lar.
127
Schöller Thanks to an agreement with the Swiss catering

company Mövenpick, 1974 was an important year for
As the 18-year-old Theo Schöller, the founder and name- Schöller that was to set the shape of things to come. The
sake of Schöller GmbH, ate his first ice cream on a stick two firms signed a five-year licence agreement, which was
in a Berlin music hall in 1935, the idea for creating his own later extended. Schöller, as licensee, began producing
company to produce ice cream was born. Theo and his Mövenpick ice cream in West Germany, the first product
brother Karl set up their first factory, which began operat- of the collaboration between the two companies being the
ing in 1937, on their parents’ land in Nuremberg, Germany. launch of the successful Schöller-Mövenpick 5-Litre Tub.
To start off with, the Schöller brothers produced and dis- This ice cream, containing the finest pieces of fruit or choc-
tributed Jopa-Eis am Stiel – available in vanilla, chocolate, olate, was initially produced exclusively for the catering in-
strawberry and lemon flavours – under a licence acquired dustry. Following the successful launch of the 5-Litre Tub
from the entrepreneur Josef Pankofer. The product, which in the hospitality industry, the aim was then to carry over
could not be stored for long, was delivered to customers this success to private homes, which was achieved in 1979
in Thermos flasks on motorised bicycles. when this quality ice cream hit the supermarket shelves.
After almost twenty years of running the firm to- In 1982, Schöller and Mövenpick concluded a further li-
gether, the two founders went their separate ways in 1955. cence agreement, jointly co-ordinating their activities out-
Theo Schöller took over the company, which he continued side Germany. Schöller-Mövenpick saw its market share
to manage alone. Just five years after taking the reins, rise from 21 per cent in 1981 to 47 per cent in 1982. The
Schöller was faced with a new challenge as an independ- partnership between the two companies also had a posi-
ent entrepreneur: In 1960, Nestlé approached Josef Pan- tive effect on research and development, production and
kofer, then licensor to the Schöller company for Jopa ice marketing, with Schöller and Mövenpick together break-
cream, with a view to acquiring his company. Together ing new ground in the development of new flavours. With
with Schöller as licensee, Jopa enjoyed a 23 per cent mar- the Ice Cream of the Year recipe that has remained suc-
ket share in West Germany in 1960, making it the coun- cessful to this day, a new, exotic fruity ice-cream flavour
try’s second-largest ice-cream producer after Langnese. has been named Ice Cream of the Year every year since
The acquisition of Jopa by Nestlé took place that same 1989.
year. An entrepreneur through-and-through and dedicated In June 2001, Nestlé contacted the then owners of
to his company, Theo Schöller decided not to take part in Schöller Holding, the Südzucker company, with a view to
the acquisition and to go his own way for a second time. entering into takeover talks. Südzucker, which had ac-
The licence agreement was duly terminated, and Schöller quired Schöller in 1995, was aiming to focus more closely
given a golden handshake. Schöller initially remained in- on its core business of sugar and sweeteners. To pave the
dependent, but needed to find a new name for his ice way for the integration of Schöller into Nestlé’s existing
cream. To tie in with Schöller-Lebkuchen, the Schöller-Eis- ice-cream business, which formed a strategic growth sec-
krem brand was introduced in 1960. tor of the Nestlé Group, a European operating company
During this period of reorganisation, further loca- was established in December 2001. The new unit, Nestlé
tions were opened and production sites and cold stores Ice Cream Europe (NICE), was intended to accelerate the
expanded. The success of the business continued into the pace of growth in the ice-cream business. Following the
1970s: Schöller’s range, which had consisted of 13 items successful integration of Schöller, this unit was disbanded
in 21 flavours in 1960, had grown to 31 different items in
56 flavours by 1970. In addition to supplying the catering
trade, kiosks and petrol stations, the firm also began ex-
panding its distribution activities in the retail trade from
1971 onwards. A new concept was developed for this dis-
tribution channel, with Schöller aiming to keep one step
ahead of the competition not only in the quality of his prod-
ucts but also in the distribution and presentation of his ice
cream range. Together with the firm Linde, he set about
producing special chest freezers for the food and retail
trade. These freezers, which held 400 litres of ice cream
and allowed for uniform presentation, were the first of their
kind in the West German market.
Having started out as a whole-

sale supplier of premium ice
cream such as Schöller-Möven-
pick, Schöller went on to develop
speciality products for individual
consumption.
128
in 2004. This acquisition enabled Nestlé to strengthen its Dreyer’s Grand Ice Cream
position in the strategically important German market, and
to obtain access to the markets of northern and central Eu- In 1906, the 18-year-old William Dreyer left his native Ger-
rope. In addition, the takeover opened up new business many, bound for America, earning his passage as a galley
opportunities in the frozen food segment, as well as in di- boy on a German ship. Legend has it that he was given the
rect sales to households. Following on from the acquisi- job of making a frozen dessert to mark the ship’s safe ar-
tion of Schöller in 2002 came Nestlé’s takeover of the re- rival in the United States – and so a career was born. Af-
maining 50 per cent of the joint venture Ice Cream Partners ter a brief spell making ice cream in New York, Dreyer
USA from the Pillsbury Company (Diageo PLC), which moved west to Visalia, California. There, he opened his
owns the quality brand Häagen-Dazs, as well as the acqui- own prize-winning ice creamery before eventually settling
sition of worldwide marketing rights for Mövenpick Ice in Oakland, Northern California. In 1917, he became one
Cream in 2003 and the complete takeover of Dreyer’s in of the charter members of the California Butter, Cheese
2006.63 and Ice Cream Makers Association. Over the next two dec-
ades, he served as an officer of this association as well as
teaching courses on the ice cream industry at the Univer-
sity of California.
At the age of 40, Dreyer was to find the ideal busi-
ness partner in Joseph Edy, a renowned Oakland candy
maker and owner of six confectionery stores. In 1928, the
two men decided to join forces and open a small factory
on Grand Avenue in Oakland, making premium ice cream.
The very first ice cream that they produced was known as
Edy’s Grand Ice Cream and “Grand” has been part of the
company name ever since – in honour of the company’s
birthplace on Grand Avenue and as a testament to the qual-
ity of the brand. One year later, the original Rocky Road
was launched, a delicious blend of chocolate ice cream,
nuts and marshmallow pieces. This new flavour took the
market by storm, and remains one of the best-selling fla-
vours of all time in America.
At the end of the Second World War, William Drey-
er’s only son joined the company. Not long after, Joseph
Edy returned to the confectionery business and the part-
nership was dissolved in 1947. From then on, William
Dreyer continued to run the company under the name
Dreyer’s Grand Ice Cream. In 1963, Dreyer’s son, who had
taken over from his father in 1953, sold the business to
three of his key managers – Al Wolff, Bob Boone and Ken
Cook. Cook successfully guided the company through the
1960s, a difficult period for small ice cream producers. But
despite its uncompromising commitment to quality, Drey-
er’s found itself struggling to compete with the major pro-
ducers, with their links with the big supermarket chains.
By 1977, the company was on the brink of bank-
ruptcy when along came T. Gary Rogers. On the lookout
for acquisition and franchise opportunities, he pitched up
at Ken Cook’s office. As Rogers himself later described the
scene, the two men were in discussion when they were
interrupted by a phone call. Cook answered the call and,
when he had finished, explained to his visitor that the bank
had just turned down their application for a loan. At this
point, Rogers asked Cook whether they had considered
129
selling the business. To which he apparently replied: “No – In June 2002, Nestlé announced that it had struck a
not until now, anyway.” Within a matter of days, a deal deal to merge its North American ice cream business with
had been struck and Rogers was in possession of a call Dreyer’s and take over 67 per cent of the new joint firm in
option, which he subsequently exercised with his old busi- return. The transaction was completed in 2003, when Drey-
ness partner W.F. (Rick) Cronk. er’s officially merged with the Nestlé Ice Cream Company
A new chapter in the history of Dreyer’s began, (NICC) – owner of the Häagen-Dazs, Drumstick, Nestlé
which at that time was a six million dollar business with Crunch and Butterfinger brands – to form Dreyer’s Grand
just a few dozen employees. Within three years, they Ice Cream Holdings, Inc. For competition reasons, the
succeeded in turning the company around, making it the Dreamery, Godiva and Whole Fruit Sorbet brands – part of
producer of the best-selling premium ice cream in the the Dreyer’s portfolio – had to be sold off.
western United States, with sales and earnings going Together, Nestlé and Dreyer’s Grand Ice Cream have
from strength to strength. By the time the company was successfully continued in their quest for innovation. One
floated on the stock exchange in June 1981, the business of the best examples of this is the launch in 2004 of Drey-
– acquired for one million US dollars – was valued at er’s Slow Churned Grand Light which is, thanks to a spe-
45 million dollars. cial moulding technique, a light ice cream that’s just as
In 1981, the Edy’s Grand Ice Cream brand – named thick, creamy and full of flavour as a regular one, but with
after co-founder Joseph Edy – was reintroduced, though half the fat and one-third fewer calories. This was followed,
not entirely voluntarily. Kraft International, owners of the in 2005, by Edy’s Dibs bite-sized ice cream snacks. At the
Breyers Ice Cream brand, filed a lawsuit against Dreyer’s, beginning of 2006, Nestlé achieved full ownership of Drey-
claiming that the company name and the corresponding let- er’s Grand Ice Cream Holding, making it for the first time
tering was too similar to their own. However, Dreyer’s re- the clear leader in the ice cream sector, with a market share
fused to give up its traditional name, with the rich history of 23.2 per cent in the USA and 17.5 per cent globally.64
that it embodies. In the end, it was agreed that Dreyer’s
could continue to operate under its existing brand in its orig-
inal market, but that any expansion into the mid-west or
eastern United States would have to be done under a dif-
ferent brand name. And so it was that in 1984 Dreyer’s ice
cream went on sale in Chicago, Kansas City, Minneapolis
and Ohio under the name of Edy’s Grand Ice Cream.
Dreyer’s owes its success not just to the quality of
its products, but also to its ability to move with the times.
In line with changing consumer demand, Dreyer’s launched
its first sugar-free dessert in the 1970s. This was followed
in 1987 by Dreyer’s Grand Light, which not only contains
fewer calories – as do most “light” products in the United
States – but also less fat. With this groundbreaking new
range, Dreyer’s truly was ahead of its time. Continuing this
trend, 1990 saw the launch of American Dream, a new
cholesterol-free frozen dessert. Two years later, with a
brand new formula, Dreyer’s Fat Free was unveiled.
In 1994, Dreyer’s achieved its goal, becoming the
leading producer of premium ice cream in the USA with a
market share of 11 per cent. This success was to attract
the attention of Nestlé, which was looking to expand its
ice cream business at that time, and consequently pur-
chased an initial 17 per cent share in Dreyer’s that same
year. By 1996 – in the space of less than 20 years – T. Gary
Rogers and W.F. Cronk had transformed a struggling local
company into a thriving business with a workforce of 2,400
and sales of 796 million US dollars. The business also
boasts its own fleet of delivery trucks, making up an ex-
tensive direct store delivery network.
Since the 1980s, Dreyer’s

has focused on low-calorie,
cholesterol and fat-free ice cream
with all the taste of the original.
130
Brand policy
Nestlé – a brand-conscious company

Brands are among a company’s most valuable assets, particularly when the
company, like Nestlé, is active in the consumer goods industry. Even if their
financial value does not (yet) appear in the balance sheet, this value can still 1
be calculated or at least estimated. The specialist agency Interbrand, for ex-
ample, estimates the value of Nescafé alone at USD 12.5 billion or CHF
15.2 billion, i.e. almost double the annual sales of the product. This puts Nes-
café in 23rd place between Pepsi and Google in the list of the world’s most
valuable brands, and makes it by far the most valuable brand in Switzerland.65 2
As such, the value of a brand cannot be based purely on its sales – equally im-
portant, if not more so, is its emotional value. The renowned German commu-
nications expert Hans Domizlaff described brands as “beings with a soul”66,
while they have also been defined as “the product idea in the subconscious of
the consumer”.67 In decisions relating to acquisitions, therefore, the value of
the brands to be acquired plays a fundamental role. The acquisition of re-
nowned brands has therefore always been a major takeover criterion for Nestlé,
as illustrated for example by Rowntree in 1988 with its world-famous choco-
late brands KitKat, Smarties and After Eight. Brand value is also a fundamen- 3
tal component of goodwill, i.e. the difference between the book value and the
purchase price that is actually paid for the acquisition of a company. In 1992,
Peter Brabeck estimated that Nestlé had paid no less than CHF 14 billion in
brand goodwill for the acquisitions it made between 1984 and 1991.68
Rapid international expansion since the beginning of the twentieth cen-
tury, the enlargement of the portfolio initially limited to milk products to in-
clude many other business areas, inventions such as Nescafé and the numer-
ous acquisitions of the second half of the century have led to an increase in
the number of brands over the decades to more than 8,000 worldwide. Many 4
of these brands no longer had any connection with the Nestlé name and also
made no reference to the manufacturer, which often hid behind all kinds of im-
aginative names.69
From bird’s nest to umbrella brand …

Back at the beginning of the 1970s, efforts were already being made in Vevey
to revive the nest both as the company’s logo and trademark. Even then there
were discussions about the concept of the “umbrella brand” as it was known
in the automotive industry, with the company name preceding the product
name (Ford Fiesta, for example). At the time, umbrella brands were relatively
rare in the food industry, with a few exceptions (notably Cadbury). In 1973,
Nestlé issued a directive to all its subsidiaries instructing them to make greater
use of the logo with the nest on packaging, with the aim of establishing a glo-
bal Nestlé image and strengthening the corporate identity. The idea was not,
however, to make any fundamental changes to the existing brand policy.70
The plans announced back then, however, were not implemented sys-
1–4 Evolution of the Nestlé

logo: 1868, 1966, 1988 and
1995. The first logo was de-
signed by Henri Nestlé himself,
inspired by his family coat of
arms to create his very own
131 trademark.
tematically until after the arrival of Helmut Maucher in Vevey. He emphasised

1 the high emotional value of the bird’s nest, because it symbolised precisely
those values – warmth, wellbeing, sanctuary, safety, nature and nourishment –
he wanted to see associated with Nestlé and which the company could use to
set itself apart from its competitors. The Nestlé logo was modernised in 1988,
with the number of chicks in the nest being reduced from three to two and the
worm being removed from the mother bird’s beak. Maucher ensured that the
2 Nestlé name was once again used in the official title of all subsidiaries, facto-
ries and research centres worldwide, and that the updated company logo
adorned all buildings, vehicles and letterheads.71
On the basis of this newly reinforced corporate identity, Maucher was
then able to set about defining a new brand policy. In the 1989 Strategy Paper
he emphasised the need for a new policy, due not least to the increasing pres-
3 sure from the private-label brands of the supermarket chains, which called for
the strengthening of manufacturers’ brands.72 The time also seemed ripe for a
new brand policy for other reasons: Via the acquisition of Buitoni and Rown-
tree the company had acquired strong brands that needed to be integrated; the
joint ventures with Baxter’s, General Mills and Coca-Cola and the collaboration
with Disney called for a much clearer emphasis on the company’s own brands;
and the upcoming expansion into Eastern Europe and China demanded a clearer
4 global identity. In addition, the company needed to keep up with the competi-
tion in the context of brands. At the end of the 1980s, not only Cadbury, but
also Mars focused increasingly on their company name as the umbrella brand
for as many of their products as possible.73 For Nestlé this solution was a logi-
cal continuation of its efforts to bring its company name and its products closer
together. The idea of using Nestlé as a worldwide corporate strategic brand
5 made even more sense considering that many milk products already bore this
brand. One argument against the concept of using Nestlé as the umbrella brand
for all the company’s products was that Nestlé had a series of equally strong
brands such as Nescafé and Maggi, which would not benefit from being placed
under the umbrella brand Nestlé. On the contrary, this would hinder their fu-
ture development. Maucher decided, therefore, only to use the Nestlé umbrella
6 brand for products that belonged to the company’s most traditional areas of
business. This included infant food and all other milk products, as before, but
also the product categories, closely related to milk, of chocolate, confectionery
and ice cream, as well as breakfast cereals. Despite this restriction, these prod-
ucts corresponded to around 40 per cent of total sales in terms of value. The
Nestlé brand, which received a special typeface for each of these categories,
was not intended to replace the original brands but rather to complement and
reinforce them, and identify them clearly with their manufacturer. KitKat, for
example, became Nestlé KitKat. This brand policy enabled Maucher to achieve
several goals at once, in responding to increasing consumer demand to know
who was behind a particular product. This enabled the products under the Nestlé
umbrella brand to benefit from the prestige and familiarity of Nestlé, and the
company to benefit from their popularity. While other companies invested large
sums of money in inventing new names and logos, Nestlé was associated with
1–6 The Nestlé umbrella

brand encompasses the follow-
ing sectors: (1) Nutrition,
(2) Milk, (3) Confectionery,
(4) Ice Cream, (5) Water and
(6) FoodServices. 132
a name that had been familiar for a considerable length of time, accompanied
by a strong symbol. Neither called for huge investment or required years to es- 7
tablish themselves in the public realm and among consumers.
… and brand pyramid

While appealingly simple, the idea of the umbrella brand was complicated to
implement. Maucher entrusted this task to Peter Brabeck, who had been re- 8
sponsible for the culinary Division within the Products Department since 1987
and, one year later, gained valuable experience with a particularly emotional
brand in the context of the integration of Buitoni into Nestlé’s product portfo-
lio. He was required, above all, to find a solution for those product categories
that would not benefit from the Nestlé name. This solution was based on as-
sociating each of these categories with a further worldwide corporate strate-
gic brand with the same status as the umbrella brand Nestlé: Maggi and Bui- 9
toni for all culinary products, Nescafé and Nestea as global beverage brands,
Carnation and Libby’s as strong US brands, Friskies as an umbrella brand for
pet food and Nestlé Foodservices, which as a new business area in its start-up
phase was particularly reliant on the Nestlé name.74 Following the acquisition
of Perrier in 1992, this was also given the status of umbrella brand for all min-
eral waters. All these umbrella brands were considered to be sufficiently strong
and independent to exist without the express mention of the company name 10
itself. In order to clearly identify them with Nestlé nevertheless, the reverse
side of the products bore the logo with the nest, which also served as a guar-
antee seal. There were, however, three exceptions to this rule. Buitoni, a brand
that was 40 years older than Nestlé, received its own guarantee seal.75 Pet food 11
was sold without any reference to Nestlé, in order to ensure a clear distinction
between products for humans and those for animals – a policy also pursued
by Mars with its pet food business.76 The water brands, with the exception of
Nestlé Pure Life and Nestlé Aquerel, also had to do without the nest, as unlike
all other Nestlé products they originated directly from nature and had not been 12
altered in any way by human hands.
The ten worldwide corporate strategic brands formed the top of a pyra-
mid whose base was made up of around 7,500 local brands, most of which
were distributed in a single country only. Between the top and the base were
a further three levels: around 50 worldwide strategic brands such as KitKat,
Smarties and After Eight, around 150 regional strategic brands including Herta
and Stouffer’s, as well as approximately 700 local strategic brands, e.g. Briga-
deiro in Brazil.77 This brand hierarchy was based on competencies, with actual
responsibility falling to the relevant SBU. Depending on the significance of the
brand, the SBU shared this responsibility with the Executive Board (for the glo-
bal strategic corporate brands), with the Zones (global strategic brands) or the
markets (regional strategic brands).
The formulation of the brand policy coincided with the 1990 and 1991
reorganisation of the Centre under the Nestlé 2000 project, whose core was
the creation of the SBUs.78 Brand management was always one of the main
tasks of the SBUs, their raison d’être, so to speak. This task was based on doc-
7–12 Logos of the six world-

133 wide corporate Nestlé brands.
uments that set out the specific characteristics and positioning of each indi-
1 vidual brand and contained guidelines concerning typeface, colour, product
information and advertising. Nestlé’s brand policy had strong centralistic ele-
ments right from the start and, together with research, development and
finance, formed one of the few areas in which Vevey had the final say. The fact
that the largest brand category in numerical terms, one made up of many thou-
sands of local brands, was the sole responsibility of the markets guaranteed a
certain counterbalance in terms of decentralisation. All in all, the brand policy
was a typical Nestlé creation in that it ensured unity within diversity. In this
systematic form it was groundbreaking in the context of the food industry and
was later replicated by various competitors. Unilever, for example, whose name
had previously not been used on any of its products, was inspired by Nestlé’s
guarantee seal and now also identifies itself as the manufacturer via its logo.
At the same time, Unilever drastically reduced the number of its brands but
without systematically introducing umbrella brands. For Nestlé, these also
2 proved to be an advantage because they enabled the company to slash the
cost of launching new products and to extend brands from one product cate-
gory into another. Nestlé had already successfully carried out such brand ex-
tension at the beginning of the 1980s, when it also used the well-known choc-
olate brand Galak for its ice cream.79
Pragmatic brand policy

Nestlé did not follow the trend for reducing the number of brands blindly, but
also remained true to its pragmatic approach in this regard. Ultimately the com-
pany consisted of less than a dozen brands, as in principle all its brands were
directly or indirectly subordinate to one of the worldwide strategic corporate
brands. This system enabled Nestlé – and its consumers – to maintain an over-
view despite the large number of brands. But even at Nestlé the brand policy
3 was not set in stone, and the company did not hesitate to jettison longstand-
ing brand names in the interests of clarity. One example of this is Chambourcy,
a well-known and popular French brand of chilled dairy products that Nestlé
acquired in 1978 and later made a strategic brand for this area. Following the
initially successful launch of the probiotic yoghurt LC 1 in 199480, the idea was
to link this product – which was the result of the company’s own research and
was first introduced in France under the Chambourcy brand – more closely to
the company, thus associating Nestlé with modernity, innovation and health.
As the first of a new generation of nutrition products, the aim was that LC 1
would open the door for further products in this category to be distributed un-
der the Nestlé umbrella brand. With this in mind, Brabeck took the risk of tem-
porarily upsetting French consumers by abandoning the traditional Cham-
bourcy brand and replacing it with Nestlé. He explained this decision by saying
that Chambourcy had nothing to contribute in terms of promoting Nestlé’s
identity.81 In order to placate the French following this change of brand, the
typeface and colours of the Chambourcy logo were adopted in the new varia-
tion on the Nestlé umbrella brand, which has since adorned all chilled dairy
1–3 The evolution of the

Nestlé seal of guarantee led to
the Nutritional Compass, which
provides consumers with useful
nutritional information and
enables them to get in touch
with the company. 134
products in Europe. An equally important brand transfer took place in 1999,

when Nestlé sold Findus. The frozen products from the earlier Findus range, 4
which Nestlé continued to manufacture after the divestment of Findus, have
since been distributed under the Maggi umbrella brand, except in Switzerland
and Italy, where the Findus brand still exists.
Even if Nestlé did not make any systematic reduction in the number of
brands and the total changed only slightly following the introduction of the
new brand policy, the number of worldwide corporate strategic brands was re-
duced from ten to six over the years. Because they were sold almost exclu- 5
sively in the US, Carnation and Libby’s were downgraded in the brand hierar-
chy. Perrier ceased to be an umbrella brand in 1998, after the two water brands
Nestlé Pure Life and later Nestlé Aquarel were added to the closer family of
products that bore the company name. This “upgrade” took place because
both cases involved not purely natural but rather processed products that were
also the result of Nestlé’s research, and because both had a clear association
with nutrition.82 Ultimately, following its successful start, Nestlé Foodservices 6
no longer required the status of an umbrella brand at Group level.
The brand hierarchy itself, which with its many levels was initially pretty
complicated, was also simplified. Today, Nestlé has only two kinds of brands,
corporate brands and range/product brands, which can be used at all three lev-
els – worldwide, regionally and locally. The top corporate brands continue to
be the worldwide strategic corporate brands Nestlé, Nescafé, Nestea, Maggi,
Buitoni and Purina, with the latter having succeeded Friskies as the umbrella
brand for pet food since the acquisition of Ralston Purina in 2001. These are
followed slightly lower down the hierarchy by the remaining worldwide stra-
tegic brands such as Milo, KitKat and Nan. The regional strategic brands com-
prise both corporate and range/product brands. The former includes brands
that are represented internationally but not worldwide, such as Herta, Thomy
and Stouffer’s, while the latter includes those that are primarily distributed
within a single large market, such as Carnation in the US and Ricoré in France.
All other brands that do not belong to one of the categories mentioned are
local.
Brands must be handled with a great deal of tact and sensitivity. Because
there is no such thing as a “mass consumer”, as Brabeck stated back in 199283,
the use of a brand must always be adapted to suit the prevailing conditions.
When seeking to conquer a new market, the company had two main choices:
either to import a product under an already familiar international umbrella brand
such as Nestlé or Maggi, or to buy up a local brand and continue to operate it
under its original name. In Central and Eastern Europe in particular, Nestlé
opted for a combination of both approaches. In Russia, for example, chocolate
was imported under the Nestlé brand and at the same time, following the ac-
quisition of a chocolate factory in Samara, its long-established Rossiya brand
with its familiar taste and traditional packaging was left unchanged. This prag-
matic two-pronged strategy proved successful once Russia, a few years after
opening up, began to lose its enthusiasm for Western products and started fo-
cusing once again on national brands. In Poland, Nestlé refrained from selling
4–6 The Chambourcy logo

was the inspiration for the de-
sign of the umbrella brand for
135 Nestlé chilled dairy products.
the culinary products of its new acquisition Winiary under the Maggi umbrella
brand and continued to distribute them under the familiar brand of the same
name.
Brands and advertising

The brand is also a fundamental part of a product’s packaging, which in turn
is the most cost-effective means of advertising84 as it creates an unbreakable
link between the product, the manufacturer and the consumer. With this in
mind, in recent years Nestlé has also modernised its quality seal, which is now
more prominently displayed than when it was first introduced at the beginning
of the 1990s. Packaging is also becoming an increasingly important source of
consumer information, for which Nestlé created a new basis in 2005 when it
increased the amount of nutritional information in particular. In the wake of
the campaign co-ordinated by the new Corporate Wellness Unit, all Nestlé
products now generally bear a visually and linguistically appealing Nutritional
Compass with useful information about the product’s contents and use under
the headings “Good to know”, “Good to remember” and “Good to talk about”.
The latter heading contains – as did the quality seal previously – a freephone
number and a website address for consumers to contact their local Nestlé com-
pany. Many consumers take advantage of this opportunity, which also provides
the company with valuable feedback.
Back in his first “Blueprint”, Brabeck insisted that brands must be main-
tained and nurtured if they are to retain their value.85 This is the reason why
Nestlé invests CHF 2 billion a year in advertising (“consumer communication”),
the fourth pillar of its Group strategy.86 In contrast to its brand policy, Nestlé’s
advertising is decentralised, as it must take into account the cultural and lin-
guistic characteristics of each market. Therefore, even worldwide advertising
campaigns such as for Nescafé must be adapted on a local basis. Despite this
decentralisation, the markets are not entirely free to decide how they spend
1 2
1–2 In 2001, the PowerBar

Pria brand was launched,
specifically developed to meet
the nutritional needs of women. 136
their advertising budget, but must work with major international advertising
agencies selected by Vevey, while the relevant department (the Strategic Gen-
erating Demand Unit, SGDU) has a co-ordinating role. By the mid-1990s, Nestlé
had reduced the number of its “aligned agencies” from over a hundred to just
five, with each taking on a product category.87 Today, the total number of agen-
cies is even smaller. This has enabled the company to save on costs and to
concentrate advertising on a number of “megabrands”, based on the model
of the 17 main brands of L’Oréal.88 The decentralisation of advertising is of sub-
ordinate importance, however, in the Group-wide guidelines for consumer com-
munication, which form part of the Nestlé Corporate Principles. These guide-
lines stipulate that advertising should promote the moderate consumption of
food on the basis of a healthy, balanced diet, should respect the culture of the
relevant country and avoid any discrimination. Particular regulations apply to
advertising for children, which must neither undermine parental authority nor
portray children in dangerous situations.89
137
138
5. Geographic Expansion: Zones and Markets
Threshold and industrial countries
“One of our long-term goals is to create a geographic equilib-

rium, less in relation to individual countries and more with re-
gard to large areas such as Europe, North America and Africa/
Asia/Oceania/Latin America, or between industrial and devel-
oping countries. The Nestlé Group first began to develop over
a century ago in Europe, where it is now firmly anchored.
Growth in some European markets has slowed down, how-
ever, and competition is often very tough. In contrast to Eu-
rope, which remains fragmented, the United States forms one
huge, uniform market that still offers great potential in certain
segments. It remains a difficult market nonetheless, and de-
livers successes and failures on a par with its size. There are
relatively few developed countries on the other continents.
Whereas Third World countries once represented fast grow-
ing markets, some of these states, as a consequence of the
debt crisis, are now shackled by a restrictive savings policy.
In addition to the structural risks associated with these coun-
tries (full or partial nationalisation, for example), economic dif-
ficulties have spawned numerous new hazards and uncertain-
ties, or have exacerbated existing ones. These include, for
example, restrictions on imports and capital transfer, major
currency devaluations and blocked or strictly controlled prices
with enduring cost inflation.”1
139
That is how, writing in his book, Marketing ist Chefsache, in 1992, Helmut
Maucher described the world in which Nestlé had to survive in the early 1990s.
And even though some of the problems and risks he described in connection
with the Third World have to some extent faded into the background since
then, business commitments in that part of the world remain somewhat per-
ilous: for whilst it is true that growth in sales volumes may be encouraging,
currency devaluations frequently cancel out these revenue benefits in the con-
version to Swiss francs. Brabeck illustrated this phenomenon at the 2003 Au-
tumn Press Conference with reference to Brazil, an emerging market: in 1998,
Nestlé sold 950,000 tonnes of goods in Brazil, generating revenues of CHF
4.3 billion. By 2002, sales volumes had climbed to over a million tonnes, but
1 revenues had fallen to CHF 3.3 billion. Currency devaluation had turned a 10
per cent increase in sales volumes into a 30 per cent loss in sales revenues.2
Thus developing and threshold countries represent an unstable weight and
offer no guarantee of a balanced set of global scales. Elsewhere, the indus-
trialised countries continue to lose weight – with the exception of the USA.
Seen from a European perspective, Maucher’s 1992 assessment remains valid.
In spite of the emergence of the EU Internal Market in the same year and mon-
etary union some time thereafter, the European market still bears no compar-
ison with the US market in terms of uniformity, and growth still leaves a lot
to be desired regardless of encouraging progress in Central and Eastern Eu-
rope and Russia. Furthermore, stagnating birth rates and the resultant ageing
2 population in most European countries – as in Japan, too – are not likely to
prompt any improvement in the medium term. The US, on the other hand, still
offers great potential. It is currently the only major industrial nation enjoying
both economic and population growth. Guided by this need for geographic
equilibrium it should therefore come as no surprise that in recent years, Nestlé
has made almost all its big acquisitions in the USA, which is now the corpo-
ration’s most important market by far, accounting for a 28 per cent share of
total sales (cf. chart).3
Top eight markets*, 2005 (in % of total sales)3
30
28.1
25
20
15
10
8.3
7.0
5 4.8 4.4 4.1
3.4 2.9
0
USA France Germany UK Italy Brazil Mexico Japan
* Top 8 markets accounted

1 This store is stocked with for over 60% of sales in 2005.
goods for the Oke-Arm market,
one of the largest in Lagos,
Nigeria.
2 A supermarket shelf in
South Africa. 140
Maucher’s aforementioned quotation ends with the optimistic phrase:

“Happily, free market forces have prevailed in recent years.” This was presum-
ably an allusion to a series of developments which had taken hold almost world-
wide in the early 1990s, many of which went far beyond economic reforms:
the opening up of China to foreign investors, German reunification, the end of 3
the Communist hegemony in Central and Eastern Europe, the collapse of the
Soviet Union, the European Internal Market and other economic mergers in
other parts of the world such as Southeast Asia, for example, or on the two
American subcontinents, economic reforms in India, strivings in the direction
of democracy and market economy in some countries of Latin America and
the beginning of the end of apartheid in South Africa. Virtually no other era in
recent history has seen so many, and such positive, simultaneous develop-
ments around the world.
Nestlé noted these trends and endeavoured to benefit from them in line
with Maucher’s stated aim of achieving a geographic balance. The company
did so in its usual pragmatic manner, using the model that had already served 4
it so well throughout its long history: imports first, then local production, fol-
lowed by the creation of a subsidiary. This progressive approach sometimes
earned Nestlé criticism for being too slow, and for missing out on opportuni-
ties as a result. Hindsight has proven the critics wrong. The procedure may
have been slow, but it was constant, systematic and sustained. As such, it en-
sured that Nestlé was able to weather the crises that arose. The best proof of
the success of this long-term policy is that Nestlé now occupies a leading po-
sition in most areas of the food industry in almost all the countries which have
opened up in the past fifteen years.
Although it would be fascinating to describe Nestlé’s approach in each
of these countries over the past decade and a half, such a narrative would ob- 5
viously go far beyond the boundaries of a book that is primarily devoted to re-
counting the history of Nestlé’s headquarters. Representing many other coun-
tries and regions, we will therefore turn our attention to the following three
examples of the most rapid and comprehensive transformations during this
period: China, Central and Eastern Europe and Russia. Despite many differ-
ences, these regions all have in common the fact that Nestlé returned to them
in the 1990s after an absence of several decades.
China
At half past eight on the evening of 7 July 1990, a tanker carrying untreated
milk arrived at the Nestlé milk powder factory in Shuangcheng in the northern
Chinese province of Heilongjiang. In this setting, an event that was an every-
day occurrence in dozens of milk districts all over the world was transformed
into a historic moment: it was the first delivery to a Nestlé factory in China for 3 The acquisition of
Chef America, headquartered in
over forty years, and marked the company’s return to a country in which its Engelwood, near Denver, USA,
products had first become available over a hundred years ago: Nestlé’s infant in 2002, allowed Nestlé to
cereal and condensed milk had been on sale in China well before the end of consolidate its position in the US
and gain a foothold in new food
markets with Hot Pockets micro-
wave sandwiches.
4 The Nestlé headquarters

in Jakarta, Indonesia.
5 A shelf in a store in Paki-

141 stan.
the 19th century. Nestlé opened its first sales office in Shanghai in 1908; this
1 office became a company in 1936, operating under the name Que Chao (“Bird’s
Nest”), which is now Nestlé’s official name in China.4 The Hong Kong branch,
which opened in 1920, ensured continuity when Nestlé was obliged to leave
the Chinese mainland after the 1949 Revolution. Nestlé products did not reap-
pear in Communist China until 1974, for a Swiss industrial exhibition in Bei-
jing. Chinese civil servants visiting the Nestlé stand showed great interest in
the company’s experience in the dairy sector. The contacts made on this oc-
casion were the start of a “long march” that would end almost seventeen years
later, after numerous mutual visits and protracted negotiations, with the open-
ing of the Shuangcheng factory in China’s far north, an area that had previ-
ously been hermetically sealed to foreigners.5 Throughout this long period,
2 China gradually began to open up in the wake of Mao’s death and Deng
Xiaoping’s economic reforms. But negotiations remained difficult because both
sides had clear demands: China was interested in the transfer of Western tech-
nology and local production of high-quality foods to reduce its dependence on
imports, but was not willing to shake up its system of central planning; Nestlé
was interested in returning to China, but only subject to the same terms as ap-
plied to its investments elsewhere in the world: a majority holding, manage-
ment control and royalties for technical assistance and the use of brands. The
first of these terms was the subject of much debate, because the Chinese would
initially only approve joint ventures that were split equally between both part-
ners. Nestlé therefore had to make a few concessions at the outset, but now
holds a comfortable majority in all its operational units in China. It even enjoys
100 per cent ownership of the holding company, Nestlé (China) Ltd. The man-
agement issue also caused friction, with the Chinese authorities demanding
that joint ventures should be managed by themselves and Nestlé together. This
prompted a categoric refusal from Nestlé. Tough negotiations ensued, and
Nestlé finally obtained what it wanted: full management by its own people. In
the initial phase, the management team was made up primarily of “expats”,
1 The Nestlé & Anglo-Swiss

sales office in Shanghai in 1917.
2–3 Dairy products factory in

Shuangcheng. 142
although the company did promise to promote more and more local manag-
ers of its own choice onto the management team. The third condition was even
more difficult to achieve than the first two, and prompted no fewer than seven
years of negotiations. By the end of this long mutual learning process, how-
ever, the two sides had arrived at a solution that was acceptable to both, this
time in the field of intellectual property.6 On this basis Nestlé has opened no
fewer than twenty-one factories in China from 1990 to 2005, including six in
1996 alone. Only three have their origins in acquisitions: in contrast to the sit-
uation in Central and Eastern Europe, where there was an existing, albeit out-
moded, industrial infrastructure, virtually everything in China had to be built
from scratch in greenfield locations. Nestlé’s Chinese factories are not all lo-
cated along the east coast, like most other subsidiaries of Western companies,
but are scattered all over the country, from the far north down to the deep
south, and even, since 2004, in Inner Mongolia. Together, they manufacture
the entire Nestlé product range, including Alcon eye medication, and employ
over 12,000 people. Thanks to their work, Nestlé is now the market leader in
China in infant formula, follow-up milk, milk powder, soluble coffee, stock
cubes, liquid concentrated seasonings and chocolate waffles. Nestlé has rarely,
if ever, built up such an extensive industrial presence in such a short time. The
idea was not, however, to outsource jobs to a low-wage country, but to meet
the needs of a fast-growing market of 1.3 billion people, of whom 350 million
can already afford Nestlé products. Some 99 per cent of the products Nestlé
sells in China are also made there. To enable local production of Nescafé,
Nestlé’s own agricultural consultants assisted with coffee-growing activities
in the southern province of Guangdong prior to the commissioning of a fac-
tory in Dongguan in 1992, just as its specialists had previously improved milk
production in Shuangcheng.7
The China region – which included Hong Kong and Taiwan from 2000
onwards – now ranks twelfth on the list of Nestlé’s biggest markets: in 2005,
this region generated sales of some CHF 1.7 billion.8 Dairy and nutrition
Nestlé Factories in China, 2005
Food and Water Ophthalmology

Beverages
1. Shuangcheng 9. Guangzhou 1. Tianjin 1. Beijing

2. Tianjin (2) 10. Erguna 2. Shanghai
3. Wuxi 11. Qingdao (2)
4. Shanghai (3) 12. Yuen Long
5. Chengdu
6. Xichang
7. Puge
8. Dongguan (2)
17 Food and Beverages

2 Water
1 Ophthalmology
143
products accounted for half that revenue, with the rest flowing from the other
product ranges. Two-thirds of total sales were achieved on the mainland, and
one-third in Hong Kong and Taiwan.9 From 1998 to 2004, Nestlé China reported
annual real internal growth of 20 per cent.10 In 2005 this fell temporarily to 15
per cent due to problems with food legislation11, but sales had already recov-
ered again by the second half of that year.12 Business in China was managed
from Hong Kong until 1996, after which Nestlé’s Chinese headquarters were
transferred to Beijing a year before the former British Crown Colony reverted
to China.
Central and Eastern Europe
Some years earlier, Nestlé had anticipated another historical development –

German reunification – within its own corporate structure. After the Berlin Wall
came down on the evening of 9 November 1989, Maucher reacted with his
usual speed: the very next day he told the management of Nestlé Germany in
Frankfurt am Main to view the GDR as part of the German market with imme-
diate effect. He supposed, and he was probably right, that Nestlé was the first
Western company to dare to take this step.13 Whatever the case, the sales rep-
resentatives at Nestlé Germany noted “not without amazement”, that they
were amongst the first sales representatives from the West. They were even
more amazed to see that Nestlé products were just as well known in the GDR
as in the West: the trickle of TV advertising had had its effect over the
years.14
But the initial euphoria had evaporated scarcely a year after the collapse
of the Wall. Three weeks before Reunification Day (3 October 1990), the Head
of Nestlé Germany reported to the Nestlé Board of Directors, which was meet-
ing for the occasion in Frankfurt am Main, that the legal situation in East Ger-
many was still fraught with uncertainty, and the infrastructure in a pitiful state.
Thus there had been no major investment in the former GDR as yet. Neverthe-
less, the Board decided to increase Nestlé’s exposure in that part of Germany
after formal reunification and clarification of the legal situation.15 Eight months
later, the Executive Vice President responsible for Europe reported that Nestlé
Germany had decided to focus on setting up a distribution network in the East,
had therefore begun operating a distribution warehouse near Leipzig and had
created almost 1,000 new jobs as a result.16 The former GDR was fully inte-
grated within the Nestlé Germany organisation with effect from 1 January 1991.
In early 1992, Nestlé acquired Kinderkost GmbH in Conow in Mecklenburg-
Vorpommern, with which a partnership had already existed since 1989.17 It
was to remain the only production site in the new federal states, because with
the completion of the European Internal Market in the same year, there seemed
little point in building additional factories inside the EU, where Nestlé already
had excess capacity.18
Nestlé had not, of course, waited for the fall of the Berlin Wall and the
subsequent collapse of the Communist regimes in Central and Eastern Europe
144
to turn its attention to this part of the old continent. The company had, after
all, been present in all these countries before the Second World War and was
hoping to be able to hook up with this tradition, particularly as many Nestlé
brands such as Nescafé and Maggi were still familiar, at least to the older gen-
eration, and known to younger consumers through imports – even if these were
limited due to the lack of foreign currency.
Yet Maucher still counselled caution, even in the transformation year of
1989. True enough, contacts had been intensified, but it was known that many
European businesses had run into big problems after the initial euphoria. So
whilst Nestlé intended to take on commitments in those countries in the long
term, it was determined only to do so at the same pace as liberalisation.19 By
the end of 1989 there were licence agreements with Hungary and Yugoslavia.
Joint ventures were considered in Hungary, Poland and the USSR, and “Mem-
oranda of Understanding” were even signed with some partners in these coun-
tries. In 1988 Nestlé exported goods worth CHF 25 million to Eastern Europe.
Contacts with Hungary and Poland were stepped up in 1990.
Hungary, Czechoslovakia, Poland

Overall, though, Nestlé was far more reserved in its reactions to the changes
in Central and Eastern Europe in the early nineties than it had been to German
reunification. Maucher believed that these states would only become profita-
ble in a long-term timeframe.20 He was very keen to point out, however, that
commitments in this part of Europe should not be at the expense of the Third
World: “Nestlé will not shift its priorities away from developing countries, or
from Latin America, to Eastern Europe.”21 “I believe it would be absolutely
wrong to withdraw from Africa, for example.”22 Opportunities in Eastern Eu-
rope would be put to good use,23 he said, but the company should be on its
guard against a “Yes, but...” kind of capitalism where governments welcomed
investment but then put all sorts of obstacles in the investor’s path – for ex-
ample in relation to advertising, proprietary rights, or rationalisation of produc-
tion, or by foisting local minority shareholders on the business.24
Negotiations in Hungary were brought to a successful conclusion early
in 1991 and Nestlé was able to go ahead with an almost 100 per cent takeo-
ver of the Szerencs chocolate factory, the second-largest in the country. This
allowed Nestlé to build up an initial industrial presence in one of the former
Communist countries of Central Europe.25 As with other acquisitions, Nestlé
retained the existing management, but the Hungarian market was placed un-
der the Austrian Market Head.26
There was an interesting development in Czechoslovakia, where the gov-
ernment adopted a more liberal privatisation regime than the other Central Eu-
ropean states in that it allowed newly privatised businesses to choose their
own partners in the West. Čokoladovny, the country’s biggest food group,
which operated in the chocolate and biscuit business and was valued at 250
to CHF 300 million, entered into negotiations with Nestlé and BSN (now
Danone) in 1990, both of whom were interested in taking over that part of the
Factory for soluble coffee

and chocolate in Timashevsk,
145 Russia.
business of most relevance to each of them at the time – chocolate for Nestlé,
biscuits for BSN.27 The government was keen, however, not to see this tradi-
tion-steeped company broken up immediately, so a solution was found in the
form of a joint venture: the two Western partners would own a 20 per cent
share each, with the possibility of a separation some time in the future.28 The
European Bank for Reconstruction and Development (EBRD) took a 15 per cent
holding, and the rest was split amongst various local investors, including the
employees, who retained a 3 per cent stake. This agreement, which was en-
1 tered into at the end of 1991, brought about the most extensive privatisation
in Czechoslovakia after that of the Skoda Works, which went to Volkswagen.29
Maucher referred to this joint venture, for which the Board of Directors ap-
proved CHF 60 million, as a “truly strategic acquisition”. He thought the price
high, but was convinced Čokoladovny could generate annual profits of CHF 25
million within just a few years,30 providing rationalisation measures were im-
plemented. In their negotiations with the government and the trade unions,
Nestlé and Danone had reserved the option to successively close four facto-
ries after a two-year “cooling-off period”.31 As planned at the outset of this
joint venture, Nestlé and Danone teamed up to take over a majority holding
(85%) in 1995, which meant additional costs of CHF 58 million for Nestlé.32
This joint venture provided the basis for a national Nestlé subsidiary which then
gradually moved into the company’s other areas of business. After Czechoslo-
vakia peacefully split into the Czech Republic and Slovakia at the end of 1992
the national company was legally divided into two businesses which in reality
continued to serve a single market. Nestlé and Danone separated peacefully,
too, although not until the end of 1998, each company taking its respective
half of Čokoladovny.33
Nestlé’s advance into Poland went rather less smoothly than it had done
further south. Negotiations to acquire Wedel, the chocolate manufacturer,
broke down in 1991, partly due to opposition by the trade unions, which had
been strengthened by the successes of the Solidarnosc movement, and partly
due to the excessively high price.34 It was not until two years later that an op-
portunity arose to acquire an 80 per cent share in Goplana – Poland’s largest
chocolate company with a market share of 13 per cent – for CHF 100 million.
At the same time, Nestlé was also able to buy the Slupsk dairy co-oper-
ative in northern Poland for CHF 13 million, to which a further CHF 25 million
in investment costs were added.35 In mid-1993, a national Nestlé subsidiary
was founded in Poland, too, on the back of these two acquisitions.36 Further
purchases in Poland were then off the agenda for the time being, as they had
become too expensive.37 Two years later Nestlé was invited to take a minority
stake – slightly over 40 per cent – in a culinary products company by the name
of Winiary.38 The acquisition, which was worth CHF 71 million, was concluded
in the summer of 1995.39 In Poland as in the Czech Republic, Nestlé faced a
productivity problem at the factories, where high personnel levels had remained
virtually unchanged since the planned economy had ended. In spite of salary
costs being lower in Poland than in Western Europe, Nestlé did not make any
promises about retaining existing jobs at the time of these acquisitions, but re-
1 A production control
at the pet food factory in Bük,
Hungary. 146
structuring remained a difficult option given the strength of the Polish trade
unions.40
Despite these obstacles, local production in Central European countries
was still cost-effective because these states initially protected their own farm-
ers by charging up to 45 per cent in customs duties on imported food.41 Nestlé
had invested some CHF 400 million in these countries by the end of 1993.42
Doing so had involved negotiating at length with local authorities and trade
unions whilst at the same time fending off international competitors who also
had an eye on the few attractive takeover opportunities. Whilst Danone had
been a partner in the Czech Republic, it became a competitor – as did Unilever
– for Winiary. Similarly, Nestlé rarely found itself alone when considering other
transactions in Central Europe. In fact Hungary, the Czech Republic, Slovakia
and Poland held even more appeal as industrial locations after they came to-
gether within the Central European Free Trade Agreement (CEFTA) and grad-
ually dismantled customs controls, at least between each other. This allowed
Nestlé to rationalise production, as it already had done in the EU Internal Mar-
ket. Hungary became the first platform for supplying the entire region, initially 2
with Nesquik from the factory in Zamat, then with pet food from the factory in
Bük. A first comprehensive programme of rationalisation for the CEFTA coun-
tries was launched in 1999. At the same time, thoughts were already turning
to future EU membership: “Our policy will be to adapt our industrial and com-
mercial structure of the countries applying for EU membership to Western
standards,” noted a strategy paper at the end of 1998.43
Sales agencies had to suffice in Romania and Bulgaria for the time be-
ing, and in the states which emerged from the former Yugoslavia, a permanent
presence was unthinkable given the violent conflicts throughout the 1990s.
The only exception was Slovenia, which was attached to the Austrian market.
As had long been the case in the developing countries, Nestlé viewed its com-
mitments in Central Europe as an investment in the future. Even if, by 1995,
the profitability of these acquisitions was still deemed “disappointing”44, that
very year brought a tripling in sales in this region.45 The brisk growth experi-
enced in these markets in the second half of the 1990s and the early years of
the 21st century in particular, helped to compensate for weak growth rates in
Western Europe.
Russia
The reforms instigated by Mikhail Gorbachov in the Soviet Union in the mid-
1980s prompted initial discussion amongst the Board of Directors in 1987. But
the Board was sceptical, detecting a certain discrepancy between the decla-
rations of the new party head and the reality. Experience in China had shown
how difficult it is to operate in countries with a planned economy, despite all
announcements of an “opening up”. The economy in the USSR was still her-
metically sealed, there was a lack of flexibility and dogmatism in this area was
as rife and as unbending as ever.46 By 1990, there was early evidence of the
centrifugal forces that would lead to the collapse of the Soviet Union one year
2 Nestlé acquired the Polish

food producer, Kalisz Food Con-
147 centrates Winiary S.A., in 1995.
later, making any specific involvement in Russia impossible for the time be-
ing.47 A meeting scheduled with Soviet economic functionaries in Moscow did
not take place.48
Even after the collapse of the USSR at the end of 1991, Nestlé had no
plans for an industrial presence in Russia. There was no need for one, in fact,
because in 1992, Boris Yeltsin ordered a dramatic reduction in import duties,
which prompted a sharp increase in sales of Nescafé. In 1993, volume sales
of Nescafé in Russia equalled those in France and Spain.49
1 Hence Nestlé was content to open a liaison office in Moscow that same
year.50 The political situation was unstable following the constitutional crisis of
October 1993, and the infrastructure was poor. Worthwhile acquisitions were
few and far between.51 It was not until early in 1995 that an opportunity arose
to take a 70 per cent majority stake in Russia’s biggest chocolate factory with
its long-established brand, Rossiya – Schedraja Duscha (“Russia – generous
soul”). The factory was located in Samara, 800 kilometres east of Moscow, and
had also attracted the attention of Mars and Philip Morris.52 One year later,
Nestlé also acquired a majority holding in the similarly well-known ice cream
manufacturer, Zhukovsky, based near Moscow. This was a particularly inter-
esting business opportunity as even in deepest winter, the Russians love their
2 ice cream!53 These two acquisitions allowed Nestlé to establish an industrial
presence in Russia and to anticipate the growing trend away from imported
products in favour of a return to trusted local brands. This first industrial pres-
ence subsequently led, in 1996, to the setting up of a national subsidiary, Nestlé
Food LLC, based in Moscow. If there had been any initial doubts, the financial
crisis which hit Russia in August 1998 confirmed the wisdom of developing
local production facilities: the devalued ruble and the introduction of high pro-
tectionist tariffs made imports too expensive for most Russians. Following an
old company tradition – and in contrast to other Western businesses – Nestlé
remained in Russia even after this crisis and actually expanded its presence:
by 1997 it had bought another two chocolate factories in the Urals, followed
in 1998 and 1999 by an ice cream factory and a culinary one respectively. Ex-
panding local production operations seemed like a good idea in the light of the
crisis and its repercussions. Thus it was that imports of Nesquik were aban-
doned in favour of production in Samara.54 And although imported Nescafé
accounted for 45 per cent of sales of soluble coffee in Russia even after the
crisis, the management in Vevey immediately turned its thoughts to setting up
a factory in Russia for this bestselling product, too.55 It would take another few
years, however, and investment totalling CHF 100 million, before such a fac-
tory could be opened in 2005, in the southern town of Timashevsk. The long
wait was offset to some extent by the record-breakingly fast 18-month con-
struction period. In the early years of the new millennium an infant food fac-
tory and two mineral water sources, one of which brought the renowned Saint
Springs brand under the ownership of Nestlé Waters, were added to the Nestlé
portfolio. Thus the full Nestlé product range is now available to Russian con-
sumers. Nestlé currently operates nine factories in Russia, employs 9,500 peo-
ple and has invested some CHF 600 million since the early days of its indus-
1 The head office of Nestlé

Food LLC in Moscow.
2 Moscow’s boulevards are

lined with huge placards adver-
tising products such as Nescafé. 148
trial presence a decade ago. The company is the market leader in chocolate,
coffee, ice cream, infant food and culinary products. Annual growth has aver-
aged 6.4 per cent since the crisis of 1998. The years between 2003 and 2005
saw a temporary decline in the chocolate business due to marketing and dis-
tribution problems.56 Nestlé Russia generated sales of CHF 1.3 billion in 2005,
which puts Russia fifteenth on the company’s list of its biggest markets world-
wide.57
Parallel to moving into Russia, Nestlé also became industrially established
in the Ukraine in the second half of the 1990s. As in Russia, Nestlé’s first ac-
quisition was a chocolate factory, followed later by a second one.
3 Nestlé’s stake in the pres-

tigious Russian chocolate brand,
Rossiya, was its first ever invest-
ment in Russia in 1995. The
brand is now the No. 1 in this
149 market.
150
6. Organisational Change
The Nestlé organisation in 1990
The three large-scale acquisitions in the second half of the

1980s – Carnation, Buitoni and Rowntree – as well as the Clin-
tec, CPW and CCNR joint ventures in 1989/90, catapulted
Nestlé into a new league. Sales rose from CHF 31 to 46 bil-
lions between 1984 and 1990, while the headcount grew from
138,000 to almost 200,000 and the number of factories from
292 to 423 during the same period.1 Even more decisive than
this quantitative leap, however, was the related expansion of
the product range. Despite these major changes, at the start
of 1990 the company was still sticking with its traditional or-
ganisational structure based on the principle of decentralisa-
tion: the individual markets were largely autonomous, not only
in formal terms but also in reality. Most of the goods they sold
in their own country they had produced themselves, with only
a modest exchange of products taking place between the in-
dividual markets.2
151
In their respective countries, the heads of the national subsidiaries – Market

Heads in Nestlé terminology – were like little kings carefully protecting their
sovereignty. They were, however, responsible for representing the business in
their country vis-à-vis the Group’s central office in Vevey, by which they were
also appointed. The headquarters on Lake Geneva – known colloquially as the
“Centre” within Nestlé – acted as a counterbalance to this extensive decentral-
isation, and had the last word in all important issues such as the strategic di-
rection of the Group, entry into new product areas, larger-scale acquisitions and
divestments, as well as research and development. Vevey also had ultimate au-
thority over the finances of the entire Group and thus close control over the in-
dividual countries. All investments were financed centrally, and all profits were
repatriated to the Centre. Under the supervision of the Board of Directors3 and
the leadership of the CEO, a ten-person Executive Board functioned as the high-
est executive authority. This Executive Board was constituted by both geograph-
ical area and function, with the two overlapping in certain cases.
As at 1 January 1990, the Nestlé Executive Board was organised as fol-
lows: Alongside his function as CEO, Helmut Maucher was also directly re-
sponsible for the US, which was by far the largest market with sales of over
CHF 10 billion and, together with Canada, accounted for almost a quarter (24.2
%) of global sales. He was also in charge of Human Resources and Public Af-
fairs. On 31 May 1990 he also took on the role of Chairman of the Board in ad-
dition to his function as CEO. Together with Maucher, the heads of the five de-
partments organised in accordance with geographical criteria – known as zones
at Nestlé – were the most influential members of the Executive Board.
In this line management capacity they were in charge of all the markets
in their region and, as such, were ultimately responsible for 96 per cent of
Nestlé’s business.4 They were the direct supervisors of, and contact persons
for, the Market Heads, and all contact between the markets and the Centre –
and even between two markets – generally had to go through the zones, the
operational units which were well staffed to deal with this. Despite their wide-
Executive Board 1990

(from left to right). Seated:
Camillo Pagano, Helmut O.
Maucher, José Daniel.
Standing: Alexander E. Mahler,
Reto F. Domeniconi,
Rudolf Tschan, Ramón Masip,
Brian Suter, Rudolf Morf. 152
ranging geographical responsibility, the management of all zones was based

in Vevey.
Zone Europe, which with 48.7 per cent accounted for almost half the to-
tal sales of the Group, reported to Ramón Masip from Spain, while Latin Amer-
ica with its 11 per cent share of sales was answerable to Alexander E. Mahler
from Switzerland, and Asia & Oceania with its 13.3 per cent was under the re-
sponsibility of Rudolf Tschan, also from Switzerland.
José Daniel, from Spain, performed a dual role that combined line man-
agement and staff-office functions. He was both Zone Head, responsible for
Africa and the Middle East (2.9% of sales), and in charge of Pharmaceuticals
(Alcon and Galderma), as well as being responsible for export, raw materials
and liaising with L’Oréal. A similar dual role was performed by the Italian
Camillo Pagano, who was responsible both for Marketing and Products and
for Canada. Pure staff-office functions were held by Reto F. Domeniconi from
Switzerland, who was in charge of finance, controlling, legal services, tax and
administration, while Rudolf Morf, also from Switzerland, was responsible for
the Technical Department and Brian Suter, with dual British-Swiss nationality,
was in charge of R&D. Until 1987, this area remained part of the Technical De-
partment, which occupied a leading role within the Executive Board until the
mid-1980s, due above all to the enormous significance of Nescafé (1986: 19
per cent of sales and 35% of operating profit).5 Back then, its former head Carl
Angst was, next to Helmut Maucher, probably the most influential figure on
the Executive Board. He was Maucher’s right-hand man in the acquisition of
Carnation and, together with Maucher and José Daniel, made up the Execu-
tive Committee, a sort of “inner circle” of the Executive Board, which played
a decisive role in determining the fate of the company during the first half of
the 1980s. Following Angst’s retirement in 1986, this triumvirate was dissolved,
putting an end to the traditional domination of the Technical Department. For
his part, Angst joined the Board of Directors, where he remained until reach-
ing the age limit in 1992.
In 1989 the Board of Directors had come to the realisation that the ex-
isting organisational format was in need of a radical overhaul, and not just be-
cause of the rapid growth of the company, but also in view of the increased
complexity of the business.6 After all, the acquisitions and joint ventures of the
recent past had involved not just the familiar areas of milk, chocolate and
culinary products, but also completely new categories in which Nestlé did not
have any experience of its own, such as pet food, roasted coffee, pasta, fresh
meat, breakfast cereals, ready-to-drink coffee and tea, as well as clinical nutri-
tion and ice cream, for which there were as yet no contacts in Vevey. The de-
partment responsible for product development and marketing was tailored to
“traditional” areas, and was ill prepared for the sudden entry into these new
sectors. This was why Helmut Maucher, back in 1988, saw the Buitoni acqui-
sition as an opportunity for organisational change. The “Strategic Unit Buitoni
Pasta” was responsible exclusively for the products of the newly acquired Ital-
ian subsidiary, and worked on a cross-border basis: some of the unit’s staff
worked in Vevey, and some at “Casa Buitoni” in the Tuscan town of Sansepol-
153
cro, the company’s headquarters. In the case of Rowntree, Maucher went one
step further. Although Nestlé had been active in the chocolate business for
60 years, its experience was limited to classic Swiss slab chocolate and pra-
lines. “Countlines”, i.e. chocolate bars such as Lion, chocolate wafers such as
KitKat and chocolate sweets such as Smarties, however, called for a different
marketing approach. Shortly after the introduction of the new Buitoni organi-
sation, therefore, Maucher also created a “Strategic Unit Chocolate and Con-
fectionery”. This new Strategic Unit represented the first central Nestlé struc-
ture to be based completely outside Vevey, as its two teams with global
1 responsibility for marketing and research worked at Rowntree’s UK headquar-
ters in York. It was also a first sortie into the domain of the Products and Mar-
keting Department, but also of the Zone Europe, which found themselves fac-
ing internal competition for the first time ever. Nestlé was aware that it had
brought movement into the previously rigid organisational structure of the Cen-
tre, and commented reassuringly: “The new structure is not designed to re-
place an operating organisation based on management by geographical zones,
but to play a distinct role.”7 The significance of the new unit was underlined
by the fact that its Head, Kenneth Dixon, CEO of Rowntree, was awarded the
rank of Executive Vice President, and commuted back and forth between Vevey
and York. However, he only remained in this post for about a year. Following
his retirement, his successor Peter Blackburn only bore the rank of Deputy Ex-
ecutive Vice President – an indication that the dual function in the market and
the Centre would not last long.
The new product categories were not, however, the only reason for
2 rethinking the existing structure of the company. The ongoing integration of
Europe leading up to the planned introduction of the EU single market at the
beginning of 1993, the opening up of Eastern Europe following the fall of the
Berlin Wall and the common markets developing in other parts of the world
(NAFTA, ASEAN, Mercosur) fuelled doubts about whether the existing organi-
sation based on separate national markets was appropriate for the realities of
ASEAN Countries
1 In 1988 – the year in

which it was taken over by
Nestlé – Buitoni opened a new
factory for the manufacture of
pasta and biscuits in the Tuscan
town of Sansepolcro, where the
company was first founded back
in 1827.
Brunei Darussalam,
2 The Rowntree’s chocolate Cambodia, Indonesia, Laos,
and confectionery factory in York Malaysia, Myanmar,
in 1988. The building in the Philippines, Singapore,
foreground houses a library Thailand, Vietnam
dedicated to documenting the
company’s contribution to the
cultural life of the local
community. 154
the 1990s. The rapid rise in the number of factories – following the acquisition
of Rowntree, Nestlé owned no fewer than 26 chocolate production facilities in
Europe – raised urgent questions about utilisation, overcapacity and economy
of scale, particularly as the firm’s direct competitors were often producing much
more efficiently.8 The Executive Board therefore made the fundamental deci-
sion, back in 1989, to reduce the number of its chocolate factories in Europe
to 15, which would generate savings of CHF 100 million and result in the re-
duction of 2,200 jobs. The aim was also to reduce the excessive number of dif-
ferent recipes for the same product – for Milky Bar, for example, there were no
fewer than 46!9 Added to this was the increasing pressure from the competi-
tion and the retail trade, which were organised on a regional basis in Europe.
Nestlé invites McKinsey in
All these factors prompted Nestlé, at the beginning of 1990, to commission

the well-known US consulting firm McKinsey & Company to undertake an in-
depth analysis of the company’s organisational structure. This analysis was in-
itially carried out with the greatest secrecy in order to avoid alarming staff or
the public, due to McKinsey’s reputation as a “destroyer of jobs” in view of its
effect on other large companies. As investigations were initially confined to
executive and senior management in Vevey and some of the markets, this con-
fidentiality was maintained for almost a year. When, towards the end of 1990,
the number of people in the know suddenly increased due to a survey of the
entire management team in Vevey and the public also found out about the
plans, Helmut Maucher tried to put things into perspective: “Complete restruc-
turing only makes sense if a company is really organised in entirely the wrong
way. In our case, that is not so. McKinsey does, however, have a second re-
mit, namely identifying cost-cutting potential. What should be done centrally,
and what locally? The process of decentralisation will certainly continue, par-
ticularly with the modern tools now available. I hope to see a reduction in head-
count at the Centre, and would be delighted if we were able to cut costs by
five to ten per cent.”10
Though the operating costs of the Centre rose from CHF 206 million in
1980 to 342 million in 1988, the expansion of the business during the same
period meant that they actually fell from 0.9 to 0.8 per cent as a percentage of
sales.11 With a total of approximately 2,000 individuals, the headcount at the
Centre was also around this figure. Maucher was very keen to avoid forging
ahead too hastily with job cuts, and to make the headcount reduction more
socially acceptable by means of natural fluctuation, early retirements and trans-
fers to the markets12 He was prepared to accept a certain delay, and the re-
lated financial losses, in order to ensure that the whole operation ran as
smoothly as possible.13
The McKinsey analysis had begun in the first few weeks of 1990 with
hours and hours of individual interviews with every member of the Executive
Board.
155
In an initial report published at the end of February on this basis, the con-
sultants were impressed with the “unity of doctrine” of the Executive Board
members, who presented a consistent picture of the underlying values of the
company without having agreed in advance on a common approach to answer-
ing the questions. McKinsey concluded from this that these values, such as
the priority of people over structures, but also decentralisation, made a radi-
cal reorganisation impossible, but were conducive to evolutionary change. The
focus was on the role of the Centre vis-à-vis the markets. McKinsey realised
that the increasing size of the company did not necessarily mean that the Cen-
tre would have to be strengthened. Many of the markets, they observed, had
reached a size that made them less dependent than previously on central sup-
port from Vevey. The consultants therefore called for some functions with less
added value to be relocated to the markets and thus closer to actual day-to-
day business. The Centre should focus less on these day-to-day matters and
more on the big strategic issues, they said. Realising that the problems could
not be solved by one single organisational measure, McKinsey proposed try-
ing out different organisational models in the various business areas, along the
lines of a “toolkit” concept. One of these models was building up certain new
business areas, such as fresh meat (Herta) or ethnic food on a global basis.
The idea was also that the Strategic Units introduced following the acquisition
of Buitoni and Rowntree could be the starting point for further trials of this
kind. The objective had to be to develop an overall view for every business
area – even the traditional ones – not least with the aim of reducing the time-
to-market of new products. For this to be achieved, structures in Vevey would
also have to be matched in the markets. Economic integration in Europe and
North America, it was said, also called for the creation of regional structures
at Nestlé. Market Heads with similar interests, for example, should meet peri-
odically without the involvement of the Centre in order to discuss common
problems and devise co-ordinated projects. Previously, this had only been pos-
sible in an informal context. Interestingly, even back then, McKinsey was al-
ready pointing to the importance of compatible information systems for ensur-
ing the smooth functioning of new organisational models.
Following the first round of interviews, the consultants came to the con-
clusion that no hasty transformation was required, and that a step-by-step re-
organisation was more appropriate. This pragmatic approach was also advis-
able, it was said, because the values of Nestlé from the perspective of the
members of the Executive Board were closely linked to the organisational struc-
ture. It was therefore vital to avoid destroying these values as a result of ex-
cessively radical change. The interviews with the Executive Board also revealed
that the time was ripe for change, as various key positions, both in Vevey and
certain important markets, were due to change hands following the retirement
of their current occupants over the coming years. McKinsey therefore proposed
starting with the reorganisation at the beginning of 1991.14
In their memo of the end of February 1990, the consultants asked to be
able to include, in the second round of interviews, representatives of selected
markets and management in Vevey below Executive Board level. Once this re-
156
quest had been granted, McKinsey presented at the beginning of August a

comprehensive report15 based on the interviews with managers from Europe
and North America, as well as from the Centre. The report identified a high de-
gree of willingness to change throughout the Nestlé organisation, with man-
agers below Executive Board level both outside Switzerland and in Vevey even
more keen to get things moving. The creation of the Strategic Unit for choco-
late was widely regarded as a promising first step on the road to reform. In ad-
dition to the formal structures, the interviewees also viewed the informal, ad
hoc initiatives such as cross-border “taskforces” as an important contribution
to the desired process of transformation. At the same time, they hoped to see
clearer structures, not least because the poorly co-ordinated organisational de-
velopments had led to a certain amount of insecurity both in the markets and
in Vevey.
Despite the widespread call for change, the interviews did not reveal a
uniform picture of a possible solution. Depending on their origin and function,
the interviewees belonged either to the “centralist” or “federalist” camp, i.e.
managers with an international or national perspective, supporters of sweep-
ing reorganisation or those in favour of a more gradual process. The report
contains a large number of quotes from the interviews. Despite not being rep-
resentative, because only the most pointed comments appear to have been in-
cluded, the examples cited do reflect – albeit in a slightly exaggerated man-
ner – the sentiment within the Group at the beginning of the 1990s. The
anonymity of the interviews ensured an unprecedented degree of openness in
this context, with managers at the Centre commenting that the existing sys-
tem of Market Heads had had its day and should be replaced, as it was impos-
sible for any single individual to have a complete overview of the ever-increas-
ing number of product categories. It was said that the country-based
organisation represented a bottleneck, that the Market Heads were over-
stretched and that supervision of the markets should be stepped up. Nestlé
benefited little from its international scope, said the respondents, as the mar-
kets still thought strictly along national lines. Even managers from European
markets expressed criticism of their Market Heads, saying that the power they
possessed was the main reason why Nestlé, in contrast to the competition,
was so slow to implement new ideas. The answer, they said, was to create Eu-
ropean business units; a niche strategy such as that pursued by Buitoni could
only survive at the European level. It was simply not acceptable to have to con-
vince 38 different product managers in as many countries before a particular
new product could be launched. The existing approach to European issues
based on consensus was clearly too slow. The rationalisation of production
was not making any progress, as every Market Head wanted to keep his fac-
tories in his own country. European solutions also failed because Market Heads
were assessed solely on the basis of their performance in their own country.
To act internationally, it was said, would require increased mobility on the part
of management and the corresponding training. Today, changes are easier to
implement than before, as newly acquired companies are not as steeped in the
Nestlé culture. One interviewee from North America anticipated a development
The façade of the Nestlé

headquarters in Vevey gets
157 cleaned in 2002.
1–3 The head office of

Nestlé S.A., designed by Jean 3
Tschumi in 1960, was renovated
by the architects Jacques Richter
and Ignacio Dahl Rocha between
1997 and 2000. During the reno-
vation work, the façade of the
building overlooking the street
was covered with a tarpaulin de-
picting the work by Ferdinand
Hodler entitled Dents-du-Midi –
A View From Champéry (1916). 158
4 When the renovation was

complete, it was possible to
move from one building to an-
other from within, with a series
of ramps linking the different
159 levels.
that, to a certain extent at least, did indeed go on to become a reality: “We

have to move away from the functional command structure and integrate
products, technology and R&D according to product category.”16
The new product categories – the meat business in particular – attracted
criticism, as there was little overlap with the existing business. Nestlé had be-
come a conglomerate of radically different business areas, said a manager from
one European market. A US colleague spoke of a “patchwork quilt”, claiming
that many of the newly acquired companies and their managers did not under-
stand the Nestlé concept.
Responsibility for major strategic decisions was so complex, it was said,
that it took months for a decision to be made to close a factory, because the
buck was passed constantly between the zone, the market and Product Man-
agement. Ultimately, it was claimed, competitive pressure would force Nestlé
to implement a European solution.
The role of the Centre
This second, broader-based round of interviews provided the McKinsey con-

sultants with confirmation of their earlier conclusions: the complexity, hetero-
geneity and internationality of the new businesses represented the greatest
challenges for both the Centre and the markets, challenges which had to be
tackled by a wide range of organisational means, depending on the business
area. The road to a cross-market approach presented a series of hurdles, based
largely on the strong position of the Market Heads and their focus on their own
country. Their determination to maintain their national approach to production
served not only job security and staff morale, but was also underpinned by the
prevailing system of transfer pricing, which favoured the producing markets.
Transfer pricing involves costs that companies within the same Group charge
each other for the supply of products and services, and represents an impor-
tant calculation basis for the tax authorities. McKinsey forecast that potential
savings of CHF 50 million a year were being lost because of the refusal of cer-
tain European markets to follow instructions from Vevey and close chocolate
factories. In addition to these examples, McKinsey cited as further hurdles the
absence of international discussion and decision-making forums, as well as
managers’ lack of mobility. The consultants therefore advised taking the step
towards the next generation of products – from instant to ready-to-drink cof-
fee, for example – by means of cross-market initiatives. It is worth noting that,
despite the increasing pace of globalisation, McKinsey placed the problems
above all in a regional context and therefore recommended – with a few glo-
bal exceptions – regional organisational structures.
These recommendations did not represent a fundamental departure from
the existing market-based organisation, but some of the markets were to be
upgraded to “Lead Markets” and take on regional functions. The zones in Vevey
were in turn to be strengthened but at the same time relieved of some of their
burden, with some functions being delegated to the markets and the regional
160
structures. A further change was that, in future, contact between the markets
would no longer always have to go through Vevey, but could increasingly take
place directly.
The Centre, it was said, should also focus more closely on ensuring the
“cross-fertilisation” of know-how within the Group.
In addition, McKinsey suggested limiting the national autonomy of the
Market Heads and assigning them, instead, a more significant role in cross-
border projects at the regional or sub-regional level. In this role they would act
as “Corporate Officers”, who would no longer represent the interests of their
country but those of the Group. Within this approach Market Heads could, in
certain cases, also form part of zone management in Vevey.
The diverse responses from the markets would, according to the Mc
Kinsey consultants, also have to result in a redefinition of the role of the Cen-
tre, which should be more like a service provider than a command centre. The
work of the Centre should be “demand-driven rather than supply-driven”, i.e.
it should do only what the markets needed. The Centre should concentrate on
its traditional core activities in the fields of finance, law and central adminis-
tration, on defining Group-wide standards, for product quality and safety in
particular, training staff and developing a long-term global product strategy.
The latter would also include brand protection, R&D and the co-ordination of
major investment projects. All these functions would have to be viewed as stra-
tegic and not as operational, with advice and guidance being more important
than control.
“Nestlé 2000”: the creation of the Strategic Business Units (SBUs)
Global product responsibility, which had previously been shared between three
Departments – Products, Technical and Research & Development – needed to
be better integrated and co-ordinated, thus speeding up the launch of new
products. The consultants from McKinsey suggested various different organi-
sational solutions, the preferred option being global strategic units along the
lines of the existing Chocolate & Confectionery Unit. These units would be re-
sponsible for all aspects of the development and launch of a new product,
bringing together all the relevant functions – research, production, marketing,
and so on – under one roof and a common management. In future, the Centre
would focus its activities not on the functions but on the products instead. The
McKinsey team were aware that these proposals represented a break with the
Centre’s traditional organisation in certain respects. Consequently, the changes
would have to be phased in gradually over a period of several years – hence
“Nestlé 2000”, as the project was to become known.
Being analysed by external consultants in this way was a completely new
experience for Nestlé. Never before had outsiders come in and scrutinised the
firm in such depth, and never before had Nestlé been forced to take such a
long, hard look at itself. For a lot of people in Vevey, McKinsey’s findings came
as a real shock, because they revealed a picture of a Centre that bore no re-
161
semblance to its own perception of itself. But it was a valuable wake-up call
because, for the first time, it allowed certain taboo subjects to be addressed
and “sacred cows” such as decentralisation and the position of the Market
Heads to be reassessed. The interviews in the respective markets had shown
that Nestlé’s structures – unchanged for decades – no longer met the needs
of a fast-moving, increasingly global world. This was particularly true of the or-
ganisation of the Centre, from which the markets expected much more than
just administrative and technical support – what they wanted was commercial
dynamism and innovative ideas. And so it was here that the reform process
needed to begin.
Once the Executive Board had approved the guidelines drawn up by
McKinsey as the basis for the reorganisation in October 1990, the work really
began in earnest for Nestlé.17 Up until then, McKinsey’s point of contact had
been CFO Reto Domeniconi, the driving force behind the reorganisation.18 But
as his business area was largely unaffected by the proposed reforms, two sec-
ond-line managers assumed responsibility for liaising with McKinsey on the
detailed planning of the reorganisation agenda: Rupert Gasser, one of the two
Deputies to the Executive Vice President of the Technical Department, and
Peter Brabeck, Head of the Culinary Division within the Marketing and Prod-
ucts Department. It was no coincidence that the two men came from the very
areas likely to be most affected by the planned reorganisation. Both originally
from Austria and of a similar age – one 47, the other 53 – the two got on well
on a personal level and forged an excellent working relationship based on com-
plementary skills. Gasser, the biochemist, brought to the table his knowledge
as the former Head of the Orbe Research Centre and Technical Director in South
Africa and the US, while businessman Brabeck brought his experience as Head
of Marketing and subsequently Market Head in various Latin American coun-
tries, and as a key figure in the acquisition of Buitoni. In their meetings with
McKinsey, which often went on until late into the night, the pair – with their
combined expertise – soon took the reins. The consultants would provide the
necessary infrastructure and fax the results of their discussions to London at
the end of each meeting, where their colleagues would draw up the organisa-
tional charts and other documents overnight and get them back ready for the
next meeting the following morning. Increasingly, attention began to focus on
the creation of strategic business units for each key product group, which
would accompany a product throughout its entire life cycle, from research and
development through to production and marketing, thus ensuring an integrated
approach. McKinsey wanted to transfer a number of these units to the mar-
kets or to the local research centres, but Gasser and Brabeck made sure that
they all remained in Vevey. The lead role played by the two men responsible
for liaising with McKinsey was further strengthened by the considerable au-
tonomy that they enjoyed from their ultimate boss. Helmut Maucher gave the
two lead managers the necessary leeway, even if he didn’t share all their ideas.
Though he had the final say, Maucher was also a good listener who was will-
ing to let people argue their case – as long as it was well-founded – and pre-
pared to question his own views.19
162
On 24 January 1991, almost a year to the day since the very first contact
with McKinsey, the results of the survey of staff in Vevey and in the markets
were published in the form of a memo signed by Helmut Maucher himself.20
In addition to the reasons behind the reorganisation, as already outlined, the
memo began by setting out those aspects that would be staying the same. The
zones and markets, for instance, would remain. The Centre was to retain its
central function, particularly in the technical field and in research and devel-
opment. However, certain operational aspects of those functions were to be
spun off and delegated to the zones or the markets, as appropriate, with op-
erational control and technical co-ordination being put on a regional footing.
The centrepiece of the reorganisation was to be the creation of seven SBUs,
which together would form two SBGs. Strategic Business Group 1, led by
Rupert Gasser, would comprise the SBUs Coffee & Beverages, Nutrition & Milk
Products and FoodServices; Strategic Business Group 2, led by Peter Brabeck,
would encompass Food, Chocolate, Confectionery & Ice Cream, Petfood and
Buitoni. The new units would recruit their staff from the former Products De-
partment and from Technical and Research & Development. They would be re-
sponsible for strategic marketing, but would also have a business role, moni-
toring the return on investments and having a say on technical investments.
The memo also explained that the new units would be expected to be compet-
itive and capable of “beating the competition, speeding up the decision-mak-
ing and implementation processes, and achieving a better integrated entrepre-
neurial ethos”. Other aspects of the reorganisation such as the amalgamation
of certain markets and cost-cutting at the Centre, for instance, were only
touched on right at the end of the memo as subject to for further conside-
ration.
The accompanying organisational chart drawn up for the Centre showed
that the two new SBGs were to be located at Executive Board level. It didn’t
take much imagination to realise that, sooner or later, the heads of the two
groups were destined to become Executive Vice Presidents. Until the new SBUs
were up and running as of 30 September 1991, Camillo Pagano – who had ac-
tively supported the reorganisation, and who oversaw the resultant disband-
ing of his own department shortly before his retirement at the end of the year
– remained in charge.21 Gasser and Brabeck duly joined the Executive Board as
of 1 January 1992 and the SBUs were divided up between them accordingly.
Logic dictated that the researcher Gasser, with his technical background, should
assume responsibility for the “hard”, research-intensive, technologically ori-
ented areas; while Brabeck – a businessman by profession – took on the “soft
issues”, with their emphasis on marketing, including advertising and branding,
two areas which were particularly close to Helmut Maucher’s heart.22
This organisational solution was a compromise and a decision had to be
made, one which is faced by every multinational at some point in its develop-
ment: which should take priority – geography or product area?23 In the case of
Nestlé, up until the early 1990s the answer was clear: geography. Hence the
strong position of the zones and markets. What the “Nestlé 2000” project at-
tempted to do was redress the balance in favour of products. Like many other
163
companies, Nestlé could have chosen a matrix structure, which was very much
in vogue at the time – and the option advocated by McKinsey.24 However, Gas-
ser and Brabeck realised that a pure matrix structure would not have worked
for a company as complex as Nestlé and that special solutions would be re-
quired, even if these were contrary to the prevailing wisdom. They were will-
ing to accept the extra co-ordination that this would involve, in the knowledge
that, at the end of the day, it is not the organisational chart that counts but the
people that make it a reality. And these were the very same people as before
the reorganisation, who knew and trusted one another and could continue to
resolve a lot of problems on an informal basis, outside of official channels.25
Unlike the zones, the SBUs had no direct authority over the markets, so
their influence depended very much on the powers of persuasion of the rele-
vant unit head. The demands of the job and the associated difficulties meant
that people tended not to stay in the post for very long and staff turnover at
the top of the SBUs was high, in stark contrast to the continuity within the Ex-
ecutive Board, where a term of office of ten years or more was not uncom-
mon. Since they were first set up, the number of strategic business units has
remained more or less constant to this day. Following Peter Brabeck’s appoint-
ment as CEO in 1997, the Buitoni SBU was integrated into the Food SBU, and
in December of that year – in recognition of its growing importance – the Ice
Cream business was separated off from Chocolate & Confectionery and ele-
vated to an SBU in its own right. The only SBU to be hived off from Vevey on
McKinsey’s advice – though not for another ten years – was Pet Food, which
moved to the headquarters of Ralston Purina in St. Louis in the US in 2001 fol-
lowing the acquisition of that company.
When “Operation SBUs” was complete, Helmut Maucher was able to re-
port to the Board of Directors that the new structures met the need for inte-
grated thinking throughout the business whilst at the same time strengthen-
ing decentralisation by confining management support functions based in
Vevey to their core activities and bringing technical functions closer to the mar-
kets.
Thanks to the system of functional responsibilities and networking, the
internal cohesion of the Group was assured despite this move towards greater
decentralisation.26 In fact, the two cornerstones of the Nestlé system – decen-
tralisation and the role of the Centre – remained essentially intact once the re-
organisation process was over. Two years later, the subsequent strategy paper
stated: “We believe that the new solution strikes a good balance between the
need to plan for our business as a whole (marketing, investment, profitability),
which is the job of the SBUs, and maintaining the responsibilities of line man-
agement, which lie primarily in the zones and markets.”27
Overall, the creation of the Strategic Business Units can be said to have
been a success, not least because they were set up not according to theoret-
ical models but along practical lines, and because Nestlé did not relinquish
control – or the implementing of decisions – to the consultants but kept a firm
hand on the reins at all times. By also acting in an entrepreneurial capacity
from the very outset, the SBUs helped to turn Nestlé from a firm with a strong
Rupert Gasser and Peter

Brabeck, the heads of the two
Strategic Business Groups
(SBGs), which were set up in
1991 and merged in 1997. 164
technical bias into a more business-oriented concern. The Strategic Business

Units proved to be the start of a process that has gone on to inspire a raft of
new organisational ideas right up to the current day. Over the last few years,
numerous markets have organised themselves according to this model and ap-
pointed a Business Executive Manager for each key business area – answera-
ble to the Market Head, with autonomous responsibility for profit and loss –
as the direct point of contact for the relevant Strategic Business Unit in Vevey.28
The creation of the SBUs was unavoidable. Without this reorganisation, Nestlé
would have seen its efficiency decline and risked its production increasingly
losing touch with the needs of the markets and consumers.29
A new look for the Zones
The Zones emerged stronger from the “Nestlé 2000” project, because the Stra-
tegic Business Units and the outsourcing of certain operational activities to the
markets had only a marginal impact on their significance, much the same as
the creation of the regions had done back in the second half of 1991. This had
been all about streamlining the activities of the Centre, though it had also re-
duced the number of markets reporting directly to Vevey and thus the admin-
istrative workload. In Europe, this meant that Spain and Portugal, the UK and
Ireland, and Austria and Hungary were all amalgamated. In each case, the
smaller market reported to its larger neighbour, but retained its internal inde-
pendence under a Country Manager. Not only neighbouring countries but also
entire groups of countries were amalgamated – the five Nordic countries to
create Nestlé Norden (cf. image, p. 167) based in Copenhagen, for example.
This regional model was “exported” from Europe to all the other Zones in the
course of the 1990s. So, for example, the whole of Latin America today con-
sists of five regions, with the two main markets – namely Brazil and Mexico –
each forming a region in their own right.30
Organigramme of Nestlé S.A., 1992

Chairman
CEO
Human Resources
Secretary to the Board
Corporate Affairs
Environment
Finance, Management Zone V Strategic Strategic Technical Research &

Control & Zones I to IV 1 Pharma & Business Business Division Development
Administration Cosmetics Group 1 2 Group 2 3
1
Zone I: Europe 2
SBG 1: SBU Coffee and Beverages
Zone II: Asia, Oceania SBU Milk and Nutrition
Zone III: Latin America 3
SBG 2: SBU Food
Zone IV: USA, Canada SBU Confectionery and Ice Cream
Zone V: Africa, the Middle East SBU Petcare
SBU Buitoni
SBU Food Ingredients Specialities (FIS)
165
The number of Zones, on the other hand, increased as a result of the re-
organisation – temporarily, at least – as Nestlé followed McKinsey’s recom-
mendation and created a new Zone “United States & Canada” at the begin-
ning of 1992 (cf. chart, p. 168). Up until then, as already mentioned, Helmut
Maucher had been directly responsible for the US. The fact that the head of a
major multinational was also responsible for a country organisation prompted
one American Nestlé manager to comment in an interview with McKinsey that
it was a bit like the US president also being the mayor of Los Angeles.31 Up
until the end of 1991, Camillo Pagano had been responsible for Canada.
McKinsey had originally recommended that Mexico – as a future member of
NAFTA – also be included in the new Zone, but this suggestion was rejected,
presumably because the Zone Latin America would have lost almost a quarter
of its sales as a result of the reallocation of this key market.32
Timm F. Crull – former CEO of Carnation and Chairman & CEO of Nestlé
USA since the end of 1990 – was duly appointed to head up the new Zone
North America. Until the end of the 1980s, Nestlé had been divided into four
– sometimes competing – units in the United States: the original Nestlé busi-
ness in White Plains, New York, responsible mainly for Nescafé and the
chocolate business; Stouffer’s of Solon, Ohio, acquired in 1973, specialising
in frozen food and owner of a number of hotels and restaurants until the 1980s;
Hills Brothers of San Francisco, acquired in 1985, active in the roast and ground
coffee sector; and Carnation, based in Los Angeles, which also joined the Nestlé
Group in 1985. Each of these companies had its own headquarters, infrastruc-
ture and IT systems. Their respective bosses enjoyed similar status and pres-
tige to the Market Heads in Europe, with the difference that they were all do-
ing business on the same territory. This mutual competition was further
intensified by the fact that each man saw himself as the heir apparent to the
throne and prospective head of a future Nestlé USA – the need for which was
plain to see. After all, the situation of four separate companies existing side by
side instead of all under one roof was simply untenable. But the construction
of that new, joint structure was to prove a long and arduous process, which
dragged on for several years.33
The appointment of Timm F. Crull as Executive Vice President – whilst
continuing in his existing role in the USA – was only ever intended as an in-
terim solution, along much the same lines as the Rowntree arrangement, which
was already history by the time the American took up his post. Following the
integration of his business unit into the new Chocolate & Confectionery Stra-
tegic Business Unit, Peter Blackburn had returned to England for good, where
he took over as CEO of Nestlé UK Ltd., the product of the merger of the tradi-
tional Nestlé business with Rowntree, which had been consolidated along
American lines. In France and Italy, too, the previously autonomous, individ-
ual companies – no less than seven of them, in Italy’s case – were being amal-
gamated in the early 1990s to form national Nestlé units.
Like his two British predecessors on the Executive Board before him,
Crull never actually took up residence in Vevey, and instead simply travelled to
Lake Geneva for meetings.34 On his retirement in autumn 1994, this dual role
166
also came to an end: his successor as Chairman & CEO of Nestlé USA, Joe
Weller, confined himself to his US-based responsibilities. The new Head of the
Zone United States & Canada – and thus Executive Vice President – was Car-
los E. Represas, formerly Market Head in his native Mexico. Though Mexico
remained in the Zone Latin America, Represas – as the country’s Market Head,
and later as Zone Head, an active proponent of the North American Free Trade
Agreement (NAFTA) – ensured at least a personal link between the North and
South American subcontinents.
The combination of the functions of Market Head and Executive Vice
President was never intended to be permanent. It was only a temporary meas-
ure, a means of ensuring the better integration of new markets or business ar-
eas and keeping them under direct control for a period of time.35 Since 1994,
however, such dual roles have been a thing of the past. A year before Repre-
sas, the then Market Heads of two other key countries had joined the ranks of
this body. On 1 January 1993, Philippe Véron – previously Market Head of his
native France – succeeded Ramón Masip as Head of Zone Europe, while British-
Australian dual national Michael W. O. Garrett – former Market Head of Japan
– took over from the retiring Rudolf Tschan as Head of Zone Asia & Oceania
on the same date.
The change of personnel at the head of Zone Europe was the result of a
turn of events never envisaged in McKinsey’s plans. It had less to do with the
modernisation of the company’s structures and more to do with Helmut Mauch-
er’s own, long-term succession plans. Maucher had celebrated his 65th birth-
day in December 1992, thus reaching the normal retirement age in Switzer-
land. However, he indicated from an early stage that he didn’t consider that
this particular age limit applied to him because the retirement age for mem-
bers of the Board of Directors was 72.36 He refused to commit himself to a con-
crete date for his departure, saying in an interview: “My dual mandate at Nestlé
is a special case, specifically geared to my particular circumstances.” He went
on to explain, “It was the wish of the Board of Directors that I should also pre-
side over this body. Presumably with a view to staying on as Chairman until I
reach the age limit. No doubt we will separate these functions again at some
point.”37
At the autumn press conference in 1991, Maucher announced that the
Board of Directors had named Ramón Masip as his deputy but indicated that
this did not mean that Masip would one day also become his successor. This
restriction also continued to apply when Masip, in the spring of 1992, was pro-
moted to President & Chief Operating Officer (COO) Food, a newly created role
which catapulted him to No. 2 on the Executive Board. However, the title of
COO was never officially used at Nestlé.38 The Latin phrase primus inter pares
– meaning “first among equals” – which Maucher used informally within the
company perhaps best defines Masip’s role.39 As of 1 January 1993, the Span-
iard was responsible for the entire food business, including mineral water and
joint ventures, accounting for around 96 per cent of total sales. Masip also took
over as Head of Zone Africa & Middle East and, later, the newly formed Nestlé
Nutrition Centre.
The headquarters of
Nestlé Norden in Copenhagen,
which also serves as the head-
167 quarters of Nestlé Denmark.
However, Ramón Masip’s period in office was destined to be short-lived.

In the mid-1990s, he fell seriously ill and it soon became clear that he would
not be able to carry out his responsibilities much longer. This ruled him out as
Helmut Maucher’s potential successor as CEO. Sadly, Masip died in Septem-
ber 1996 aged just 56. With him disappeared the role of President & Chief
Operating Officer – Food, which would anyway have become obsolete when
Helmut Maucher stepped down as Chief Executive Officer and Peter Brabeck
was elected as his successor in this function in June 1997.
Following Ramón Masip’s death, Africa & the Middle East, along with
Asia & Oceania, were allocated to the new Zone Asia, Oceania & Africa (AOA)
under Michael Garrett. Shortly after, North and South America were amalga-
mated to create Zone Americas (AMS), and so the outstanding problem of Mex-
ico’s position resolved itself. The Swiss-Brazilian dual national Felix R. Braun,
former Market Head of Brazil – who had taken over Zone Latin America from
Alexander E. Mahler in 1993 – set about disbanding his area before he retired
with the same meticulous care and attention as Camillo Pagano before him.
The man appointed to head up the new Zone AMS was Carlos Represas. The
zone’s enlargement also gave the Centre greater weight vis-à-vis Nestlé USA,
as the previous Zone North America had only consisted of the head, his dep-
uty and their respective secretaries. As a result of the amalgamation, the
number of zones was reduced from five to three and has remained at that level
ever since (cf. chart, p. 172).
Rationalisation …
Common markets such as the EU, NAFTA, Mercosur and ASEAN enabled Nestlé
to adapt not only its organisational structures but also – just as importantly, in
terms of the profitability of the business – its production facilities, gearing them
to the prevailing trend towards regionalisation. Previously the rule had been
The Five Geographical Nestlé Zones, 1992–1995
I. Europe
II. Asia, Oceania
III. Latin America
IV. USA, Canada
V. Africa, the Middle East
Ramón Masip, † 1996,

President & Chief Operating
Officer Food since 1993. 168
that, as a minimum, each major market must have at least one factory for each
product group. As already illustrated by the example of chocolate production
in Europe, this had led to a situation where there were simply too many facto-
ries, many of which were running at well below capacity. Since the mid-1990s,
there had been a clear trend towards concentration on fewer factories, supply-
ing several countries or an entire region. Initially, there were concerns that this
would undermine Nestlé’s fundamental ability to cater to differing national and
regional tastes. However, experience soon showed that even large factories
were able to manufacture products according to different, country-specific rec-
ipes. Consequently, the concept of locally based production no longer needed
to be set in stone. Officially, the factories still reported to the individual mar-
kets, but in fact production was becoming increasingly centralised, controlled
by the relevant Zone in Vevey. According to the 1997 strategy paper, “You can
say that the factories no longer belong to the subsidiaries but to the Group …
but what really belongs to the markets are the customers and the consum-
ers”.40 As a concrete example of the regional division of labour, the paper cited
the ASEAN countries of Malaysia, Singapore, Thailand, Indonesia and the Phil-
ippines. In each of these countries, Nestlé had already started at the beginning
of the 1990s creating a production hub for a particular category, which would
then supply the entire region, which even back then already had a combined
population of around 500 million – more than the current EU. Thus, ASEAN
was to play a pioneering role in the regional division of labour as it would be
far easier to implement here than in the EU. Since Nestlé had only had an in-
dustrial presence in the countries of South-East Asia for a few decades – in
contrast to the major European markets in particular, which could look back
on a history spanning more than a century – national viewpoints and traditions
had had less time to take root and would be less difficult to change.
Based on feedback from the Market Heads, Rupert Gasser outlined the
first comprehensive rationalisation programme in the field of production, named
“MH (Market Heads) 97” after the Market Heads Conference held in Vevey in
First Nestlé Factories in the ASEAN Countries and their Division of Labour,
1995/199741
Year Country Factory
1962 Malaysia Petaling Jaya Chocolate wafers and sweets, stock cubes
1963 Philippines Alabang Breakfast cereals
1968 Singapore Jurong Soy sauces and powder
1971 Thailand Bangkok Non-dairy coffee creamer
1972 Indonesia Waru Soy milk and meat analogue
1995 Vietnam Bavi, Dong Nai Chilled dairy, soluble coffee (Nescafé)
1997 Cambodia Phnom Penh* Dairy products
* 80% stake
169
June 1997 to mark the start of Peter Brabeck’s term of office. By merging, clos-
ing and selling factories, improving efficiency, rationalising and modernising
production and the supply chain, it was hoped to achieve savings of CHF 3 bil-
lion. In fact, MH 97 exceeded expectations, generating savings of CHF 4 bil-
lion and cutting the cost of goods sold from 51.8 per cent to 44.5 per cent.
Without MH 97, that figure would have remained at 49.3 per cent. In 2002,
MH 97 flowed seamlessly into a new programme, “Target 04”, which achieved
further savings of CHF 3.6 billion by the end of 2004. At the beginning of 2005
this, in turn, was followed by “Operation Excellence 2007”, designed to gen-
erate a further CHF 3 billion in savings by the end of 2007.42 Since 2000, these
various cost-cutting programmes have also been helped enormously by the
GLOBE initiative.43
In Zone EUR the number of factories was cut by almost a third, from 181
in 1995 to just 123 by 2005. In Zone AMS, the number fell from 130 to 122
during the same period. Zone AOA, meanwhile, saw a slight increase in the
number of factories during those ten years – up from 107 to 110 – as a result
of the large number of new factories in China, which more than compensated
the reduction in production facilities in the ASEAN nations. The fact that the
total number of Nestlé factories remained more or less constant despite these
developments – 489 in 1995 compared with 487 in 2005 – is due, in no small
part, to the rapid increase in the number of Nestlé Waters plants, which are
not included in the above figures for the various Zones. Between 1996 and
2005, the number of Nestlé Waters factories more than doubled worldwide,
from 49 to 103 in all. The virtually unchanged total also conceals the fact that
in 1998 – before the effects of the MH 97 initiative had begun to feed through –
the number of factories had temporarily reached an all-time high of 522. By
2000, that figure had fallen to 479. However, this was not due solely to the MH
97 rationalisation programme, but also to the divestment of Findus in 1999.45
The fact that the total number of factories has barely changed over the
last decade also fails to give a true picture of the underlying situation, because
Rationalisation Programmes 1997–2007 (in CHF billions) 44

11
Operation Excellence 2007 4.0 10.6 10
9
8
7
Target 04 3.6 6
5
4
3
MH 97 3.0
2
1
0
97–02 02–04 05–07 Total 97–07
170
only a minority of the factories in the portfolio in 2005 were the same as in
1995: between 1998 and 2005, almost the same amount of sites were closed
or sold as were newly acquired in the same period. Ultimately, of course, the
various rationalisation programmes were not simply about reducing the number
of factories but improving their efficiency and ensuring that supply and pro-
duction were better co-ordinated. The cost savings generated are proof that
this goal has been achieved.
When selling factories to other companies, Nestlé has always endeav-
oured to obtain a contractual commitment from the purchaser to ensure that
jobs are protected wherever possible. When factories have been closed down,
the company has done everything in its power to minimise the impact on the
workforce, seeking socially acceptable solutions such as early retirement, help-
ing to find alternative employment for those affected – either within the Group
or with another firm – or giving them a helping hand to set up on their
own.46
… Decentralisation and autonomy
The new structures, with the Strategic Business Units and the Zone USA &
Canada, had barely been in place six months when, in 1992, Nestlé faced yet
another organisational challenge following the takeover of the mineral water
business of Perrier.48 This acquisition brought into the corporate fold a busi-
ness of such scope that it required a structure of its own. In the wake of the
experience with Carnation and Rowntree, Helmut Maucher was keen to avoid
a compromise solution and so it was decided to leave the headquarters of the
new unit – known as Nestlé Sources International as of 1 January 1993 – in
Paris. Likewise, its boss, Serge Milhaud, was not called to Vevey. Instead, he
reported to Ramón Masip, who took up his new role as President & Chief Op-
erating Officer Food the very same day. This model was to be adopted a sec-
ond time following the next major acquisition, that of Ralston-Purina in
2001.49
When Peter Brabeck took over as CEO, it heralded yet more change for
the organisational structure of Nestlé. The very first thing he did on taking of-
fice in June 1997 was to create the Nutrition Strategic Business Division
(NSBD). This new unit reported directly to Brabeck himself, placing it above
the Strategic Business Units in terms of the corporate hierarchy. It encom-
passed infant and follow-up food, performance food and clinical nutrition,
whose enteral nutrition business (oral or tube-feeding for patients) was now
wholly owned by Nestlé following the dissolution of the joint venture with Bax-
ter the previous year. The Nutrition Strategic Business Division also incorpo-
rated the Nestlé Nutrition Centre. Most of these business areas were spun off
from the Milk & Nutrition Strategic Business Unit. The main reason for the cre-
ation of the NSBD and its positioning at the top of the corporate hierarchy was
Brabeck’s aim to emphasise the importance of the nutrition business to the
future of Nestlé. At the same time, he was sending a very clear signal to the
The Maggi factory in

Kemptthal (Switzerland) was sold
to Givaudan at the same time as
171 FIS in 2002.
competition – in particular Novartis, born a year earlier out of the merger of

Ciba-Geigy and Sandoz – which had made nutrition a core business. Looking
back, the creation of the Nutrition Strategic Business Division can be seen as
the first step in the transformation of Nestlé into a company dedicated to
nutrition, health and wellness.
The NSBD was transformed into an autonomous business unit under the
name of Nestlé Nutrition from 1 January 2005 and has been operational since
1 January 2006. Since then, it has had global responsibility for the profit and
loss of a business that turned over CHF 5.2 billion in 2005, and describes its
special status as “separate, but integrated” – independent, yet still an integral
part of the global Nestlé organisation.50 Since then, a lot of valuable lessons
have been learnt from this example; the next division scheduled to introduce
a new management structure is Nestlé FoodServices.51 With over CHF 6.6 bil-
lion in sales, Nestlé is the world leader in food services – the catering of Nestlé
products to institutional customers such as hotels, restaurants, hospitals,
schools, airlines, etc. – and has particular strength in beverages and beverage
1 systems. The intention is to enable Nestlé FoodServices to accelerate its growth
and improve its profitability through greater focus on its category-specific stra-
tegic opportunities.
Alongside the autonomy of Nestlé Nutrition, another new unit – closely
linked to nutrition but separate – was evolving, though not destined to carry
out any business activities in its own right. That unit is the Corporate Wellness
Unit. The role of the new unit is to promote the focus on nutrition, health and
wellness throughout the Nestlé Group, also in the classic non-nutrition cate-
gories, with the aid of a global network of wellness experts, and thereby sup-
plement the activities of Nestlé Nutrition. One of the key tools used by the new
unit is the so-called “60/40+” test, designed to ensure that Nestlé products al-
ways outperform the competition, not only in terms of taste but also their nu-
tritional value.52 This test – undergone by several hundred products since it
was first launched in 2000 – evolved from the 60/40 concept introduced by
The Three Geographical Nestlé Zones since 1996
Zone EUR
Zone AMS
Zone AOA
1 Advertising by Perrier as
sponsor of the Roland Garros
tennis tournament in Paris, 1992. 172
Peter Brabeck back in 1997, whereby 60 per cent of consumers should prefer
the relevant Nestlé product over its rivals. As the 60/40 concept was based on 2
taste alone, however, the original test may unintentionally have had the oppo-
site of the desired effect: the testers tended to prefer products with more sugar,
salt or fat – rather than less – on the grounds that they tasted better. The new,
improved test known as “60/40+” solved this problem by first considering taste,
then – in a second phase – the nutritional value of the product. The sensory
and nutritional profile of each product is analysed by Nestlé Research and
Development.53
In addition to this rigorous programme, the Wellness Unit also manages 3
Branded Active Benefits (BABs) – scientifically proven ingredients that are
added to existing products and provide scientifically proven health benefits for
the consumer. In addition, the Corporate Wellness Unit coordinates Nestlé
initiatives to ensure a healthy old age and combat obesity.54
Regional business units …
The concept of regional business units, already considered in the framework

of “Nestlé 2000”, was gradually phased in from the mid-1990s onwards. It was
no coincidence that the relatively new business area of pet food was chosen
to start things off, due to its specific supply chain and the globally uniform
tastes of its “consumers”. And so, in 1995, Friskies Europe – with its head-
quarters in Paris – was born. Following the acquisition of Ralston Purina in
2001, the unit was relocated to London under the new name of Nestlé Purina
Pet Care Europe; the corresponding regional Purina units in the other two zones
soon followed. Regional units were also set up in other business areas at the
start of the new millennium: Chilled Dairy Products Europe, based first in Brus-
sels and later in Noisiel, the headquarters of Nestlé France55; Nestlé Ice Cream
Europe (NICE), headquartered at the head office of Nestlé Switzerland in La
2 Nestlé Nutrition has been

an independent business unit
since 2006. This display is
designed to portray the unit to
employees and visitors to the
headquarters in Vevey.
3 With its so-called

“60/40+” test, Nestlé aims to
ensure that 60% of consumers
prefer its products to those of
its competitors in a blind taste
test. The “+” represents the
nutritional value of the product.
4
4 The labelling system
designed by Nestlé as part of its
commitment to the well-being of
its customers provides nutritional
information clearly displayed
on the packaging of its products
so that consumers – especially
those with specific dietary needs
– can see exactly what is in the
173 food that they are buying.
Tour-de-Peilz56; Frozen Food Europe, based in Rorschach, Switzerland;57 and

Brussels-based Nestlé Chilled Culinary Europe (NCCE), responsible – among
other things – for the Herta meat business.58 Some of these units were only
short-lived. Nestlé Ice Cream Europe, for instance, was wound up following
the successful integration of the German ice cream manufacturer Schöller59
and the activities of Nestlé Chilled Culinary Europe were returned to the mar-
kets,60 while Chilled Dairy Europe was brought under the umbrella of the joint
venture with Lactalis at the end of 2005 (see below).
… and new joint ventures
The CPW and CCNR/BPW joint ventures of the early 1990s were followed by
more such projects at the beginning of the 21st century. In 2001, Nestlé teamed
up with the New Zealand based milk producer Fonterra to create Dairy Part-
ners Americas (DPA), a series of joint ventures covering the whole of Central
and South America with the aim of working together to manufacture and mar-
ket dairy products, including chilled products. The first phase of the rollout be-
gan in Brazil, Argentina and Venezuela, followed in 2004 by Ecuador, Colum-
bia and Trinidad & Tobago.61
In 2002, 20 years on from their Galderma joint venture, Nestlé and L’Oréal
teamed up again to create a new company, Laboratoires Innéov, specialising
in “nutricosmetics”.62
In mid-December 2005, Nestlé announced that it had entered into a joint
venture with Lactalis of France – formerly the Besnier Group – for the joint dis-
tribution of yoghurts, desserts and other chilled dairy products under the Nestlé
brand with a total volume of EUR 1.5 billion. In a departure from previous pol-
icy, whereby each partner had an equal share in the joint venture, on this oc-
casion Nestlé settled for 40 per cent, leaving Lactalis with a 60 per cent ma-
jority holding.63
The Executive Board
Despite all these organisational changes, the structure of the Executive Board,
which meets at least once a month, has remained more or less unaltered since
the early 1990s. The system of functions and Zones still exists today. Follow-
ing the reduction of the number of Zones from five to three back in 1996, on
taking office as CEO in mid-1997 Peter Brabeck also amalgamated four key
functions: SBG 2 – of which he himself had been the head – was merged with
SBG 1 so that all the SBUs now reported to a single Executive Vice President.
After ten years of “independence” he then went on to bring Research & De-
velopment back under the same roof as Production and Technical once more.
These organisational changes also resulted in a change of personnel. The then
Head of Zone Europe, Philippe Véron, took over as head of all the SBUs and
Marketing, as well as assuming responsibility for the Water business. His suc-
174
cessor as Head of Zone Europe was the Swiss Robert Raeber, who had previ-
ously headed up the difficult German Market with great success, gaining val-
uable experience of dealing with hard discounters that he was now able to put
to good use throughout Europe. The lessons learnt from German reunification
also stood him in good stead in terms of the increasingly important business
with Eastern Europe. Following the retirement of the Head of Research, Brian
Suter, this area was taken over by Rupert Gasser, who – in addition to the now
disbanded SBG 1 – had also been responsible for Technical and Production for
some years. The mid-1990s also saw two other key posts handed on to the 1
next generation. Switzerland’s Mario A. Corti – former Deputy Director of the
Trade Division at the Federal Department of Economic Affairs – had joined
Nestlé in 1990, when he was immediately posted to the United States. There,
he was instrumental in the merger of the various US-based Nestlé companies
and served as Head of Finance for two years before Helmut Maucher brought
him to Vevey to take over as CFO from Reto Domeniconi, who was joining the
Board of Directors. When Peter Brabeck took office, Francisco Castañer – 2
former Market Head of his native Spain and of Portugal – took over from his
fellow countryman José Daniel, who was retiring, as Head of Human Resources
and Corporate Affairs and as the person responsible for liaising with Alcon and
L’Oréal.
So, Peter Brabeck began life as CEO with a smaller, younger team of just
seven Executive Vice Presidents, almost all of them new to their respective
jobs. This streamlining of the Executive Board – in parallel with a scaling down
of the Board of Directors – was in line with Peter Brabeck’s aim of making the
operational management of the business leaner and more effective.64 It was
not until the expansion of the business areas at the turn of the millennium that
the ranks of the Executive Board rose to eleven again, back to what it had been
at the start of the 1990s. This enlargement began in 2000 with the appoint-
ment of the Head of the GLOBE programme, the American Chris Johnson –
previously Country Head of Taiwan – to the rank of Deputy Executive Vice Pres-
Number of Factories, 1990–2005
1990 1995 2000 2005
Zone EUR 182 181 145 123

Zone AMS 145 130 109 122
Zone AOA 75 107 123 110
Nestlé Waters 5 49 77 103
Nespresso – – – 1
JV F&B* – 8 8 9
Alcon 16 14 16 16
JV Pharma – – 3
1 The skin firmer innéov
Total 423 489 479 487 47 fermeté, which came onto the
market in 2003, is the first
product to come out of Labora-
* Joint Venture toires Innéov, the joint venture
between Nestlé and L’Oréal.
Food and Beverages (CPW, BPW)
2 The corporate logo of

Lactalis, a French firm with
which Nestlé entered into a joint
venture in 2005 for the market-
175 ing of chilled dairy products.
1–5 Since the purchase of 3

the dairy products factory Eau
Claire in the US in 1988 from
Land o’ Lakes Dairy, the produc-
tion facility has been modern-
ised in order to convert it into a
factory for infant, nutrition and
health products. The improve-
ments consisted primarily of
installing aseptic and sterile
production lines. 176
177
ident. In recognition of the growing importance of the Water business, its Head,
Dutchman Frits van Dijk, was appointed Executive Vice President in 2002 –
though continuing to work from Paris – and the global operation was renamed
Nestlé Waters the same year. Finally, in order to underline the importance of
Nutrition, the Head of the NSBD, the Spaniard Luis Cantarell – former Coun-
try Head of his native Spain and Portugal – was appointed Deputy Executive
Vice President in 2003.
The Executive Board team assembled by Peter Brabeck in 1997 remained
unchanged until the turn of the millennium. Philippe Véron was the first to re-
tire at the end of 1999, when he was succeeded by the American Frank Cella,
previously Market Head of Canada. As head of all the SBUs Cella brought to
the job the particular experience of this market – where half of sales were gen-
erated outside of the traditional distribution channels – and set a new strate-
gic direction for marketing. Spring 2001 brought an unexpected departure as
Mario Corti – the man who had set many wheels in motion as CFO of Nestlé,
introducing new valuation methods such as value drivers and economic profit,
for instance – was whisked away to take over the beleaguered Swissair. Corti
was succeeded by the Swiss-Austrian dual national Wolfgang Reichenberger,
who had previously headed up the Finance Department under Reto Domeni-
coni before becoming Market Head in New Zealand and Japan. Mid-2001 saw
the retirement of Robert Raeber, who had led Zone Europe through difficult
times, managing the smooth transition to the Euro and ensuring that the di-
vestment of Findus went without a hitch. He was succeeded by the Swede
Lars Olofsson, whose extensive experience of dealing with large distributors
as the former Market Head of France could now be transferred to the whole
Zone. The following year, Rupert Gasser also retired. He was replaced by the
German Werner Bauer – former Head of the Nestlé Research Center in Lausanne
– who had built up a wealth of market experience in South Africa. Carlos Repre-
sas and Michael Garrett, who had led their Zones for more than a decade with
great success, reached retirement age in mid-2004 and early 2005 respectively.
Executive Board 1997,

from left to right: Francisco
Castañer, Robert Raeber,
Philippe Véron, Michael W.O.
Garrett, Peter Brabeck-Letmathe,
Rupert Gasser, Mario A. Corti,
Carlos E. Represas. 178
Both men had understood perfectly how to exploit the opportunities presented
by globalisation in “their” parts of the world. Represas had turned around the
crisis-prone Latin American markets, setting them on track for growth, and
was responsible for key acquisitions in the USA; Garrett was instrumental in
the company’s expansion in China and also developed the potential of India,
the country in which he had grown up. Represas was succeeded as Head of
Zone AMS by the Belgian Paul Bulcke, who had a long and successful track
record in Latin America and most recently as Market Head of Germany. Zone
Asia, Oceania & Africa was taken over by Frits van Dijk, who had spent a large
part of his career in Asia and had proved his credentials as Head of Nestlé Wa-
ters. Van Dijk’s successor in Paris was Swiss-born Carlo Donati, who had pre-
viously headed up the emerging Indian market. Having worked hard for the es-
tablishment of a Life Ventures Fund throughout his term in office, at the end
of 2005 CFO Wolfgang Reichenberger decided to concentrate on running an-
other risk capital fund financed by Nestlé by the name of the “W. Health Fund”,
specialising in investment in health and nutrition projects. As his successor,
the Board of Directors chose the Dutchman Paul Polman, who had previously
been responsible for the entire European business of Procter & Gamble. The
end of 2005 brought another unexpected change at the top: the American Ed
Marra, who had taken over from the retiring Frank Cella in 2003 – like his pred-
ecessor before him, having previously been Market Head of Canada – was
forced to step down for health reasons. He subsequently died of his illness in
the autumn of 2006. He was replaced by Lars Olofsson. Luis Cantarell took
over as the new Head of Zone EUR, succeeded as Head of Nestlé Nutrition by
the Swiss-American dual national Richard T. Laube as Deputy Executive Vice
President. Laube had previously been responsible for the OTC business at
Roche, equipping him with invaluable experience for expanding the newly in-
dependent Nutrition business. The 42-year-old Swiss David Frick, the former
Head of Legal & Compliance at Credit Suisse, also became member of the Ex-
ecutive Board at the beginning of 2006. His job is to prepare for the planned
revision of the Articles of Association.65 As Chief Compliance Officer, he is also
responsible for ensuring that Nestlé continues to comply with all the relevant
statutory requirements, internal rules and regulations. In a company that has
traditionally recruited its next generation of managers largely from within its
own ranks – not for a decade has an “outsider” been appointed Executive Vice
President – one particularly noticeable development is that since 2005 all new
members of the Executive Board have come from outside Nestlé. Whether this
is sheer coincidence or the start of a new human resources policy at the top
level remains to be seen: only time – and future appointments to the Execu-
tive Board – will tell.
By 2006, only a single member of Peter Brabeck’s original team from
1997 – apart from the man himself – remained on the Executive Board: Fran-
cisco Castañer. During this time, Castañer has developed new initiatives in the
field of HR policy and played an active role in the partial IPO of Alcon and the
renegotiation of the contractual agreement with L’Oréal. As such, the Execu-
tive Board has undergone two changes of generation in barely a decade – a fact
179
that looks set to continue to influence the debate over Peter Brabeck’s succes-
sor as CEO.66
In a globally active business such as Nestlé, it is only right and proper
that the senior management should have an international complexion. Includ-
ing dual nationals, there have been as many different nationalities as individ-
uals who sat on the Executive Board between 1990 and 2005. The international
nature of Nestlé is also reflected in the make-up of the workforce at the com-
pany’s headquarters in Vevey, with no less than 80 different nationalities rep-
resented.
Outlook: agile fleet not supertanker
Over the last fifteen years, the longstanding, firmly fixed elements of the Nestlé
organisational structure have been increasingly loosened up and opened out.
Today, Nestlé has a multi-focal structure, comprising three business ar-
eas under the umbrella of the holding company Nestlé S.A.: the traditional food
and beverage business, the new Nestlé Nutrition, as well as pharmaceutical
and cosmetics holdings: Alcon (75%), L’Oréal (28.8%) and the two 50 per cent
joint ventures with L’Oréal, namely Galderma and Laboratoires Innéov.67 The
food and beverage business comprises two parts, one managed on a regional
basis – the Zones EUR, AMS and AOA – and the other on a global basis, in-
cluding Nestlé Waters and Nespresso, along with the CPW and BPW joint ven-
tures.68 The Zones may have lost some of their former dominance as a result
of the various reorganisations of recent years, but with cumulative sales of
CHF 74 billion out of total sales of CHF 91 billion in 2005, they remain the back-
bone of the Nestlé business.
With this differentiated structure, Nestlé is approaching a plasma-style
organisation, whose individual elements are able to move freely, combine and
separate again within clearly defined parameters. Or, in the words of Peter
Executive Board 2005,

from left to right: Luis Cantarell,
Frits van Dijk, Wolfgang H.
Reichenberger, Paul Bulcke,
Francisco Castañer, Peter
Brabeck-Letmathe, Werner
Bauer, Lars Olofsson, Chris
Johnson, Ed Marra, Carlo Donati,
Richard T. Laube. 180
Brabeck, Nestlé is changing from a supertanker to an agile fleet of fast-mov-

ing, smaller ships, led by a strategic command unit – the Centre – with the
back-up of a common supply ship, namely GLOBE.69
The organisational changes of the last fifteen years have strengthened
decentralisation as one of the core values of the Nestlé Group, by taking it back
to basics: decentralising decisions about aspects that the consumer can see,
hear, smell and taste. The Market Heads can concentrate on these key success
factors by means of greater focus and standardisation in the “upstream” ar-
eas that remain hidden from sight to the consumer, such as production, logis-
tics and administration.70
181
182
7. GLOBE
Introduction
To pave the way for the strategic reorientation of Nestlé as a

health, nutrition and wellness company, in March 2000 Peter
Brabeck embarked on a radical process of organisational trans-
formation. And so project GLOBE – an acronym for “Global
Business Excellence” – was born. GLOBE is the largest project
of its kind ever attempted by a multinational company. As of
January 2007, GLOBE had been rolled out in around 80 per
cent of Nestlé’s food and beverage operations, representing
over 100,000 users, 500 factories, 400 distribution centres and
more than 300 sales offices. With the implementation phase
nearly complete at the end of 2006, Nestlé is now focusing on
leveraging GLOBE to achieve greater internal efficiencies and
further advantage over its competitors.1
183
Following on from Helmut Maucher, who had laid the organisational founda-
tions for a business worth a billion Swiss francs with “Nestlé 2000” and the
introduction of the SBUs back in the early 1990s, in a second major programme
of organisational change Peter Brabeck set about creating the framework for
1 a company that will be well equipped to see through the next stage of its
growth. As such, the existing organisational structure is currently being devel-
oped further into an interlinked network structure. Or, to borrow the metaphor
used earlier: the supertanker that is Nestlé is being transformed into a fleet of
more agile cruisers and speedboats, led by a strategic flagship (the headquar-
ters) and supported by a powerful supply ship (GLOBE). In this context, GLOBE
is the “prime enabler” in achieving that transformation. It is not purely an IT
project or a cost-cutting programme, though it contains strong elements of
both.
The worldwide GLOBE project was born out of a number of similar ear-
lier projects at individual market level, along with at least two major regional
initiatives. In both South America and Asia, the corresponding markets had
launched their own standardisation projects with the help of the headquarters
in Vevey. In the process, it had become clear that regionalisation brings its own
2 complications – in terms of the supply chain and technology, for example. In
many areas of the business, the individual Nestlé companies were each doing
their own thing with regard to product names, recipes and so on. As a result,
practical collaboration was difficult. Against this backdrop, at the end of 1993,
Zone AOA launched Project BECA (Business Excellence and Common Appli-
cations), creating a common platform for 17 different markets in all. This
project, the first of its kind in any company anywhere in the world, ran for a
total of eight years.
Though it required that the Market Heads relinquish some of their power
for the first time, they were responsible for a project at Zone level, which was
a great motivator. But above all, there was a real payoff for them: they were
able to save a great deal of money, not through hardware or software savings
but primarily through improved business efficiency.2 This realisation was sub-
sequently to influence the decision in favour of GLOBE, which also benefited
from some of the other experiences gained in the course of Project BECA.
Indeed, Chris Johnson, the original GLOBE Programme Director, had also
been actively involved in Project BECA as Market Head for Taiwan from 1998
to 2000.
Why GLOBE?
In the years leading up to the implementation of GLOBE, Nestlé had grown in

size and complexity. The Nestlé Group was selling numerous products through
a whole variety of channels, in almost every corner of the globe. The size of
the organisation limited the company’s potential to leverage purchasing power,
to consolidate or share information, and to respond quickly to market oppor-
tunities. It also imposed geographical constraints on Nestlé, and led to func-
1 GLOBE logo.
2 Almost one-third of the

food and beverages sector
complies with GLOBE processes
and systems, as here in the ice
cream factory in Chembong,
Malaysia. 184
7. GLOBE
tional and divisional fragmentation and incompatible data and systems across
the Group.
Nestlé was not alone in facing these problems. Its competitors had re-
sponded to similar issues by adopting more focussed strategies, shedding
brands and entire product categories to concentrate on fewer areas. Nestlé,
however, chose its own path – to leverage size as a strength and to turn com-
plexity into a source of competitive advantage with the help of GLOBE.
GLOBE objectives
In technical terms, GLOBE focussed on standardising Nestlé’s “backroom” ac-
tivities – the processes that consumers and customers don’t generally see. The
rationale behind this was:
– to leverage size as a strength in a rapidly changing environment
– to unite and align on the inside so as to be more competitive on the out-
side
– to enable Nestlé to manage complexity with operational efficiency.
This rationale was supported by three GLOBE programmes:
1. The implementation of harmonised best practices GLOBE was to docu-

ment the best ways of working across Nestlé in all functional areas and then
make them available to all markets and businesses.
2. The implementation of data standards and data management – “manag-

ing data as a corporate asset” GLOBE was to establish global standards (in-
cluding common coding for materials, customers and vendors), clean existing
databases and then implement processes and support tools to manage data
in the future.
3. The implementation of standardised information systems and technol-

ogy GLOBE was to establish a “Global Template” approach with SAP as the
primary application, supported by a globally designed infrastructure (hardware
and network). The first two objectives would be the heart of the programme
and the key enabler of benefits. The third objective would support and enforce
the first two. As in the case of Project BECA before it, the active involvement
of the markets would be vital to the success of GLOBE.
185
Programme design
The GLOBE template was designed, tested and rolled out in more than 60 coun-
tries over a period of just six years – a massive undertaking. To achieve this,
the company assembled a team of experienced Nestlé staff, technology part-
ners and external consultants under unique global, regional and local struc-
tures.
At the beginning of the project, a management team of experts in their
respective fields was assembled from every corner of the Nestlé community,
1 with the job of ensuring that the knowledge and experience available within
the Group was leveraged and passed on worldwide. During its most intensive
phases, the programme employed the skills of more than 7,000 Nestlé staff.
Those specialist skills that could not be found within the company were pro-
vided by consultants, and to this end Nestlé entered into partnerships with
IBM and SAP.
Structurally, GLOBE encompasses three organisational tiers – at the glo-
bal, regional and market level:
1. Globally: the Business Technology Center (BTC)

The Business Technology Center, located in Vevey, is the heart of the pro-
gramme. Analogous to a Nestlé Product Technology Center or PTC (see “Re-
search and Development”, chapter 7), the BTC is responsible for the develop-
ment and continuous refinement of business processes, data standards and
2 supporting systems, as well as providing technical assistance in these areas
to the GLOBE Centers (GCs).
2. Regionally: GLOBE Centers (GCs)

Three GLOBE Centers were established in mid-2001 – one for each Nestlé Zone:
EUR, AMS and AOA. The main function of the GCs is to help the markets im-
plement harmonised best practices and data and systems, as well as ensuring
ongoing systems support for operations and continuous improvement after
markets “go live”, i.e. transfer their operations onto the GLOBE system. Be-
fore GLOBE, there were Data Centers in every market – more than 100 in total
across Nestlé. Now there are four, one linked to each GLOBE Center plus a
Central Data Center.
3. At the market level: The local GLOBE organisations (LGOs)

Each Nestlé market or business also has a local GLOBE organisation, which
supports the market in implementing the standardised processes, data and
systems in their specific region.
1–2 GLOBE delivers many

benefits, including, for example,
standardised production and
storage procedures to ensure
100% product traceability, as
evidenced by the label on this
box of Nescafé loaded on a train
in Orbe (Switzerland). 186
7. GLOBE
The GLOBE programme was to achieve its objectives

through three main activities:
1. The implementation of harmonised Nestlé Business 2. The implementation of data standards and data man-
Excellence Best Practices agement
“Best practice” is a management concept, which asserts Before the implementation of GLOBE, Nestlé lacked a com-
that there is a technique, method, process or activity that mon coding system for products, key customer classifica-
is more effective than any other at delivering a particular tion (e.g. Carrefour) and spend categories (e.g. packaging
outcome. One of the key tasks of GLOBE was to harmo- material). The same KitKat Chunky produced in the UK was
nise best practices within Nestlé back office, selecting the coded differently by each of the ten recipient Nestlé mar-
most effective Nestlé best practices from all its operations kets in Europe. To address this issue, GLOBE adopted a
around the world for global rollout. three-step approach:
The decision was taken early on to focus on tried- 1) Establishing global standards
and-tested best practices from within Nestlé (not external 2) Cleaning databases
best practices or consultant theory) and from February 3) Implementing tools and processes to facilitate the
2001 more than 400 employees from 40 countries were better management of data.
brought together to document and validate over 1,000 Standardised product coding enables effective, effi-
Nestlé Best Practices across all areas, including sales and cient inter-market supply within Nestlé, while cleansing
marketing, the supply chain, manufacturing, finance and data frees up data processing capacity and avoids com-
control and HR. Once defined, these Nestlé Best Practices mon problems such as ordering incorrect raw materials,
became accessible to all employees via the intranet in the promoting a product that has been discontinued or ship-
Nestlé Best Practice Library. ping the product to the wrong address.
These harmonised Nestlé Best Practices have been
very well-received – from Chile to Canada, from Malaysia
to Germany, and are regarded as one of the greatest ac- 3. The implementation of standardised information sys-
complishments of the GLOBE programme. tems and technology
With respect to the application, GLOBE opted for a global
template approach with SAP. This meant configuration of
the system with the Nestlé Best Practices for all markets,
with changes only being made for legal, fiscal or very
specific business needs. The infrastructure – hardware
and network – was globally designed, but managed on
both a global and regional basis (through the GLOBE
Centers).
Programme costs
Total IS/IT costs during the programme rollout (including GLOBE costs) were
fixed at approximately 1.9 per cent of Nestlé’s food and beverage turnover.
For the five years before GLOBE, the IS/IT costs of the Nestlé Group had
increased at an average of 16 per cent per annum. Had Nestlé not implemented
GLOBE, the company would still have spent an estimated additional CHF 750
million on IS/IT programmes from 2000, but without any of the benefits de-
rived from having a common platform for processes, data and systems (cf.
chart, p. 188).
187
Lessons learnt from GLOBE
The process of implementing the GLOBE template in Nestlé’s markets was a

valuable learning experience, as Programme Director Chris Johnson ex-
plains:
“GLOBE changes the way we work. It challenges us to work in a more
disciplined way. It forces us to be more collaborative. Since it is an integrated
system, it forces you to work with others to collect information from colleagues
and reach agreements, and it will not allow you to work in isolation. For in-
stance, one of the key tenets of demand and supply planning is that you have
to reach a consensus about what and how much you want to produce. That
may sound simple, but it involves making decisions based on input from dif-
ferent departments. The GLOBE system formalises this process by imposing
strict monthly meetings and specific input times into the system to make sure
that you collaborate and get the information you need to make informed, timely
decisions.”3
The data cleansing process also yielded useful information. Before cleans-
ing Nestlé databases as part of a Group initiative in 2003, the company thought
that it had more than six million materials, customers and vendors. However,
more than 50 per cent turned out to be obsolete or duplicate. Of that, between
30 and 40 per cent was incorrect or inaccurate. This is not an unusual percent-
age for companies that undertake such an exercise. Today, the company knows
how many products it sells (around 120,000 Stock Keeping Units/SKUs) and
how many products it manufactures in a given Nestlé market and sells in an-
other (around 25,000). Nestlé markets and businesses have adopted over 300
global standards. The knowledge gleaned helps to simplify reporting, inter-
market supply and business decision-making processes as a whole.
Impact of GLOBE/IS/IT on EBITA, 1995–2008

Total costs as % of sales
2.4
2.0
1.6
1.2
0.8
0.4
0.0
95 96 97 98 99 00 01 02 03 04 05 06 07 08
Target
Probable costs
without GLOBE
Information technology
facilitates data management and
standardisation. 188
7. GLOBE
Outlook: expanding GLOBE’s benefits
“Implementing the GLOBE solution throughout Nestlé is in itself an enormous

challenge… Even more challenging is to ensure that we realise the bene-
fits.”4
Now it is a matter of ensuring that we reap the benefits of the processes
and systems introduced and exploit them to the full. As such, the three main
objectives of the programme evolve into:
1. Leveraging business benefits through Business Excellence Best Prac-

tices. GLOBE needs to ensure the transition from “Best in Nestlé” to “Best in
Class” business processes, backed up by external benchmarking.
2. Leveraging decision-making support as a competitive advantage. This in-

volves moving from historical, explanatory reporting to forward-looking, real-
time, predictive information with a greater focus on customers and consum-
ers.
3. Leveraging organisational transformation to manage complexity with op-

erational efficiency. The aim: to ensure a fast, focussed and flexible “front line”
(marketing and advertising, for example) combined with slim, cost-effective
“backroom” activities such as manufacturing and administration.
In 2006, Peter Brabeck observed with satisfaction that: “GLOBE allows
the Group to have more focus on our customers and consumers: to focus on
generating demand… GLOBE is about enabling the ‘Nestlé Model’: long-term
organic growth, improvement of the EBITA margin year in and year out, and
responsible capital management.”5
189
190
8. Research and Development
Nestlé Research in 1990
Research and development (R&D) became one of Helmut

Maucher’s top priorities from the moment he took office as
CEO. He understood that growth could not be fuelled by ac-
quisitions alone, and that it was vital to encourage internal
growth as well. This was a goal that could not be achieved
without innovation, i.e. without research and development.
His first action was to allocate substantially more funding to
this area: in 1979, R&D costs totalled just CHF 153 million, or
0.7 per cent of sales revenues, but within a decade they had
risen to CHF 539 million or 1.2 per cent of sales.1 By 2005 that
figure had climbed yet further to 1.5 per cent, which, given
the doubling in sales since 1990, equated to R&D costs of al-
most CHF 1.5 billion.2 Whether expressed in absolute figures
or as a percentage, that puts Nestlé firmly at the top of the
food industry.3 Interestingly, R&D costs were only posted as
a separate item of expenditure from the 1989 Annual Report
onwards.4 In the 1980s, a considerable percentage of the in-
creased funding was set aside for the state-of-the-art Nestlé
Research Center (NRC), which opened near Lausanne in 1987.5
The greater importance of research and development was fur-
ther underlined in the same year by the appointment of the
first ever Executive Vice President with exclusive responsibil-
ity for Research and Development. By 1989, Nestlé employed
2,450 people in R&D functions around the world.6 Maucher
had plans to increase that figure by five to ten per cent over
the following few years.7 By 2005, the Nestlé R&D workforce
totalled some 3,500 people.
191
In expanding R&D, Helmut Maucher was continuing an uninterrupted tradition

of research that had started out with the invention of Nestlé Infant Cereal by
Henri Nestlé, the founding father. His successors developed this product fur-
ther, and subsequently also turned their attention to other forms of milk such
as condensed and powdered milk. The technologies used, spray drying for ex-
ample, inspired Max Morgenthaler and his team in the work they carried out
in the 1930s, culminating in the invention of the very first soluble coffee, which
was launched on the market in 1938 under the Nescafé brand.8 Whilst the ba-
sic research behind this new product was carried out at the laboratories in
1 Vevey, the development work required to ready it for industrial production
called for a factory infrastructure, that of Orbe, at the foot of the Jura moun-
tains in the Vaud region of Switzerland. This early division of labour reflects
the distinction that Nestlé still makes today between basic research and
development, with basic research providing the scientific know-how for the
creation of new products or processes. Basic research is currently concen-
trated almost exclusively at the NRC in Lausanne, which undertakes research
work for the entire Group and all product categories. This know-how is then
translated into practical applications at 17 decentralised research and devel-
opment centres dotted around the world, each of which specialises in one or
more product areas and is located in the immediate vicinity of a factory oper-
2 ating in that particular category. The larger of these centres are equipped with
a pilot plant, a kind of mini factory in which the NRC results can be tested on
a reduced scale in respect of possible industrialisation before a large-scale trial
at the factory itself provides the definitive answer to the all-important question
of high-volume production potential. The original name – Laboratoire Indus-
triel Orbe (Linor) – of the development centre in Orbe, which emerged out of
the first tests with Nescafé and provided the blueprint for the subsequent sys-
tem, eloquently expressed this relationship between laboratory and industrial
factory.
Centralised basic research …
The basic research team had moved into new laboratories in Entre-deux-Villes
near Vevey in the 1950s, but outgrew this accommodation just 20 years later
due to the rapid pace of the Group’s development. With a local extension out
of the question, an alternative had to be found. Maucher, who had made the
new basic research centre project a top management priority since arriving in
Vevey, deliberately chose a green-field site in Vers-chez-les-Blanc, high above
the city of Lausanne, 20 kilometres from Vevey, but close to the Ecole Poly-
technique Fédérale de Lausanne (EPFL) and the University of Lausanne. This
unique location was chosen by Maucher to express the fact that research ac-
tivities enjoyed a certain independence vis-à-vis the company, and also to dem-
onstrate his desire for more openness and greater collaboration with other sci-
entific institutions. Indeed the outer appearance of the NRC, which went into
operation in 1987, is more reminiscent of a university campus than an indus-
1 The inside of the Nestlé

Research Laboratory, Orbe
(LINOR) (Switzerland), in 1987.
2 An aerial view of the

Nestlé Research Center in Vers-
chez-les-Blanc near Lausanne,
Switzerland. 192
3 Research in action in one

of the laboratories at the Nestlé
Research Center equipped with a
193 bioreactor.
trial site. With its original workforce of 450 (650 by 2005), half of whom have
academic qualifications, it has been the world’s largest private food research
facility ever since it opened.
In 1990, the German-born Werner Bauer – then just 40 years of age –
took over as head of the NRC. As the former Director of the Fraunhofer Insti-
tute for Food Technology & Packaging, Munich, he had a contract research
background, which was an early indicator that Nestlé’s basic research was to
be steered in a more application-oriented direction, and that the NRC was to
be aligned more closely with market needs, in spite of its academic atmos-
phere.9 In appointing Werner Bauer as Head of the NRC, Maucher had delib-
erately opted for a representative of a younger generation to lead the NRC with
1 its considerably lower average age than the headquarters in Vevey; and an out-
sider to boot, someone who would embark on the work at hand without ex-
cessive deference to existing or presumed Nestlé research traditions such as
a marked preference for secrecy. Bauer encouraged researchers to cultivate
more contact with their colleagues in other institutes and to publish research
results wherever the competitive situation would allow. He set an example him-
self by accepting a teaching post at the University of Lausanne and he also
nurtured closer contacts with other universities, which subsequently took on
more and more NRC assignments.
The NRC also opened its doors within the company by inviting Nestlé
managers from the markets to explore the unfamiliar field of basic research
and garner inspiration for possible new products.
… and decentralised development
By 1990, the number of decentralised development centres had reached its ze-
nith with 25 in ten countries across four continents.10 Almost half of them could
be traced back to research facilities which Nestlé had taken over during the
course of its many acquisitions since the Second World War. Some of these
companies had accomplished pioneering achievements in food research them-
selves: Maggi, for example, in the field of soups, stock cubes and seasonings,
acquired by Nestlé in 1947; or the deep-frozen products of Findus, which was
taken over in 1962. Thus Nestlé was able to build up its know-how in sectors
that had previously been unknown territory. The acquisition of Ursina-Franck
in 1971 provided Nestlé with no fewer than three further development centres
in Germany and Switzerland, bringing additional know-how in familiar areas
such as milk and coffee, as well as fresh experience with mustard and mayon-
naise. The big acquisitions of the 1980s, which were all associated with the
takeover of research facilities, fuelled the continuing combination of old and
new know-how: dairy products and pet food with Carnation, pasta and pizza
with Buitoni and chocolate and confectionery with Rowntree.
In most cases, the process of integrating the new research facilities within
the existing R&D system went ahead smoothly as Nestlé stuck to its estab-
lished practice of taking over both the management and the research staff of
1 Nestling in the hills of

Tuscany, Casa Buitoni – the
former residence of one of the
descendants of the founder of
the Buitoni brand – is a research
centre, where pasta, sauces, piz-
zas and other Italian specialities
are lovingly created. 194
the companies it acquired.11 In most instances the development departments,

which were initially accommodated within the factory facilities, were trans-
ferred to separate state-of-the-art buildings, but were still in the immediate vi-
cinity of production operations. The large number and broad geographic spread
of the development centres placed great demands on the research manage-
ment team in Vevey. To convey a certain unity to outside observers at the very
least, the development centres were all dubbed “Research Company”, or
“Reco” for short, preceded by a geographical designation or compass
point.12 2
In the early 1980s, Nestlé set up two Recos in developing countries, in
Singapore and Quito (Ecuador), followed by a third one in Abidjan (Côte d’Ivoire)
a decade later. The impetus for these three Recos originally came from the
market heads who, towards the end of the 1970s, at the height of the baby
food controversy, were keen to show that Nestlé was also doing its bit for re-
search in the Third World.13 This was certainly true, but there were also sound
business reasons for setting up these Recos. As a major purchaser of coffee,
cocoa and soya, Nestlé was interested in researching and improving these raw
materials and their applications at source, so to speak. But these three Recos
were also part of a dual strategy aimed at offering those living in countries with
lower purchasing power both traditional products and products tailored espe- 3
cially to their needs, otherwise known as Popularly Positioned Products (PPPs).14
The idea was that in-depth knowledge of local raw materials and cultural fac-
tors, plus technical advice for farmers, would stimulate food production in these
countries, leading to the development of new products which could then be
marketed not only in the region in question, but also on an international scale.
Thus Reco Singapore, for instance, became a global centre of competence for
Asian noodle dishes. In 1989 there was also talk of opening a research centre
in Japan, but this project never went ahead.15
Given their individual histories, there were big differences between the
Recos, both in terms of geography and size. The largest of them, which usu-
ally encompassed several product categories, employed workforces of several
hundred, whilst the smaller companies concentrated on a single category and
employed no more than a dozen people at most. Besides the various acquisi-
tions, Nestlé research was further enriched by the joint ventures of 1989/90 –
Clintec, CPW and CCNR. Although these partnerships did not bring any addi-
tional research facilities to the “marriage”, they did substantially reinforce and
expand partnerships amongst researchers themselves. These partnerships were
particularly positive and well developed with General Mills in the context of
CPW, because Nestlé already had years of cereals research under its belt and
therefore had a stock of experience of its own to contribute. The joint ventures
also provided new opportunities to rub shoulders with researchers from com-
petitor companies: the Nestlé research team had always maintained more or
less institutionalised contact with colleagues from other food companies, but
this contact was normally restricted to issues such as food safety, which were 2 “Eastreco”: the Nestlé
not directly relevant to the competitive situation. In the case of the joint ven- research center (later Nestlé
tures, however, researchers discussed product-specific topics and on each oc- R&D Center) in Singapore in
1991, which specialises in the
development of noodles and
other Asian dishes.
3 “Latinreco”: the Nestlé

research center in Quito
(Ecuador) in 1988, which worked
on modifying and improving
agricultural raw materials in Latin
195 America.
casion had to think carefully how far they could go without disclosing com-
mercially sensitive information …16
Decentralisation aside, the Recos, and indeed the NRC, reported directly
and exclusively to the Executive Board in Vevey and did not take any instruc-
tions whatsoever from the markets, in spite of their close historic and geo-
graphic ties with the latter. This is how the central research management com-
pensated for the geographical and specialist fragmentation of the Recos; R&D,
along with Finance, was thus one of the few centrally managed elements in a
Group that was highly decentralised in all other respects.17 The NRC and the
Recos occupied the same hierarchical level and had no authority to issue in-
structions to each other. The task of co-ordinating the Recos in Vevey had fallen
to Brian Suter even before his appointment as Executive Vice President; in his
new function he went on to put the work that the Recos undertook together
on a more formal footing. Until then, this work had been conducted on a very
ad hoc basis.18
Difficulties with the implementation of research results
In the early 1990s the future looked rosy for Nestlé Research, with a Chairman
and CEO who attached great importance to this field of work, a full-time Ex-
ecutive Vice President assigned exclusively to this domain, a new head of the
brand-new NRC and greater co-operation between the Recos. But these or-
ganisational and staff-related improvements were still not enough to remedy
a fundamental problem: the excessive distance between research and the mar-
ket. Nestlé was certainly not alone in this problem; on the contrary, it appears
to be one that affects the entire food industry.19 In contrast to pharmaceutical
products, which consumers do not usually take voluntarily, consumers in the
food industry are entirely free in their choices and have to be repeatedly won
over anew. Ideally, therefore, food research should be geared as closely as pos-
sible to consumer needs. The reality is somewhat different, however: research
and marketing are governed by different cycles, the former being long term
and the latter short term. Market priorities evolve day by day, but building up
research competence takes years, if not decades. It is not something that can
simply be turned on and off, like a light. It can take a long time to translate cer-
tain basic research findings into practical applications and the impact of vary-
ing cycles is further aggravated by differences in the outlook of researchers
and marketing people. Another complicating factor is that personnel fluctua-
tions are far greater in marketing than in research, making continuity an is-
sue.20
The problems associated with different timeframes and staff turnover in
research and marketing were exacerbated by the lack of synchronisation be-
tween Vevey and the markets. The conflict between centralisation and decen-
tralisation also played a big role in connection with product innovation and ren-
ovation, although its impact varied across the different businesses. In the two
traditional and research-intensive categories of infant food and Nescafé, Vevey
196
had always had a relatively strong position vis-à-vis the markets, and was able
to impose product innovations and renovations, as it were. But even when
headquarters took the initiative, launches of new products or product varia-
tions were generally limited to a single lead market, hence the term “single-
market launch”. The launch was only replicated in other markets if the initial
launch operation was successful. This low-risk, single-market, “wait-and-see”
culture of risk minimisation, which had evolved over decades, was even more
pronounced in product areas with the least onerous research requirements. In
those cases, the drive to launch innovations frequently came not from the Cen-
tre, but from individual markets. The markets commissioned the work and
made the necessary funding available. Vevey approved the project, transferred
it to R&D, who then designated a Reco to undertake the development work,
although the commissioning market frequently also had a substantial say in
this decision. “If a big market shouts loudly enough, it can get a local Reco to
work on its projects,” commented one envious manager from a smaller Euro-
pean market in the context of the 1991 McKinsey interviews. On the other
hand, managers from larger countries found that the Recos were too far re-
moved from the markets and should increasingly be incorporated within the
business itself. Other interviews also revealed a certain dissatisfaction with the
work of the Recos.21
In such a highly decentralised system – even one in which research was
centrally managed – the big weakness of this traditional way of doing things
was that it could take years before a new or renovated product became well
established in a large number of markets. This inevitably meant a loss of val-
uable time, time which competitors were able to use to their advantage.22
LC 1 – a missed opportunity …
The problems associated with the need for synchronisation on two fronts – be-
tween Research and Marketing, headquarters and the markets – can be illus-
trated with an example from the early 1990s, namely the development and
launch of LC 1, the first probiotic product to emerge from food research.
Probiotic bacteria are so-called “friendly bacteria”, naturally present in
the human digestive system. The best-known are the Bifidus bacteria. There
are also countless strains of Lactobacillae, probiotic lactic acid bacteria which
Nestlé basic researchers had started to collect on a systematic basis back in
1964. The isolation of Lactobacillus acidophilus (La 1) from several thousand
strains marked an early success: as its Latin name suggests, this bacterium
thrives in an acidic environment. Unlike Bifidus, it can therefore survive the
passage through the stomach and remain in the intestinal tract, where it has
a beneficial effect, for weeks. Research into La 1 was subsequently continued
at the Laboratoire Biologique Orbe (Labior), which opened in 1968. In contrast
to the nearby Linor, Labior was tasked with conducting basic research in the
field now referred to as “Nutrition”. Thus, Labior turned its attention to prob-
lems such as obesity, diabetes and high blood pressure as far back as the
197
1970s. It was later integrated within the NRC Bioscience Department, which
accelerated the pace of work in this research discipline in the late 1980s and
early 1990s. At the same time, numerous studies showed that La 1 can help
protect the immune system because of its marked resistance to acidity. Clini-
cal trials confirmed both these findings and the safety of La 1.23 These insights
came at just the right time given that, in 1989, Maucher had alerted the Board
of Directors to the growing realisation amongst consumers in industrialised
countries that diet and health are closely linked.24 “Within a few years we will
doubtless see products on the market that can contribute to the prevention of
certain diseases such as osteoporosis, for example”, wrote Maucher in an ar-
ticle a year later.25
That was the initial situation when Werner Bauer took charge of the NRC
in 1990: the team had made the type of groundbreaking discovery that is only
seen in the food industry every few decades, a discovery that dovetailed per-
fectly with the new trend towards healthy eating. But there was no business
concept for translating it into a product. Bauer thus stepped up the contacts
between the NRC and the SBU Milk and Nutrition. An idea emerged: that of
using La 1 in a drink, rather than in yoghurt, as originally envisaged.26 Shortly
afterwards, however, the project co-ordinators at the NRC and in Vevey were
assigned to new functions. Their successors took the project in a different di-
rection: as the former CEO of Chambourcy, the French yoghurt company ac-
quired by Nestlé in 1978, the Head of Marketing at the SBU reverted to the
original idea of marketing La 1 as a yoghurt; with its traditional image as a
healthy product, yoghurt seemed to be the ideal “vehicle” for this innovation.
He was also confident that this would deliver a considerable expansion in the
yoghurt business, particularly in France, the world’s largest market for yoghurt.
Tests were run at Reco Lisieux in France and the results indicated that the con-
cept was indeed a candidate for industrial implementation. Nestlé set up a task
force comprising both researchers and marketing representatives. The SBU
pushed hard – sometimes to the consternation of the researchers, who were
not accustomed to such haste, and wanted further studies – for a speedy mar-
ket launch in France, where rival Danone already had its “Bio” health yoghurt
on supermarket shelves. But the new product still needed a catchy name. The
search was on, but relatively late in the day when one considers that the Nes-
café brand had been chosen in 1932, a full six years ahead of the product
launch!27 To the researchers’ amazement, Marketing suggested using the sci-
entific name, La 1, as the brand name as a means of standing apart from
Danone and underlining the scientific basis of the new product. That plan had
to be scotched in favour of LC 1 because the French trademark authorities were
concerned about confusion with the feminine article “la”.28
LC 1 was launched in France in September 1994, with other European
markets following a year later. Hence the traditional “lead market” method was
adopted even for this ultra-modern product. The launch in France was initially
a resounding success, and Danone was taken by surprise, but bounced back
shortly afterwards with its rival product, “Actimel”, which contained another
lactic acid bacteria. Nestlé had only obtained patent protection for the one
198
1–3 LC 1 was launched in

France in 1994. Since then, its
2 packaging has undergone several
changes. (1) In Switzerland, it
was initially sold under both the
Hirz and Chambourcy brands.
(2) The Chambourcy logo was
adopted by Nestlé, revamped
and combined with the compa-
ny’s name, as illustrated by this
example from Thailand.
(3) Finally, the yoghurt as seen
199 on the shelves in 2006.
strain that it had isolated, La 1, leaving its competitors free to develop other
strains. Furthermore, Danone was the market leader and had always enjoyed
a stronger footing in the yoghurt market than Nestlé: although Nestlé had in-
troduced a first yoghurt in France sometime around 1920, it only really estab-
lished itself as a major player in this sector after the acquisition of Chambourcy.
Then there were the taste-related problems: the marketing people wanted more
sugar, which to a certain extent ran contrary to the plan to launch a “healthy”
product. As in the run-up to the launch of LC 1, the lack of continuity on the
personnel front also took its toll: the Head of Marketing was transferred abroad
in 1995 and three other product managers came and went in quick succession
after him.
This personnel gap was filled de facto, if not officially, by the NRC re-
searcher in charge of developing LC 1, even though this marketing remit lay
well outside the scope of her normal duties and was not even remotely con-
nected with the NRC’s responsibilities. But as she was both an excellent sci-
entist and a talented marketing executive, particularly in the field of commu-
nications, she travelled all over Germany extolling the virtues of LC 1 to
scientists and the general public alike during the local launch phase. As in
France, however, the success of the German launch soon began to peter out.
It was a similar picture in the other European countries and the handful of over-
seas markets in which LC 1 was launched. Countries such as the UK and the
USA simply had no tradition of yoghurt. Nothing could change this, not even
the fact that the originally envisaged solution of a drinkable form did get the
go-ahead after all, and was launched as LC 1 Go, or indeed that LC 1 was sold
in powder form ready to make up as a drink, in the United States, for exam-
ple. In the US market, Nestlé also found itself up against the deeply ingrained
American aversion to consuming live bacteria. In other countries, too, it be-
came evident that LC 1, with its coolly technical sounding name and sober
packaging, had been launched with too much focus on the scientific aspects,
which were difficult to communicate effectively to consumers, in spite of the
huge amount of time and money invested in providing information and in em-
phasising the health benefits. Danone adopted a more pragmatic, less scien-
tific approach with “Actimel”. It is possible that Nestlé was still hankering af-
ter the faith in technical progress that characterised the 1960s, a very fruitful
era for its research that resulted in, amongst other things, freeze-drying for
Nescafé. Whatever the reasons, it took far longer than anticipated to convince
consumers of the benefits of probiotics.29 The launch of LC 1 was further hin-
dered by the regulatory authorities in various countries, who imposed strict re-
quirements in respect of publicising its health-promoting effect. This led to dif-
ficult and time-consuming negotiations which delayed the launch in some cases
and often meant that claims had to be restricted to diluted versions such as
“strengthens your natural defences”. And there was yet another obstacle to
contend with in that the launch of LC 1 in Germany, Austria and Switzerland
coincided with the outbreak of “mad cow” disease (BSE) and the emerging
debate about the use of genetic engineering in food products. Although lacto-
bacillae are true natural products and had nothing in the slightest to do with
In the early 1920s, Nestlé

distributed small advertising
flyers extolling the virtues of its
very first yoghurt in France. 200
either problem, the sudden climate of mistrust rubbed off on any food that was
not perceived as “natural”, including LC 1. Its trade classification as “functional
food” – a term that Nestlé never warmed to, and thus never used for any offi-
cial purpose – did nothing to make the product more consumer friendly. The
brand name LC 1 also proved to be an unhappy choice insofar as it suggested
that other products, LC 2, 3, 4, etc., would follow. This never happened, of
course, and led to consumer disappointment. The Nestlé profile – a leader in
research, but not in marketing – contrasted with that of Danone, where the
opposite tended to be true. There were too many solo initiatives and too many
rules were broken: the fact, for example, that responsibility for marketing was
at least partly left to Research. There was no overall strategy to drive the prod-
uct forward in a co-ordinated manner. As a late consequence of these short-
comings, LC 1 was licensed out to third-party companies in several major mar-
kets early in the new millennium (Müller in Germany, Emmi in Switzerland,
Lactalis in France).
... which led to new insights
The launch of LC 1 in Germany and other European countries coincided with

the transitional period between the announcement in November 1995 of the
appointment of Peter Brabeck as the future CEO, and his actual taking up of
office in June 1997. He used these 18 months to consider the lessons to be
learnt from past experience, a topic that he raised at the very first meeting of
the Executive Board that he chaired.30 He had come to the conclusion that the
lack of synchronisation between research and market operations could not be
improved purely by organisational measures such as the setting up of the Nu-
trition Strategic Business Division (NSBD)31 because it was rooted in two un-
derlying causes: firstly, the fact that the function of a product was more im-
portant to consumers than its content; and secondly, that Nestlé was too big
and too slow to be a “functional food company”. The solution to both prob-
lems lay in a reversal of previous priorities: instead of embarking on the costly
process of launching a particular food function in the form of new and
autonomous products such as LC 1, the function should be built into existing
products in the future. At the same time, this reversal of priorities provided an
opportunity to transform the disadvantages of size and slowness into advan-
tages: the global presence and high recognition level of Nestlé brands meant
that additional marketing costs could be kept to a reasonable level and any
time delays in connection with the launch of innovations could be absorbed
without commercial losses. These reflections gave rise to the concept of
“Branded Active Ingredients” (BAI), i.e. ingredients that were protected as in-
tellectual property and added to existing products for their health-promoting
qualities. To overcome any negative connotations evoked by the term “ingre-
dients”, the BAIs were renamed “Branded Active Benefits” (BAB) in 2003.
Nestlé currently has over 13 BABs in various categories – shelf-stable and
chilled dairy products, powdered drinks and baby and infant foods – all of which
201
are formulated to improve the nutritional content and health benefits of exist-
1 ing Nestlé products in relation to digestion, the immune system, weight con-
trol, physical and intellectual performance and healthy ageing.
In 2005, BAB-enriched products generated sales of over CHF 3 billion in
47 countries, which represents a year-on-year increase of 20 per cent, not least
thanks to familiar best-selling brands such as Milo. As much as 80 per cent of
2 total volume sales of this malt drink, which is particularly popular in Asia, con-
tain the additive Actigen-E, a balanced combination of vitamins and minerals
that improves the energy release of three important nutritional elements: pro-
teins, fats and carbohydrates. In the Philippines, for example, Milo saw its mar-
ket share increase from 71 to 78 per cent in the space of just a few years,
thanks to this additive. Another BAB is a probiotic known as BL (Bifidus Lac-
tis), which is added to existing infant foods to protect and strengthen the
digestive system. The same purpose is served by the prebiotic additives Prebio
1 for infants from the age of one, and Prebio 3 for children aged three to six.
Prebiotics are dietary fibres that promote the formation of probiotics. Nestlé
Research had been working on fibres, namely in connection with chicory, since
the takeover of Ursina in the early 1970s. Thus infant foods, an area to which
Nestlé has always been particularly attached, provided a new, forward-looking
application for probiotics and prebiotics, and an arena in which Nestlé Research
found itself linking back to its roots. Hence it is no coincidence that the first
BAB, launched in Thailand in 1998, was Prebio 1. In somewhat simplified terms,
one can say that as research-driven and health-promoting additives, the BABs
were the legitimate successor to LC 1. The best proof of this hypothesis is that
LC 1 itself was redefined as a BAB, which opens the door to other application-
related opportunities. It is entirely conceivable, for example, that LC 1 might
one day be used in ice cream; indeed its beneficial bacteria would survive even
longer in a cold environment. Ice cream would also be a perfect vehicle for
other BABs such as Calci-N, which promotes bone growth in children aged six
and over. The challenge here would lie more in persuading the consumer that
a product perceived solely as a “tasty treat” can in fact have a health-promot-
ing effect.
European food legislation has made it increasingly difficult to use health
claims. In the debate on the relevant EU directive, the position adopted by
Nestlé, and indeed the entire European food industry, is that all claims proven
by scientific studies – and clinical trials if need be – should be automatically
approved, and that the exact wording of such claims should be a matter for
the manufacturer.32
BABs are a genuine Nestlé concept, and one that only a brand producer
could have launched. As such, they set the company well apart from the own
brands marketed by the big chain stores. But competitors are already starting
to imitate the concept. This is further proof of its success, but also a reminder
that one can never count on being alone for long in the food industry! The BAB
concept is still in its early days, however, and offers plenty of scope for incor-
porating new Nestlé Research findings into popular Nestlé products. An ad-
vantage of the BABs is that they permit great flexibility because their formula-
1–4 Actigen-E, Prebio1,

Calci-N and Bifidus Lactis are just
a few of the Branded Active
Benefits (BABs) – products with
active health benefits – on sale
since 2003. 202
tion can be adapted to the latest scientific developments without having to

relaunch the product itself.33
Looking back, one can conclude that – though not totally successful –
the launch of LC 1 was the beginning of a new phase of development rather
than a money-losing venture. It opened the door on probiotics and, beyond 3
that, on the huge area of health-promoting food supported by health claims;
as such, this launch was an important step for Nestlé in its quest to become a
“Nutrition, Health and Wellness Company”.34
Basic research is not just an academic exercise. It does indeed lead to
practical results, albeit with a time lag in most cases. Those results include not
just innovative products, but new processes and the upgrading of existing tech-
nologies as well. A good example of this is the extruder, of which Nestlé has
decades of experience. Extruders, in which enormous pressure is generated
by a screw element, are used to shape breakfast cereals, ice cream, energy
bars, pasta and for products in the pet food sector. The NRC researchers, who
have their own pilot plant for this kind of innovation work, were able to capi-
talise on this variety of applications and use extruder technology to develop,
in the mid-1990s, a special process for producing low-calorie ice cream by
means of low temperature freezing (LTF). Here too, however, there was a re- 4
peat of the problems experienced with LC 1: the research had been done, but
there was no business plan. The process was sold to Dreyer’s, an American
firm in which Nestlé had acquired a minority interest in 1994. Dreyer’s went
on to turn the new product – ice cream with one-third fewer calories but the
same great taste – into a commercial success under the brand name “Slow
Churned”. When Nestlé acquired the majority holding in Dreyer’s in 2002, this
exceptionally successful product went back to its roots, so to speak – some-
times you have to be prepared to take the long way round to get where you
want to go!35
Another example of a successful innovation to emerge out of an estab-
lished technology is the launch of Nescafé Cappuccino, which is based on
spray-drying know-how, in the early 1990s. This product was developed fur-
ther at the NRC in conjunction with the Orbe and Konolfingen development
centres and local factories, and in the early 21st century it was revolutionised
by foam booster technology. This technology is based on a powder made up
of hundreds of tiny granules filled with nitrogen at a pressure of 30 bar, which
leads to the formation of the desired frothy topping. This is a prime example
of the kind of teamwork in which the lines between basic research, develop-
ment and production become blurred. Like extruder technology, foam booster
technology has lots of different uses; in addition to cappuccino, it can also be
used for soups, for example, and will doubtless be adapted to other applica-
tions in the future.36 Water is another area in which basic research led to pio-
neering work in the 1990s. The NRC played a key role in the development of
Nestlé Pure Life purified and remineralised groundwater, which was bottled
from 1998 onwards and launched with great success, particularly in develop-
ing and emerging countries.37
203
From Recos to Product Technology Centres (PTCs)
The Nestlé research and development system had been the subject of discus-
sion with McKinsey in connection with “Nestlé 2000”, but emerged largely un-
changed from the reorganisation at that time. Rupert Gasser and Peter Brabeck
resisted the solution proposed by McKinsey, which was to split research com-
petence between the R&D management, the SBUs and the Zones and mar-
kets, and were against merging the Recos with the SBUs of the same product
category. Even though it was entirely understandable to want to fetch the re-
searchers down out of their ivory towers and bring them closer to the realities
of the market, this reorganisation would have pushed the researchers into
adopting the same kind of short-term thinking as their marketing colleagues,
with all the attendant disadvantages.38
Nevertheless, the final version of “Nestlé 2000” did contain traces of
McKinsey’s proposals in the form of three categories of research projects, each
of which was to be “sponsored” by one of the three parties: R&D management
was responsible for projects in which the main focus was on basic research;
the SBUs had responsibility for projects which were more directly relevant to
the market and of strategic importance for the Group; and the Zones and mar-
kets would handle all projects in which technical assistance was a prime con-
cern. The markets were to discuss their projects with the NRC and the Recos
before submitting them to the SBUs, who would then pass them on to R&D
management, Zone and technical management for comment. This complex
system was held together by a joint annual research programme which all the
“sponsors” were involved in preparing in mutual consultation before it was
submitted to the Executive Board for final approval.39 With certain co-ordina-
tion tasks farmed out to the SBUs, the R&D management was free to concen-
trate on its true core functions. From now on, it would comprise two depart-
ments, one of which would assure the management of the NRC and the other
the co-ordination of the Recos and agricultural, packaging and administration
services.40
Nestlé had already made a start back in 1990 on addressing one of the
consultants’ other recommendations, namely that the number of Recos be re-
duced. The first to close was Hayes near London, which had been acquired
with the Crosse & Blackwell takeover. Hayes had operated in the field of food
preservatives, which had become less important for Nestlé. During the 1990s,
several other Recos were closed as a result of changing business priorities.41
Even though “Nestlé 2000” only touched on R&D as a peripheral issue,
further-reaching reform was only a question of time. Towards the middle of
the 1990s, the spotlight once again turned on the Recos: there were still too
many of them, and the variety and complexity of their activities called for a
clear structure. In a first, mainly symbolic step, all the Recos were renamed
“Nestlé R&D Centres” in 1995. This of course meant the end not only of their
somewhat fanciful names – the newly founded company in Abidjan had just
been dubbed “Afrireco” – and the “Reco” abbreviation with them, but also the
underlying term “Research Company”. The purpose of the new, uniform des-
204
ignation was to visibly identify the development centres as Nestlé institutions

and to raise awareness of their work. Their renaming was the final stage in the
process of strengthening the corporate identity, a process that Helmut Maucher
had set in motion.42
In the meantime, the actual reform of R&D operations only really got un-
derway in 1997, when Peter Brabeck took over as CEO. Aware of the problems
encountered during the launch of LC 1, he had set himself the goal of bringing
the reorganisation of this area to a successful conclusion – a reorganisation
that had started, albeit somewhat sporadically, back in 1991.
The first step was to push ahead with the aforementioned merger of R&D
with Production, Technology and Environment headed by Rupert Gasser. Gas-
ser had a research background, experience as a Technical Director in key mar-
kets and had also become familiar with marketing in his previous function as
Head of SBG 1. His appointment was a clear sign of Brabeck’s determination
to bring Research, Production and Marketing closer together.
At the very first meeting of the Executive Board which he attended in his
new role on 25 June 1997, Gasser proposed “streamlining the widely spread
network of competences and R&D centres”.43 This goal was to be achieved by
concentrating research across just a few sites – by grouping all the coffee re-
search activities at just two centres in Orbe and Marysville, for example, and
by locating the entire milk research team at just one, in Konolfingen. In the me-
dium term this meant the closure of smaller R&D centres such as Ludwigs-
burg near Stuttgart, which had been taken over with Ursina and had concen-
trated on chicory research; and in the chocolate sector, the centre based in
Broc, which had only opened in 1975 and was now to be integrated into the
R&D centre in York. The process of concentration within these “traditional”
product categories was also aimed at releasing additional research capacity
for “new” categories such as pet food, ice cream and foodservices.
The Executive Board approved Gasser’s recommendations and the im-
plementation phase began the following year with the first closures: besides
R&D Expenditure, 1990–2005 (in CHF millions)
1500
1200
900
600
300
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
205
1–2 At the PTC in Singen

(Germany), researchers are work-
ing to develop new culinary
products and improve flavour
and texture. 206
207
Ludwigsburg, Badajoz in Spain also saw its research work in the field of to-
mato breeding brought to an end – Nestlé had been the world’s largest tomato
processor until the 1980s! This was an initial indication of Nestlé’s intention to
combine the rationalisation of research activities with a withdrawal from first-
stage raw materials processing and other areas of low added value. Further
R&D centres would fall victim to this plan in subsequent years. In 1998, the
R&D centre in Quito closed after just 15 years. It had notched up a number of
interesting new developments based on long-forgotten indigenous plants, and
done valuable work in helping to improve the nutrition of the local population,
but had never achieved the broad range of competence that would have justi-
fied its continued existence.
Gasser’s plans encompassed not only a reduction in the number of R&D
centres, but also in research projects, in order to shorten the time to market
for new products. The same purpose was served by the deployment of steer-
ing committees for each product area, representing a kind of institutionalisa-
tion of the ad-hoc taskforce that had prepared the launch of LC 1, except for
the fact that the new steering committees would now also include market ex-
perts alongside the researchers and specialists from the SBUs. Gasser saw
these steering committees as a first step in the creation of genuine compe-
tence centres which would unite all the specialists available in the research
teams, the SBUs and the markets, from basic research through to industrial
production and packaging. Hence a series of more or less co-ordinated, indi-
vidual actions by different players would be replaced by an unbroken chain of
responsibility, at the end of which a new product or process would emerge.
Gasser also took the view that the researchers should get out into the markets
to talk to clients about their projects at first hand, an approach that was totally
new to the company.44
The next stage in the overhaul of Nestlé Research was encapsulated in
the term “competence centres”, although for the time being the only mention
of this was in a sub-heading of a strategy paper presented at the Glion Con-
Nestlé’s R&D Network, 2005
Zone EUR Zone AMS

1. CRN Lausanne (CH), basic research 12. PTC St. Louis (USA), petcare
2. PTC York (GB), confectionery 13. R&D Marysville (USA), coffee, beverages, confectionery,
3. PTC Orbe (CH), coffee, beverages, beverages FoodServices, cereals ice cream
4. PTC Konolfingen (CH), nutrition, long-life milk products 14. R&D Solon (USA), frozen products
5. PTC Singen (DE), culinary products, infant food 15. PTC New Milford (USA), FoodServices (until the end of 2005)
6. PTC Lisieux (FR), chilled milk products new: FS Beverages Centre Orbe (CH)
7. PTC Beauvais (FR), ice cream
8. PTC Vittel (FR), water Zone AOA
9. R&D Tours (FR), plant science 16. R&D Singapore (SGP), culinary products
10. R&D Amiens (F), pet food 17. R&D Shanghai (PRC), culinary products
11. R&D Casa Buitoni (I), Italian cuisine
208
ference in November 1997. Next to “competence centres”, that sub-heading

also included, at the same height and in the same lettering, a reference to
“technology centres”. This led to the “Product Technology Centres” (PTC) con-
cept developed by Gasser and Bauer, a concept aimed at bundling together
the many and varied competences under one roof, both geographically and or-
ganisationally, in order to “improve the speed, quality, credibility and market
implementation of development work”.45 This concept did not necessarily re-
quire the construction of new research facilities; all that was needed was to
upgrade existing R&D centres in line with the move towards concentration that
was already underway. The basic idea, that each SBU should be supported by
this type of centre, had already been discussed when the SBUs were first cre-
ated. The partnership between the markets and research was to be further
strengthened by seconding specialists from the SBUs to the PTCs.46
In a continuing effort to place SBUs and research on a parallel footing,
eight R&D centres were upgraded to PTCs in 1998 and 1999: Orbe (Switzer-
land) for breakfast cereals, coffee and other beverages such as Nesquik or Milo;
Konolfingen (Switzerland) for dairy products, nutrition and baby food; Kempt-
thal (Switzerland) for culinary products; Beauvais (France) for ice cream; Li-
sieux (France) for chilled dairy products and desserts; York (UK) for chocolate,
confectionery and biscuits; St. Louis (USA) for pet food; and New Milford (USA)
for food services. The upgrade was not limited to just another change of name;
in addition to the transfer of personnel and know-how – in part from the NRC
– it also included building extensions, especially to the pilot plants, as in Orbe
and Konolfingen, for example. The number of PTCs has remained constant ever
since, but not their locations: the PTC in Kemptthal, which was sold to Givau-
dan in 2002 together with the nearby Maggi factory, was replaced the follow-
ing year by a new PTC for culinary products in Singen, southern Germany. The
baby food activities of the R&D centre in Weiding (Germany), which had been
taken over with Ursina, were also transferred to Singen. A PTC for the water
business was opened in Vittel (France) in the same year. New Milford was aban-
Zone EUR Zone AMS Zone AOA

R&D R&D R&D
PTC PTC
209
doned in 2005 and food service research was spread across the PTCs with the
competence in the relevant area – Orbe for coffee and beverages, for example.
The PTCs facilitate one-stop development of every element of a future product,
all the way through to the packaging. The PTCs have given Research a more
strongly centralised structure, without depriving it of its close contact with the
markets.47
1 New responsibilities for R&D centres and NRC
Whilst the PTCs bore central responsibility for the entire Group in their partic-
ular area of expertise, the R&D centres focus more on their regional function,
which is primarily geared to the fact that, irrespective of globalisation, food
is – and is likely to remain – heavily influenced by local factors, taste prefer-
ences and cultural environment. Hence it is no surprise that over half of all
R&D centres work in the culinary field, where differences in taste are most
marked. The importance of this category was underlined by two new R&D cen-
tres set up early in the new millennium and integrated within existing produc-
tion units according to the tried and tested model: Solon (USA) for deep-fro-
2 zen and chilled convenience food (2001) and Shanghai, which, along with
Singapore, is now responsible for Asian food (2002). The takeover of the Israeli
firm, Osem, in 1995 brought another small development centre for snacks in
Sderot (Israel), which works exclusively for the Israeli market. “Casa Buitoni”
in Italy, the headquarters of the company of the same name that was acquired
in 1988, is a special case. From the outset, it had always been both a research
and a promotion centre for the company’s products and was temporarily inte-
grated into the Italian market some time later due to this latter function, be-
fore then returning to the fold as a full member of the “Nestlé research fam-
ily” – a good example indeed of the close relationship between research and
marketing!48
1 The Research Centre in

Shanghai (China).
2 In Europe, pet food

research and development is
carried out at the company’s
research centre in Amiens 3
(France).
3 The Nestlé Product Tech-

nology Centre in Orbe (Switzer-
land) carries out research and
development in the product
areas of coffee, malted and
chocolate drinks, and breakfast
cereals. 210
The four pillars of Nestlé Research
1. Basic research at the NRC and in Tours 3. Regional development at R&D centres
(plant science)
4. Renovation in application groups
2. Development work at PTCs
The remaining R&D centres retained their traditional roles, but became
more like outposts of the PTCs: alongside Orbe, Marysville (USA) is the sec-
ond competence centre for coffee research; the same role in pet foods is ful-
filled by Amiens (France) alongside St. Louis (USA); with Parma (Italy) and
Beauvais (France) in ice cream. Tours (France), which specialises in horticul-
ture, was long an outpost of the NRC and is now an autonomous R&D centre.
Abidjan, which provided a wealth of useful research results in connection with
coffee and cocoa – two commodities of particular importance to Nestlé – had
to be closed in 2003 after less than ten years’ existence due to the tense situ-
ation in Côte d’Ivoire.49
In the wake of the reorganisation of research, another institution with a
long tradition at Nestlé also received further upgrading: the application groups.
These groups are found in virtually every Nestlé factory, and represent an im-
portant link between Production and Research, particularly in those factories
that share their sites with a PTC or an R&D centre. Some application groups
consist of just a few people, while others – in the bigger factories – may be
made up of large teams. Their main task is to consult with Research and imple-
ment any product changes dictated at short notice by the needs of the market.
Hence the application groups essentially do renovation work, i.e. improving and
adapting existing products to local tastes and raw materials. The importance of
the application groups is, for example, reflected in the fact that the existence
4 Part of the research car-

ried out by the PTCs relates to
consumer tastes. In Singen (Ger-
many), this is the laboratory
where the test trays are pre-
211 pared.
of just such a group of some 30 people at the Maggi factory in Singen was an
important factor in the decision to locate the new PTC there. There are currently
some 270 such groups around the world with a total headcount of about 1,500.50
The application groups had already been more closely aligned with R&D strat-
egy in the 1990s, in the context of “Nestlé 2000”, and were required to report
their ongoing projects to Vevey every six months.51 Now, however, they were
to be integrated even further within the overall R&D system.52
The reorganisation of Research during the second half of the 1990s had
1 no direct impact on the NRC. With very few exceptions, basic research re-
mained the responsibility of the NRC, and retained both its importance and its
share of the total research budget. But the reorganisation did have an indirect
impact: the outsourcing of certain technological activities to the PTCs meant
that the work done by the NRC, in line with Nestlé’s new strategic direction,
shifted even more towards nutrition. Four of its seven departments are now
devoted to this area, which accounts for more than half of all basic research
projects. Thus, it found itself returning to its roots, for at the time of its crea-
tion, the name “Nestlé Nutrition Center” had been suggested.53 The foreword
by Helmut Maucher in a brochure published in 1987 to mark the opening of
the NRC refers to this mission: “Hence we believe that the NRC focus on nu-
trition is important not only for Nestlé’s future, but for humanity as well.”54
With this in mind, the newly founded Nestlé Nutrition Center (NNC) – set up
in 1995 during the launch of LC 1 to bring Nestlé to the attention of specialists
and a wider general public as a source of information for all issues relating to
healthy eating – was annexed to the NRC. Through formal contacts with all
markets, the NNC also built up an internal network that would prove useful
two years later during the creation of the NSBD. These days, “consumer ben-
efits” are the overriding concern at the NRC, with a clear focus on health, with
the seven priorities: weight control, improving physical performance, protect-
ing the immune system, improving the digestive system, growth and develop-
ment in children and young adults, healthy ageing and health & beauty.55
1 The entrance to the PTC

in Singen (Germany) in 2003, the
year in which it opened.
2 Lab work in an anaerobic

chamber at the Nestlé Research
Center in Vers-chez-les-Blanc,
Switzerland. 212
In the latter area, the NRC works in partnership with L’Oréal in the context of
a joint venture entitled Laboratoires Innéov.56 In 2005 the NRC published 268
scientific publications and obtained 27 patents. It also regularly accepts
numerous postgraduates as guest scholars.57
Lessons learned
The organisational changes of the past ten years have considerably advanced 4
Nestlé in its efforts to bring research and the markets a good deal closer to-
gether, but they will not be enough in themselves to fully achieve this goal.
That is why, over the past few years, a series of other instruments have been
developed to ensure that all those involved in any innovation process adopt an
integrated approach. The “Apollo” process is a good example: it was devel-
oped in 2003 by Research & Development together with the Dairy SBU and
has since been extended to all areas of the business. Based on solid market
research, it begins with a detailed definition of the consumer benefits associ-
ated with any new product. Responsibility for this research falls primarily to
the markets, who no longer, however, work in isolation, but in conjunction with
other similar markets, thus forming “clusters” (e.g. Germany and France). Ideas
may also be forthcoming from Research. The findings collected from all the
various sources are forwarded to the relevant SBU, where a “Driver Team”
made up of Research, Production and Marketing specialists draws up a road-
map in close and continuing consultation with the markets in question. This
roadmap describes the attributes that the prospective product should offer and
the production technologies that it will require. It also comments on whether
the new product or process can be developed and produced entirely with in-
ternal resources, or possibly with a partner, or whether it should be entirely
outsourced to, or licensed-in by, another company. Whilst this is going on, the
relevant specialists start thinking about the regulatory issues involved in
3 3 The laboratories where

the Sensory Science Group car-
ries out its research at the PTC in
Orbe, Switzerland.
4 One of the aims of the

PTC, here in Singen, is to adapt a
product to the tastes of consum-
ers in the different countries in
213 which it is sold.
various health claims to be made in connection with the new product. The In-
tellectual Property team investigates the options for obtaining patents and pro-
tecting a future brand name, whilst the marketing managers prepare to com-
municate the product innovation to consumers in the most effective way
possible. All the specialists, even the advertising experts, are involved right
from the outset of any project. This complex process once ran in sequence,
with all the attendant time lags, but now runs in parallel, much like the equivalent
model in the pharmaceutical industry. Indeed, it was the pharmaceutical in-
dustry that provided Nestlé Research with the expression “innovation pipe-
line”. In an effort to remedy the personnel discontinuity of the past, project
managers will in future be required to accompany the launch of a new product
1 from start to finish, i.e. from the very first brainstorming session through to
the market launch itself and beyond if possible.
Other instruments designed to accelerate and enhance the co-ordination
of innovation include the annual R&D Innovation and Renovation Strategy Con-
ferences to set priorities at the highest level of management, and the “Innova-
tion Acceleration Teams” set up in 2005 to accelerate the launch of new
products. These teams also ensure that launch operations do not go ahead in
a single market only, as used to be the case, but basically always take place in
several markets simultaneously. The teams are organised around product
groups, and each one is made up of a mix of employees from different back-
grounds: half come from the SBUs and half from the markets, where they work
with the Business Executive Managers responsible for the area in question.
Research and advertising representatives go out into the markets to accom-
pany the launch of new products. Thanks to these efforts, there were no fewer
than 20 so-called “multi-market launches” in 2005 for products such as the
special children’s soup, Maggi Crescimiento, in Latin America; Nan infant food
with Bifidus Lactis (BL) in Asia; and, in Europe, the low-calorie ice cream, Drey-
er’s Slow Churned, and the Hot Pockets microwave snacks. The latter were
adapted to European tastes at the PTC in Singen, and their trans-fat content
1–4 Quality control is a prior- 2

ity for the laboratories at the
various factories.
Here (1) at the prepared foods
factory in Springville, USA; (2) at
the water laboratory in Shanghai;
(3) at the infant products factory
in Avanca, Portugal; and (4) at
the confectionery factory in
Hamburg, Germany.
214
(TFA) was considerably reduced in comparison to the original American ver-

sion. This Europeanised version was then successfully re-exported to the coun-
try in which the product was originally launched.58
After all these changes, functional and geographical “bunkers” and the
“not-invented here” syndrome should at last be a thing of the past. The same
goal is also served by the four networks that stretch across the entire research
system: Nutrition, Quality & Safety, Food Science & Technology, Sensory &
Consumer Preference. They are modelled on the packaging specialists’ think
tank, whose official name “FastPack” has even been registered as a trademark. 3
Having existed informally for several years, these networks were put on a for-
mal footing in 2003 and will also be extended to the markets in the future. The
factories also generate many good ideas, which is why it is increasingly im-
portant to encourage an exchange of ideas and experience with the applica-
tion groups.
The current trend is towards fewer, but more complex developments and
product launches with a planning horizon of five to seven years.
In certain product areas, up to 70 per cent of the original projects have
been stopped in recent years and their resources transferred to larger under-
takings. In-house training in research subjects, both at the Group’s own train-
ing centre at Rive-Reine and in the PTCs, is now also regarded as increasingly 4
important: an “Ice Cream Academy” has been set up in Beauvais, for exam-
ple. The overriding concern is that Research, Production and Marketing should
all speak the same language. Nestlé Research has indeed learnt from the mis-
takes of the past!59
Even a large company like Nestlé can no longer go it alone when it comes
to research. Where external partners have more know-how than Nestlé, in the
area of plant protection, for example, a working partnership is the obvious so-
lution. External partners are also a possibility in projects in which Nestlé fea-
tures as a partner of equal scientific status, e.g. the “Brain Food” project un-
dertaken with the EPFL in Lausanne, which is aimed at developing cognitive
functions, amongst other things. But in areas such as Nescafé, in which Nestlé
owns protected technology, co-operation with third parties is not an option.
Expenditure on external projects for the NRC has tripled in recent years and
now accounts for some 15 per cent of the basic research budget. It is likely to
increase even further in the future. In 2005, the NRC had entered into no fewer
than 262 partnership agreements with external institutions and companies.
These partnerships are an important source of new impetus – in relation to re-
ducing salt content, for example, or sensory evaluation, which is an increas-
ingly important field of study.60 The general trend, however, is to reduce the
number of external partners and accord greater importance to individual
projects.61
In the search for new products with added health benefits, research ef-
forts are increasingly moving into areas in which collaboration with companies
with the appropriate specialist expertise is indispensable. These partners are
not always other industrial conglomerates – they may also be smaller compa-
nies, including the start-ups typically found in the biotechnology arena, for
215
instance. In 2001, the Nestlé Venture Fund was set up and endowed with a
budget of EUR 200 million to identify such companies and embark on joint
research projects. It was supplemented in 2006 by the W. Health Fund, which
was endowed with a starting capital of EUR 500 million. This fund will invest
in companies operating in the areas of health, well-being and nutrition, thereby
adding to the research capability available within Nestlé.62
Food safety is non negotiable
The safety of raw materials and the resultant products has always been an over-
riding concern for Nestlé right from the start, and hence an integral part of its
research activities. “Food safety is non negotiable”, will always be the prime
and immutable principle. The focus was initially on toxicology and microbiol-
ogy in checking raw materials for the presence of any pesticide residues or
1 heavy metals.63 The laboratory that was originally set up for this purpose by
Henri Nestlé in Vevey before moving to La Tour-de-Peilz was joined in 1968 by
the Laboratoire Biologique Orbe (Labior), which worked in both the field of nu-
trition research and food safety. The latter area was integrated within the NRC
in 1992, where it has now grown into the largest of all the departments, with
no fewer than a quarter of the total workforce. Dozens of special state-of-the-
art laboratories are equipped to analyse samples and detect impurities or other
anomalies straight away, thereby functioning as an early warning system.64
Each PTC, R&D centre and market also has its own analytical labs, not forget-
ting Nestlé’s numerous regional labs. The purpose of this international network
is to pinpoint any problems as soon as they occur so that the necessary reme-
dial action can be taken.
Thanks to its all-out efforts in respect of safety research, Nestlé has re-
peatedly done pioneering work in this field – in the 1970s, for example, when
it took action to combat salmonella in milk-processing by means of the dry
cleaning method, which has now become standard industry practice.65 Nestlé
has also set international standards in the eradication of listeria in ice cream
or the discovery of residues of genetically modified crops in raw materials. In
these and other areas, the NRC has developed its own analytical procedures
like those used back in the early days of Nestlé to identify imitations – a recur-
rent problem, particularly in relation to Nescafé.66
Happily, in spite of the complexity of the products, the large number of
factories and the highly decentralised structure of the business, extreme food
safety cases are very rare. But all incidents, however minor, must be reported
to headquarters in Vevey, where there is an entire department wholly devoted
to following them up. And if the number of cases has increased in recent years,
with reports coming in from all over the world on an almost daily basis, it is
fair to say this is essentially because the analytical methods used are increas-
ingly accurate. Conversely, it is no indication that food safety has suffered. On
the contrary, the food we eat today has never been safer. If public perceptions
differ, this is because the food scandals of the 1990s (BSE, listeria, etc.) have
1 In the laboratories at the

PTC in Singen (Germany), a team
is busy looking at how the pack-
aging of various culinary prod-
ucts performs. 216
made people much more aware of this issue. Against this backdrop, the im-
portance of the company’s information policy is obvious. Nestlé does not pub-
lish every case that is brought to its attention because the overwhelming ma-
jority are too minor to have any impact on consumers, and making them
public would only lead to unnecessary anxiety – or, even worse – to consumer
indifference. But clear and immediate communication and recall procedures
are in place in the event of any serious risk to life or health.
In spite of sophisticated reporting systems and stringent regulatory re-
quirements, the human factor naturally plays a role in food safety. Even at 2
Nestlé, there is no cast-iron guarantee that our staff will get things right all of
the time – as illustrated by two cases in 2005 which both caused lasting neg-
ative publicity. The first case concerns China, where the authorities banned the
sale of infant formula whose iodine content failed to meet national statutory
requirements, even though it met the international standards prescribed by the
World Health Organisation. Strictly speaking, this was not really a food safety
issue – the products were harmless as defined by international standards – but
rather a transgression of a fundamental Nestlé principle of compliance with
national laws. Nestlé offered its apologies to the Chinese authorities and prom-
ised to adhere strictly to national legislation and standards in the future.67
The second case occurred soon after in Italy, where baby milk was found
to contain minute traces of a dye from the ink on the packaging material sup-
plied by a third party. As these traces were well below the safe limit, Nestlé
Italy opted for a “silent recall”, i.e. the replacement of the product concerned
without informing the general public or the authorities of its actions. The local
authorities did, however, became aware of the problem. Thus the incriminated
product was removed from the shelves, accompanied by huge media interest
and much-exaggerated reports of the quantities involved, before Nestlé was
able to do just that.68
These incidents both show that some markets have not yet developed the
necessary sensitivity in dealing with food safety issues, and that insufficient
contact with the authorities and a lack of internal and external communication
can, temporarily at least, cause otherwise harmless cases to get blown up into
“scandals”, with negative repercussions for the Group’s image, credibility – and
business! The unwillingness to report negative events fully and swiftly up the
chain of command may be a vestige of the past culture at Nestlé, a culture in
which admitting mistakes was not exactly good for your career, and in which
internal criticism was “not the done thing”. The culture of learning from mis-
takes is not yet as widespread as it is in the aviation industry, where even the
smallest incident is analysed and evaluated to prevent repetitions.69
Outlook: going the same way as pharmaceutical research?
The reforms of the past ten years have turned the Nestlé R&D organisation into
a powerful tool. But even the most sophisticated technology gradually trans-
fers to the public domain, so Nestlé constantly has to strive to stay on top of
2 Like all our products, the

coffee used in the production of
Nespresso capsules at Orbe in
Switzerland is subject to rigorous
217 quality control.
its game and remain the knowledge leader in all areas of the food industry, and
to be able to exploit its research and development capability as a key compet-
itive advantage. Research costs in the food industry are relatively modest com-
pared to those in the pharmaceutical industry, which invests around ten times
more measured in terms of sales. The comparison is not really meaningful,
however, because the differences are simply too great: the pharmaceutical in-
dustry works with complex synthetic substances, the food industry with nat-
ural raw materials. Pharmaceutical research is dependent on extensive clinical
1 trials to limit adverse effects to a minimum, whereas such trials are far less im-
portant in food research. With drugs, the active substance can be patented;
with foods, only the process is patentable as a general rule.
It takes at least a decade to develop a new drug, but only a few years for
a new food product. Pharmaceutical research is geared as far as possible to
delivering a regular stream of “blockbusters” in order to offset huge research
costs, whereas such spectacular discoveries tend to be few and far between
in food research. The latter, however, can boast constant improvements to
products and processes. Nestlé therefore attaches equal importance to the in-
vention of new products – innovation – as to the renewal – or renovation – of
existing ones. Both go hand in hand, as the first two big innovations in Nestlé
2 history illustrate so well: both the infant cereal of 1867 and the Nescafé of 1938
have been renovated practically every year since they were launched – the in-
fant formula by being made more and more like breast milk, for example, and
through health improvements such as hypoallergenic baby formula or the ad-
dition of probiotics or prebiotics; Nescafé by freeze-drying, constant work to
perfect aroma preservation and ongoing flavour diversification – there are now
some 200 different varieties of this product around the world.
The differences with respect to the pharmaceutical industry have never
stopped Nestlé from working together with the latter, however. As far back as
the late 1930s, Nestlé joined forces with Hoffmann-La Roche to develop Nestro-
vit, a milk chocolate with vitamin C, which the Basel-based company then manu-
factured industrially, on a synthetic basis, for the first time. The more the link
between health and food became apparent, the more important such external
partnerships became. The strategy paper of March 1989 mentioned the grey
area between the food and pharmaceuticals industries, and the necessity of
teaming up with other non-competitor companies.70 Referring to the increased
importance of nutrition, the strategy paper of May 1996 added: “Research will
continue in its efforts in the field of nutrition with the help of external part-
ners.” 1991 saw the setting up of a “Pharmaceuticals Group” at the NRC to
develop OTC (over-the-counter) products which Nestlé could then choose to
sell itself or license to other companies. This group subsequently played an im-
portant role in the preparation of clinical trials carried out, to quote one exam-
ple, prior to the launch of LC 1.71
Nestlé’s development into a “Nutrition, Health and Wellness Company”
will also have a big impact on its research, and bring it closer to the research
work done in the pharmaceutical industry, at least as far as the timescale is
concerned. It takes several years to develop a wellness product, and even longer
1 Cutting-edge science: the

dedifferentiation of adipocytes.
2 The crystallisation of
lycopene from tomatoes, used
notably in innéov fermeté, from
Laboratoires Innéov. 218
3–4 The Water Institute – the

first international research centre
devoted to bottled water – was
created in Vittel (France) in 1995.
Its mission is to provide informa-
tion and carry out research and it
219 has had PTC status since 2004.
for a health product, essentially because of the mandatory clinical trials. Pro-
ducts that claim to have a preventive effect against Alzheimer’s, diabetes, de-
pression or cardiovascular diseases require longer still. This means that, though
food research still takes less time than drug research, the timeframes involved
are long enough to make it all the more important to ensure that as little time
as possible is lost between obtaining approval from the health authorities and
the actual market launch.72 The continuing advance into this grey area between
food and pharmaceuticals will herald new risks and challenges along with new
opportunities – in the area of patenting and the claiming of health benefits, for
example.
But however close the food industry comes to the pharmaceutical indus-
try, there will always be one clear difference: as far as future products with
health benefits are concerned, Nestlé will limit itself to the preventive aspects,
leaving the therapy side of things to the pharmaceutical industry. Experience
has shown that consumers will only eat even the healthiest product if it actu-
ally tastes good. Hence flavour and eating pleasure will, in general, remain
more important than health-promoting effects. The one need not preclude the
other, of course, as Nestlé has demonstrated in countless cases.
A promising example for the future is personalised nutrition, an area that
was the subject of a high-calibre scientific symposium at the NRC in October
2004.73 This does not mean that the future will bring food tailored specifically
to every individual; what we will see, however, is food specifically geared to
the needs of certain groups, such as diabetics, in a continuation of current
trends. Over the last 15 years, Nestlé Research has moved ever closer to the
consumer and has become a central element in Nestlé’s continuing develop-
ment. It is now one of the four pillars of the Nestlé strategy and indeed, ac-
cording to Peter Brabeck, the most important of them all.74
220
222
Part III
Nestlé and its Stakeholders
9. Corporate Governance 225

A 70-year-old concept enjoys a renaissance 225
The General Meeting 227
The Board of Directors 234
The debate surrounding the 2005 dual mandate 244
New Articles of Association in the pipeline 248
10. Human Resources/Trade Unions 253

Background 253
The Nestlé management and leadership principles 255
The new version of the Principles (2003) 257
Personnel policy as part of the overall strategy 259
The advancement of women 261
Compensation policy 265
Training as part of the corporate culture 267
Trade unions 268
The European works council 270
Columbia 272
Child labour 273
Outlook 275
11. Nestlé and the Public 277

Controversy 277
Communication 282
Co-operation 292
223
224
Part III Nestlé and its Stakeholders
9. Corporate Governance
A 70-year-old concept enjoys a renaissance
When, on 31 May 1990, Helmut Maucher took on the role of

Chairman of the Board in addition to his function as CEO, there
was very little reaction. When Peter Brabeck was due to take
on the same dual mandate almost exactly fifteen years later,
however, a storm of outrage was unleashed. These different
reactions highlight most clearly how the socioeconomic envi-
ronment had changed in the intervening years. While the early
1990s had been characterised by the optimism of the preced-
ing boom decade, the first years of the new millennium were
shaped more by disillusionment following the end of the “new
economy” boom and the subsequent stock market crash, a
series of corporate scandals in the US (most notably World-
com and Enron) and spectacular corporate collapses, even in
Switzerland. All these events served to increase political and
media sensitivity to suspected and actual corporate misman-
agement and to revive the concept of “corporate govern-
ance”1 – a phrase originally coined back in the 1930s but since
used only in specialist circles – as a collective term for rela-
tions between shareholders, management and the Board of
Directors. In response to this change in circumstances, many
countries hastily set about introducing new legislation, partic-
ularly the US with its 2002 Sarbanes-Oxley Act (SOA), which
subjected corporate finances to strict controls and prescribed
draconian punishment for any violations. In Switzerland in the
same year, two sets of guidelines – albeit below the level of
legislation – were brought into force, namely the Swiss Code
of Best Practice for Corporate Governance from Economie-
suisse, the umbrella organisation covering the Swiss econ-
omy, and the guidelines of the Swiss Exchange SWX.
225
While the former document merely contained a series of recommendations,

the latter was made up of binding obligations for listed companies, relating
above all to transparency in connection with the salaries and mandates of mem-
bers of the Board of Directors and of the Executive Board in third-party com-
panies.2
Back in September 2000, shortly after the election of Rainer E. Gut as Chair-
man of the Board of Directors, Nestlé published its “Nestlé Principles of Cor-
porate Governance” and declared them an integral component of its corporate
principles.3 These Principles were based mainly on the Articles of Association
and on Swiss legislation, and concerned rights and obligations and the equal
treatment of all shareholders, as well as the role and responsibilities of the
Board of Directors. Against this backdrop, Nestlé was well-prepared to meet
its new obligation, under the above-mentioned Swiss guidelines, to publish a
“Corporate Governance Report”, which accompanied the Management Report
for the first time in 2002. The Corporate Governance Report contained detailed
information about the composition and working methods of the Board of Di-
1 rectors and its committees, as well as a complete list of all the “extracurricu-
lar” activities, mandates and vested interests of its members and those of the
Executive Board. What aroused much more interest in the public domain than
this rather dry and – in specialist circles – already familiar information, how-
ever, was the first-time publication of the salary of the highest-paid member
of the Board of Directors. Though neither the function nor name were men-
tioned, it was clear that this could only possibly be the CEO.4 The compensa-
tion paid to other Board members and the Executive Board was indicated in
global figures and had already been published in the 2001 Nestlé Management
Report5, but at the time did not generate much interest. The fact that the pub-
lication of individual salaries at levels previously unheard of went hand-in-hand
with the announcement of job cuts at some companies also caused annoyance
in circles that were not otherwise known for being anti-corporate. Nestlé was
not one of these companies, and neither was Peter Brabeck the highest-earn-
ing top manager in the country. With regard to the highest total compensa-
tion, the 2005 Nestlé Corporate Governance Report explicitly cites that of the
Chairman/CEO, stating the precise amount to the nearest Swiss franc, broken
down according to cash payments and the allocation of shares and option
rights.6
When the unrest at the Nestlé General Meeting of 14 April 2005 threat-
ened to get out of hand, it had nothing to do with Peter Brabeck’s total com-
pensation package in the double-digit millions nor with his managerial style
and definitely not with his competence, but was due solely to his planned dual
mandate. Much of what had previously been taken for granted in the business
world – not only the dual mandate but also cross-directorships and multiple
mandates on other Boards of Directors – was no longer simply accepted with-
out question. The fact that the two biggest Swiss industrial companies after
Nestlé, namely Novartis and Roche, had also long had a single individual per-
forming the role of both Chairman and CEO and had not done badly with this
approach was of just as little help as the reference to Helmut Maucher’s suc-
1 Nestlé shares have been

traded on the Zurich Stock
Exchange since the merger in
1905; those of Anglo-Swiss
under the name “Chamer Milch-
gesellschaft” since 1873. 226
cessful seven-year stint with the dual mandate.7 Not only the business envi-
ronment had changed, but also the composition of Nestlé’s shareholder base:
while in 1994 institutional investors (pension funds, investment funds, etc.)
were in the minority with 43.8 per cent of the share capital, by 2005 they made
up a two-thirds majority with 68.4 per cent. During the same period, the pro-
portion of Swiss shareholders fell from over 50 per cent to below 40, while the
US contingent doubled in size from 15 to 30 per cent. With this twofold shift
in the balance, the influence of US pension funds and other US institutional
investors increased considerably, and this influence was clearly felt at the mem-
orable 2005 General Meeting.8
The General Meeting
1988/89: The opening up of the shareholder base, the “Nestlé Crash” and the
amendments to the Articles of Association
It was not the first time that Nestlé had experienced a turbulent General Meet-
ing. Since the beginning of the 1980s, the critical shareholder group CANES
(Convention d’Actionnaires Nestlé) had always had something to say at these
annual events, which previously had run smoothly. CANES was set up in 1981
by religious representatives seeking to keep a close eye on the company’s busi-
ness policy in the Third World, and was the first grouping of its kind in a big
Swiss company.9 Although its 200 or so members represented only 0.2 per
cent of the share capital, it attracted attention at the General Meetings with its
controversial voting.10 Towards the end of the 1980s, the group expanded its
activities beyond its original raison d’être and, inspired by similar initiatives in
US companies, focussed increasingly on defending shareholder rights. CANES
reached its peak as an opposing faction at the 1989 General Meeting, at which
a vote was to be held on a series of amendments to the Articles of Associa-
tion proposed by the Board of Directors. These amendments stated that “when
2 The 1992 General Meet-

227 ing of Nestlé S.A. in Lausanne.
exercising their voting rights, shareholders can represent, directly or indirectly,

no more than three per cent of the total share capital for their own shares and
those they represent,” while “legal entities connected via capital, voting power,
leadership or in any other way, as well as individuals and legal entities that join
together with the aim of circumventing the restriction, are considered a single
entity”.11 In addition, “sufficient shareholders should be present in order to en-
sure that at least two-thirds of the share capital is represented”, for amend-
ments to key articles (registration of voting rights, restriction of voting rights
at the General Meeting, number and term of office of Board members, reloca-
tion of headquarters abroad, dissolution of the company, dismissal of more
than one-third of the Board of Directors). Furthermore, these decisions would
have to be made by a majority of three-quarters of the shares represented.12
The background to all these proposals was a measure with which Nestlé
had hit the headlines worldwide in November 1988, becoming the first big
Swiss company to allow foreigners to acquire its registered shares. With a few
exceptions, these shares – which constituted two-thirds of the company’s share
capital – had previously been reserved for Swiss citizens in order to maintain
the Swiss character of the company. In view of the international wave of merg-
ers in the food sector – in which Nestlé was, of course, also active – the Board
of Directors had, however, concluded that this restriction on the transfer of
shares was more negative than positive: “The result of this restriction was that
this large, internationally active company was reliant for support mainly on the
relatively modest capital market of investors with Swiss citizenship.”13 While
Nestlé had financed the acquisitions of Buitoni and Rowntree primarily from
its own funds, it wanted to gain better access to the international capital mar-
kets for future acquisitions. The Board was also unconvinced of the protective
effect of restricting the transfer of shares: “Making our registered shares avail-
able exclusively to Swiss citizens no longer provided absolute protection against
takeover bids. The price difference between the (undervalued) registered shares
and bearer shares significantly limited the opportunities for capital increases.
Nestlé Share Price, 1990–2000 (in CHF) Nestlé Share Price, 2001–2005, after Splitting 1:10 (in CHF)
5000 500
4000 400
3000 300
2000 200
1000 100
0 0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Rate year end
228
The lifting of the restriction was justified in view of the company’s high pro-
portion of international activity, but also due to the increasing globalisation of
the economic and financial markets as well as European and international in-
tegration and liberalisation regulations.”14 […] “This liberalisation was intended
to help ensure that the composition of the shareholder base and access to the
capital markets and global stock market developments better matched the in-
ternational character of Nestlé’s business activities, without relinquishing the
company’s essential ‘Swissness’.”15
As additional backup in case a hostile takeover did take place despite all
these hurdles, the Board proposed to the 1989 General Meeting a capital in-
crease in the form of treasury shares with a market value of CHF 1.5 billion, a
common practice in Swiss companies at the time. In justifying these meas-
ures, the Board said that at the time there were no legal regulations in Swit-
zerland governing public takeovers and stock market transactions. While Nestlé
itself was making one foreign acquisition after the other, it was also busy pro-
tecting itself from hostile takeovers at home, fears of which were not com-
pletely unjustified, as at the end of the 1980s US groups – Philip Morris in par-
ticular – were actively seeking European takeover candidates. Helmut Maucher,
however, saw no immediate danger: “There is certainly no reason to worry
about a takeover anytime soon. We believe in principle, however, that increas-
ing the company’s stock market value and reducing the discrepancy between
this and the even higher real market value would provide added security, and
that limiting the acquisition of shares to three per cent will continue to ensure
a broad shareholder base in the future.”16 Helmut Maucher’s expectation of a
higher stock market value did not, though, materialise during the first few
months following the announcement of the opening up of the shareholder base
on 18 November 1988. The Anglo-Saxon financial circles being targeted were
precisely the ones to react with consternation, with the press release from
Vevey pushing up the value of the registered shares that were at the time not
yet available to foreigners by 40 per cent, while the openly available bearer
shares fell by 20 per cent, wiping between two and four billion Swiss francs
off the value. Nestlé CFO Reto Domeniconi was inundated with furious tele-
phone calls in particular from institutional investors in the US who held large
packages of bearer shares and had lost a great deal of money in one fell swoop.
The “Nestlé Crash”, as it immediately became known in reference to the crash
on the New York Stock Exchange October of the previous year, also had an im-
pact on the share prices of other large Swiss companies, which did not help
Nestlé’s image in its home country. Swiss and international newspaper com-
mentaries fluctuated between praise for having the courage to liberalise and
criticism for failing to properly think through the consequences.17 Even the
Board was taken aback by the extent of the price fluctuations on the stock ex-
change,18 having expected that price discrepancies between bearer and regis-
tered shares would decline, with the value of the registered shares approach-
ing that of the bearer shares. Before 18 November 1989, the bearer shares
were worth approximately CHF 8,000, i.e. around twice as much as the regis-
tered shares, and – in the eyes of the Board – reflected the true value of the
229
1–5 Held in Lausanne, the 6

General Meeting of Nestlé S.A. –
here in 2006 – is one of the
largest in Switzerland. It takes a
team of around 350 people –
Nestlé employees, security
personnel, members of the fire
service and others – to take care
of the 2,200 or so shareholders,
600 invited guests and journal-
ists who attend the event. 230
6 Small remote control

panels allow shareholders to cast
their vote electronically. The
entire concept was overhauled
in 2006 in order to bring the
General Meeting right up to date,
making it more dynamic and
231 interactive.
company. The aim, in opening up, was to make the financial markets aware of
this. Access to the capital markets, which was presented to the public as the
main reason for the opening, would most likely also have been possible had
the opening not taken place. The Board had long been studying the problem
of undervaluation and requested the top bankers among its ranks, i.e. Philippe
de Weck and Rainer E. Gut, to work together with Reto F. Domeniconi to find
a solution via the opening which following the first few turbulent months af-
ter its announcement ultimately led to the anticipated higher evaluation.19
CANES vs. Nestlé

By the time of the General Meeting on 25 May 1989, the dust had settled. The
shareholders voted by a large majority in favour of the amendments to the Ar-
ticles of Association and the capital increase by means of treasury shares.
CANES, which had not been successful in its opposition to these decisions,
did however manage to block their entry in the Commercial Register by means
of a temporary injunction.20 The court in Vevey agreed with CANES with re-
gard to the capital increase, but ruled in Nestlé’s favour concerning the amend-
ments to the Articles of Association. In addition, the court instructed CANES,
at Nestlé’s request, to provide collateral of CHF 500,000.21 Nestlé estimated
that the blocking of its own shares was resulting in daily losses of CHF 260,000
and a total loss of up to CHF 80 million.22 Following this ruling, both parties
agreed to bypass the cantonal authorities and take their dispute directly to the
Swiss Federal Supreme Court.23 A final attempt to reach an agreement in a
face-to-face meeting between Helmut Maucher and CANES founder Antoine
Duchemin on 27 July 1990 was not successful.24 At the end of July 1991, the
Federal Supreme Court ruled in Nestlé’s favour on all points with minimal re-
strictions, and ordered CANES to pay court costs of CHF 100,000.25
Although Nestlé had won, Vevey remained cautious and decided tempo-
rarily not to form a holding of treasury shares because, among other things,
this instrument was not covered by current company law and it was still un-
clear whether it would be added following the ongoing revision to the Swiss
Code of Obligations. Nestlé also exercised further caution by waiting until the
new law came into force on 1 July 1992 to take advantage of the opportunity
it offered to reduce the par value of its shares to CHF 10 by means of a 10:1
share split. This move had become necessary because Nestlé’s shares, which
had reached values of over CHF 9,000 at the beginning of the year, were seen
by the financial world as being too “heavy”.26 While most other Swiss compa-
nies, with the approval of the Commercial Register, carried out the split before
1 July, Nestlé – once bitten twice shy – decided not to present this plan at the
Ordinary General Meeting on 21 May 1992 in the hope of avoiding further le-
gal trouble. The Board called an Extraordinary General Meeting for 18 August
with just this one issue on the agenda. The meeting duly approved the share
split without opposition, and the par value of the shares was reduced from 100
to CHF 10 as of September that year.27 The new legal framework encouraged
Nestlé to propose an increase of CHF 15.5 million in share capital and up to
The Share Transfer Office

of Nestlé S.A. is located in Cham
(Switzerland), in the administra-
tion building of the former
Anglo-Swiss Condensed Milk Co. 232
CHF 20 million in approved capital to the Ordinary General Meeting on 27 May

1993. At the same time, the Board proposed simplifying the capital structure
with a single category of securities, i.e. registered shares. For this purpose,
each bearer share was exchanged for a registered share with the same par
value of CHF 10 and every participation certificate with a par value of CHF 20
for two registered shares.28 These proposals were also accepted with no nota-
ble resistance.29 Nestlé has not carried out any capital increases since then,
which means that the issue is no longer discussed at the General Meeting.
Ethics vs. shareholder value

The 1993 General Meeting, however, brought new troubles:
The Geneva-based head of the pension fund of the European employees of a
major US firm was the first representative of a US institutional investor to step
up to the microphone and openly identify himself as such.30 He criticised not
only the dividend proposed by the Board as being too low, but also what he
saw as excessive indebtedness and called on Nestlé to part with its holdings
outside the food and beverage industry – i.e. Alcon and L’Oréal.31 Other Euro-
pean companies had already come under fire from US pension funds, such as
Nestlé’s rival BSN (today Danone), which had fallen victim in September of the
previous year to Calpers, the California state employees’ pension fund, the larg-
est in the US.
It had become clear from the beginning of the 1990s that an unplanned
but all the more effective “unholy alliance” was starting to form between ethi-
cally motivated groupings such as CANES and diehard defenders of shareholder
value. US investors increasingly interested in European companies as a result of
the development of the EU single market closely followed the dispute between
CANES and Nestlé. Some of the attention was also attributable to the lobbying
activities of CANES in the US. In spring 1990, one of its spokespeople embarked
on a tour of influential US financial analysts and pension fund managers, find-
Dividend Yield*, 1990–2005

Information per share (in %)
–16.5 25.0 33.8 13.9 –0.7 4.4 14.7 53.9 37.9 –1.0 31.0 –4.5 –14.8 7.8 –1.0 34.4
60
50
40
30
20
10
0
–10
–20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
* (Dividend for the relevant

year, but paid out the following
year)/(share price on 31.12.) +
share price performance from 1
January to 31 December
233
ing an open door in particular with the Interfaith Center on Corporate Respon-
sibility (ICCR), an amalgamation of activists which – though not actually respon-
sible for the management of any assets itself – had significant sway over some
250 religious funds. The ICCR had already completed the same transformation
that had only just begun at CANES – from a group focussing strictly on ethical
values to a more comprehensive representation of the general rights of share-
holders – without renouncing its Christian basis as a result.32
By making its shares available to foreign investors without initially being
1 fully aware of what was involved, Nestlé had also opened itself up to criticism
from the very people it aimed to attract. This applied in particular to sharehold-
ers from the US, who had been targeted specifically by the creation of ADRs
(American depositary receipts) in 1986 and the prospect of a listing on the New
York Stock Exchange. In time, however, the company grew accustomed to this
criticism, repeated as it was year after year. Nestlé did prove itself willing to
learn, however, by taking on board the criticism and suggestions of its share-
holders and, from the mid-1990s onwards, implementing several changes such
as free custody of shares (1995), share options for management (1998), a fur-
ther 10:1 share split (2001) and share buybacks (2005 onwards). The partial
IPO of Alcon (2002) and the renegotiation of the contract with L’Oréal (2004)
2 took the wind out of the sails of the critics of these two holdings. Under its
new name of ACTARES, CANES shifted its attention away from Nestlé and to-
wards Swiss industry in general, the baby milk activists quietened down, and
ultimately the higher share price and increased dividends helped to ensure that
the first few General Meetings of the new millennium were once again peace-
ful affairs on the whole, give or take a few vocal interludes from French and
Colombian union representatives.
The Board of Directors
Composition
In 1990, the Nestlé Board of Directors was made up of 16 members, all of
whom were men and – with three exceptions – Swiss. The average age was
65. Following the 2005 General Meeting, the total number of members stood
at 12, including one woman and five foreigners. The average age was 59. This
General Meeting saw the retirement of Rainer E. Gut, the last representative
of the generation that had been responsible for shaping the fate of Nestlé in
1990s. Despite all the personnel changes as members came and went, one
constant has remained throughout: the high calibre of the Nestlé Board of Di-
rectors. The list of the 40 people who sat on the Board from 1990 to 2005 or
who still have a seat today includes a large number of individuals who, both
before and during their time on the Board at Nestlé, had impressive careers
outside the company in a wide range of areas such as industry, finance, poli-
1 Three large screens – the
tics, trade diplomacy and academia. Nestlé’s Board of Directors has always
largest measuring 24 metres – comprised individuals from all walks of professional life, who have contributed
are erected for the General Meet- a wide range of experience to the company. A full list of Board members from
ing, here in 2004.
2 At the end of the official

part of the proceedings, various
stands are set up over two levels,
providing shareholders with a
taste of the very latest products
on offer from Nestlé, some of
which are not even on the mar-
ket in Switzerland yet. 234
1990 to 2005, grouped according to professional category, can be found on

page 238.
The first – and smallest – professional category is made up of Nestlé “in-
siders”. In accordance with Swiss law, the Board is responsible for the man-
agement of the company’s business activities but can delegate this manage-
ment, in part or in full, to third parties subject to a series of “non-transferable
and inalienable duties”.33 In the case of Nestlé – as with most large public lim-
ited companies in Switzerland – these duties are delegated to the Chief Exec-
utive Officer (CEO) who, as a member of the Board of Directors (and some-
times also its Chairman) is head of the Executive Board. Between 1990 and
2005 only two people held the post of CEO: Helmut Maucher (1981–1997,
Chairman from 1990 to 2000) and Peter Brabeck (since 1997, Chairman since
2005). Other than the two CEOs, who formed the natural link between the
Board of Directors and the Executive Board, all other members of the Board of
Directors between 1990 and 2005 were Non-Executive Directors, meaning that
they did not have any operational function within the Group, thus ensuring a
clear separation between the governing (Board of Directors) and executive (Ex-
ecutive Board) bodies of the company. According to the Organisational Regu-
lations of the Board of Directors, the CEO must be confirmed by this body on
an annual basis. For a while, the Board of Directors deviated from this prac-
tice and elected the CEO for an unlimited period. In 1993, however, the Board
returned to its practice of limiting the term of office of the CEO to one year
with the possibility of re-election.34 Other than the two CEOs, during these 15
years the Board also comprised three former Nestlé senior executives, who
were appointed to the Board of Directors following their departure from the
Executive Board. However, the appointment of former Executive Board mem-
bers to the Board of Directors is the exception rather than the rule at Nestlé,
and has not happened again in the last ten years.
Nestlé’s Board of Directors includes a special category of “insiders” in
the form of L’Oréal representatives. Due to the close relationship between
Nestlé and L’Oréal since the signing of their contract in 1974, each company
has been represented by a certain number of seats on the other’s Board of Di-
rectors.35 Up until the start of the 1990s L’Oréal had two representatives on
the Nestlé Board, but since then it has had just the one seat.
Like many other Swiss Boards of Directors up until the end of the 1990s,
all three of Switzerland’s big banks of the day were also represented at the high-
est level on Nestlé’s Board. Following the merger of the former Union Bank of
Switzerland (UBS) and Swiss Bank Corporation (SBC) to form UBS as we know
it today, the mandates of the representatives of the predecessor banks expired
and were not replaced, leaving Rainer E. Gut from Credit Suisse (1981–2005)
as the sole remaining big-bank representative. Since his retirement, the big
banks have no longer been represented on the Board at Nestlé, while financial
experience was maintained with the appointment in 2004 of Rolf Hänggi, Chair-
man of Bank Rüd Blass and former CFO of Zurich Financial Services.
As you might expect, the largest professional group on the Nestlé Board
in terms of numbers is made up of entrepreneurs, who have occupied around
235
one-third of the total seats since 1990. As a company that is highly sensitive to
currency fluctuations and generates less than two per cent of its sales in its
own domestic currency, Nestlé relies on having highly experienced profession-
als in this field on its Board of Directors. Who better, then, than the former chair-
men of central banks? In the 1990s, there were two of them on the Board and
after an interval of four years that tradition was continued in 2004 with another
former chairman of a central bank taking up a seat on the Nestlé Board.
Nestlé has also always attached great importance to maintaining close
links with the politicians of its native Switzerland, as represented on the Board
by a serving member of parliament for twelve years and, from 2004 onwards,
a former Federal Councillor.
As a company that is very closely involved in global trade and therefore
has a vested interest in ensuring that clear and transparent rules are applied,
up until the last few years Nestlé had always counted prominent former trade
diplomats among the members of its Board of Directors. The importance at-
tached to experience in this area is highlighted by the example of Switzerland’s
highest-ranking trade diplomat, Paul R. Jolles who, as Secretary of State for
Foreign Trade, negotiated the free trade agreement between Switzerland and
the EU in 1972. Following his retirement in 1984 he was directly appointed
Chairman of the Board and, after handing over this office to Helmut Maucher
in mid-1990, spent a further two years as a regular member of the Board. Two
other former Swiss trade diplomats, both highly familiar with the GATT nego-
tiations – one of whom had gained valuable industrial experience in the mean-
time – also joined the Board a little later. Now that economic relations between
Switzerland and the European Union have been regulated for the foreseeable
future by means of bilateral agreements, and the completion of a further trade
round within the WTO appears to have become a dim and distant prospect,
Nestlé’s Board currently does not contain any trade diplomats.
Nestlé’s Board of Directors has also always attached importance to
attracting top-class academics to its ranks, and it is no surprise that, in view
1 Werner Bauer, Peter

Brabeck-Letmathe and Peter van
Bladeren meet the three Nobel
prize winners Joseph L. Gold-
stein and Michael S. Brown of
the University of Texas South-
western Medical Center at Dal-
las, along with Professor Günther
Blobel of Rockefeller University,
member of the Nestlé Nutrition
Council and of the Board of Di-
rectors of Nestlé S.A. The occa-
sion for this prestigious gather-
ing: the inaugural International 1
Nutrition Symposium at the
Nestlé Research Center (NRC) in
2004.
From left to right: Werner Bauer

(Nestlé), Prof. Joseph L. Gold-
stein, Prof. Günther Blobel,
Prof. Michael S. Brown,
Peter Brabeck-Letmathe (Nestlé),
Peter van Bladeren (NRC). 236
of the complexity of the problems surrounding corporate governance, these

academics have usually tended to be professors of law. A further representa-
tive of the academic world was History Professor Lucia Santa Cruz Sutil. In the
spirit of Nestlé’s transformation into a nutrition, health and wellness company,
a nutritional scientist was elected to the Board for the first time in 2002. Fol-
lowing his sudden death in 2004, the scientist in question was succeeded by
none other than a winner of the Nobel Prize for Medicine.
Of the 40 members of the Board of Directors between 1990 and 2005,
only three were women, The first two – both elected in 1992 – were the Na-
tional and later State Councillor Vreni Spoerry from Zurich and the Chilean Pro-
fessor of History Lucia Santa Cruz Sutil. In 2005 the Swiss businesswoman
Carolina Müller-Möhl was the only woman on the Board of Nestlé.
The size and international character of the Board

The Articles of Association of Nestlé S.A. state that the Board of Directors must
consist of a minimum of seven members and a maximum of 19, but neither of
these two limits has been reached over the last 15 years.36 Up to the mid-1990s, 2
membership remained relatively constant at between 14 and 16. Helmut
Maucher was inclined towards a small Board, explaining this preference in mid-
1995 by stating that “when the number exceeds 16, it changes the quality of
the discussion”.37 The general trend among Swiss companies at that time was
to scale down the Board of Directors, and so the number of seats on the Nestlé
Board fell by one almost every year from 1996 onwards, reaching a low point
of just ten in 2001 and 2002. By 2006 it had increased again to 14, almost back
to its former size. This increase in member numbers was due not least to the
influence of Rainer E. Gut, who had always been sceptical about the trend
initiated by banker Martin Ebner to downsize the Board of Directors in pursuit
of shareholder value. Rainer E. Gut considers the current number of members
to be ideal, because it enables the various committees of the Board of Direc-
tors to be resourced in an efficient manner and guarantees a balanced geo-
graphical spread.38 In this respect, it might be surprising to learn that, in such
a multinational company as Nestlé, of the 40 members of the Board during the
period from 1990 to 2005, only one-third – i.e. 13 – were foreigners. One of
the reasons for this is the provision in current Swiss law that states that the
Board of Directors must “consist mainly of persons who are resident in Swit-
zerland and have Swiss citizenship”.39 In 1992, the number of foreign Board
members at Nestlé increased from three to four and fluctuated between four
and five up until 2005. Due to the temporary reduction in the size of the Board,
the proportion of foreigners came closer to the legally permitted 50 per cent,
but did not actually reach this figure until 2006. The geographical distribution
is not yet representative, however, with foreign members until 2005 coming
solely from industrialised countries (France, Germany, Spain, Austria, the UK,
USA and Japan), with the exception of Lucia Santa Cruz from Chile. When eval-
uating the international breakdown of the Board, however, it must be remem-
bered that many of its Swiss members – the big bank representatives, former
2 Rainer E. Gut, Chairman

of the Board from 2000 to 2005,
at the 2001 General Meeting –
237 the first over which he presided.
heads of central banks, trade diplomats and chairmen of other multinational

companies – also have a highly international outlook.40
Term of office and working methods

According to the Articles of Association, the term of office of a Nestlé Board
member is five years, with the possibility of re-election up to the age limit of
72.41 Most Board members stand for election for more than one term.
General Meetings have sometimes seen critical votes against one or other
of the candidates standing for re-election, but over the last 15 years not a sin-
The Members of the Nestlé Board of Directors from 1990 to 2005

In chronological order, according to the date on which they were elected
Name Nationality Term of Office Professional Background
Nestlé insiders
Arthur Fürer Switzerland 1975–1990 CEO & Chairman of Nestlé
Helmut O. Maucher Germany 1981–2000 CEO & Chairman of Nestlé
Carl Angst Switzerland 1982–1993 Executive Vice President, Nestlé
Reto F. Domeniconi Switzerland 1996–2001 Executive Vice President, Nestlé
Peter Brabeck-Letmathe Austria since 1997 CEO & Chairman of Nestlé
L’Oréal representatives
André Bettencourt France 1974–1991 Chairman of L’Oréal
François Dalle France 1974–1990 CEO of L’Oréal
Jean-Pierre Meyers France since 1991 Deputy Chairman of L’Oréal
Representatives of the big banks

Philippe de Weck Switzerland 1973–1991 CEO of UBS
Hans Strasser Switzerland 1979–1992 CEO of SBC
Rainer E. Gut Switzerland 1981–2005 Chairman, Credit Suisse Group
Robert Studer Switzerland 1992–1999 CEO of UBS
Walter G. Frehner Switzerland 1993–1996 CEO of SBC
Georges Blum Switzerland 1996–1998 CEO of SBC
Entrepreneurs
Bruno de Kalbermatten Switzerland 1977–1996 Chairman of the Bobst Group
Armin Baltensweiler Switzerland 1980–1992 Chairman of Swissair
Alfonso V. Mortes Spain 1980–1991 Construction company owner
Fritz Gerber Switzerland 1981–2001 Chairman of Roche and Zurich Insurance
Eric Giorgis Switzerland 1982–1993 Chairman of Swissgas
Stephan Schmidheiny Switzerland 1988–2003 Chairman of Anova Holding
David de Pury Switzerland 1993–2000 Co-Chairman of ABB
George Simpson UK 1999–2004 Managing Director of General Electric
238
gle one has been voted out. With the aim of ensuring continuity, the Articles of
Association state that: “… every year a relatively constant proportion of the Board
is renewed in this way, with the aim of ensuring that all members are subject to
re-election over a five-year period”.42 This staggered renewal of the Board was
maintained throughout the 1990s and into the new millennium, with no more
than three members of the Board ever having to be replaced at any one time.43
The year 2004, when half of the Board was renewed following the re-election of
no fewer than six members, was an exception to this longstanding rule.
A glance at the list of all members to have sat on the Board since 1990
reveals that the average term of office has clearly fallen over the last 15 years.
Name Nationality Term of Office Professional Background
Entrepreneurs
Nobuyuki Idei Japan 2001–2006 Chairman of the Sony Corporation
André Kudelski Switzerland since 2001 Chairman & CEO of Kudelski
Andreas Koopmann Switzerland since 2003 CEO of the Bobst Group
Daniel Borel Switzerland since 2004 Chairman of the Board of Logitech
Rolf Hänggi Switzerland since 2004 Chairman of Bank Rüd Blass
Carolina Müller-Möhl Switzerland since 2004 Chairwoman of the Müller-Möhl Group
Central bankers
Fritz Leutwiler Switzerland 1987–1997 Former President of the Swiss National Bank
Paul Volcker USA 1988–2000 Former President of the Federal Reserve
Edward George (Lord George) UK since 2004 Former Governor of the Bank of England
Politicians
Vreni Spoerry Switzerland 1992–2004 National and State Councillor
Kaspar Villiger Switzerland since 2004 Former President of the Swiss Confederation
Trade diplomats
Paul R. Jolles Switzerland 1984–1992 Former Secretary of State
Arthur Dunkel Switzerland 1994–2004 Former GATT Director-General
Academics
Pierre Lalive d’Epinay Switzerland 1981–1996 Professor of Law, University of Geneva
Lucia Santa Cruz Sutil Chile 1992–1997 Professor of History, University of Santiago
Peter Böckli Switzerland since 1993 Professor of Law, University of Basel
Vernon R. Young UK/USA 2002–2004 Professor of Nutritional Biochemistry,
MIT, Boston
Günter Blobel Germany since 2004 Winner of the Nobel Prize for Medicine 1999
239
The 18 members elected to the Board between 1973 and 1988, most of whom
remained active until well into the 1990s and beyond, had an average of al-
most 15 years in office, with terms of as long as 20 years being no rarity. The
most recent “record” is held by Rainer E. Gut with 24 years in office, followed
by Fritz Gerber with 20 and Helmut Maucher with 19. In 2005, the 22 Board
members elected between 1991 and 2004 had been in office for an average of
just over five years, and only four of them had held their posts for longer than
ten. This falling trend is due in particular to the increased workload associated
nowadays with a seat on the Board of Directors of a large corporation. Although
the number of one-day Board meetings has remained relatively constant since
1990 at four to five a year – including one in a foreign Nestlé market – these
days almost every Board member sits on at least one committee that in turn
holds at least three meetings a year.44
The committees
The increase in the number and significance of committees in general has most
likely been the biggest factor affecting the work of Nestlé’s Board of Directors
since the start of the 1990s. Back then there was only one – the Committee of
the Board of Directors (Comité du Conseil) – which consisted of the Chairman,
the two Vice-Chairmen and one or two additional members of the Board plus,
following the separation of the function of Chairman and CEO in 1997, the
CEO. This Committee, which consisted of no more than five individuals and
met up to eight times a year, was the de facto centre of power, which discussed
all the important issues in advance and often also made the decisions. Its de-
liberations were so confidential that the “ordinary” members of the Board were
not even allowed to read the minutes of the Committee until 2000.45 Since
2002, the Committee of the Board of Directors has also functioned as a nom-
ination and corporate governance committee46 and since 2005 it has been
known as the Chairman’s and Corporate Governance Committee.47
It was not until 1994 that, on Helmut Maucher’s initiative and under the
influence of new company law, which transferred various additional areas of
responsibility to the Board of Directors, a second sub-committee in the form
of the Audit Committee was created. While the Committee of the Board of Di-
rectors lost some of its exclusivity as a result, the link to it was maintained by
the fact that the new committee was chaired by one of the two Vice-Chairmen,
Fritz Leutwiler. The two other members were Walter Frehner and Peter Böckli.48
The job of the Audit Committee – as suggested by its composition – was to
monitor the finances of the Group. After the first year, Leutwiler observed with
satisfaction that the Committee had built up a good track record, having re-
viewed around 100 internal audit reports.49 The existence of this Committee
was, incidentally, first mentioned in the 1999 Management Report.
In the same year, the increasing significance of the variable component
of the compensation of the Board of Directors, the Executive Board and man-
agement (e.g. share options) and the related public debate led to the setting
up of a Compensation Committee, which was responsible for setting the level
240
of this compensation. It was almost identical to the Committee of the Board

of Directors, containing as it did the Chairman and both Vice-Chairmen and,
temporarily in 2000, also the CEO.50 When Peter Brabeck was appointed Vice-
Chairman – this time the only one – in 2001, he officially left the Compensa-
tion Committee. Neither has he formed part of this Committee as Chairman
since 2005, with the Corporate Governance Report of that year even expressly
stating that this Committee meets “without the Chairman/CEO”.51 In the same
year, 2005, a fourth sub-committee was created in the form of the Finance
Committee of the Board of Directors, consisting of one of the two Vice-Chair-
men and two further members of the Chairman’s and Corporate Governance
Committee. The Finance Committee reviews the asset and liability manage-
ment of the Group and draws up related risk management guidelines.52 In con-
trast to the Audit Committee, its role is to look forwards, not backwards.
Leadership vs. control

Until relatively recently, the directory of Nestlé Board members read like a
“Who’s Who” of the Swiss business elite. The Zurich correspondent of the
Financial Times wrote at the beginning of 1997, at the height of the debate
surrounding Switzerland’s role in the Second World War, that Nestlé’s Board
of Directors could prove more important in resolving the crisis than the Swiss
Foreign Minister.53 Rainer E. Gut recalls that the Board of Directors tended to
talk about more general problems in its meetings. It focused less on the de-
tails of executive management – after all, that was the role of the Executive
Board – and more on the big strategic questions concerning the company and
on personnel decisions relating to top management. According to Rainer E.
Gut, these were in any case some of the most important and, in terms of the
law, the “non-transferable and inalienable” duties of a Board of Directors.54
He took this all the more seriously knowing as he did when he took office that,
during his five-year chairmanship, almost the entire Executive Board would
Working session of
the Board of Directors in 2000
241 during a visit to Germany.
have to be renewed due to imminent retirements. With the Market Heads rep-
resenting the natural recruitment base for Executive Board members, Rainer
E. Gut visited around 50 countries in his search for suitable candidates. Be-
cause the other Board members personally knew few Market Heads, he saw
it as his responsibility to gain his own impression of possible candidates “on
the ground” in order to make a well-founded recommendation. These and other
important personnel decisions were always discussed between Gut and
Brabeck. Not until the two were in agreement was a proposal, together with
the supporting evidence, passed on to the Committee of the Board of Direc-
tors, which then submitted a formal application to the Board of Directors it-
self. In order to strengthen the market knowledge of the Board, Rainer E. Gut
ensured that members – who had previously rarely travelled abroad and even
then often only to Europe – also visited overseas markets as a fixed part of their
annual programme.55
In addition to scheduled retirements, the Board of Directors was also oc-
casionally faced with unexpected personnel decisions, for which meticulous
contingency plans were set out by the Board of Directors following its annual
evaluation of the individual Executive Board members, and updated on an on-
going basis. These plans designate a “substitute” for every Executive Board
member, who would be ready to step in if required but will not necessarily be-
come that person’s successor should it prove necessary to find one.56 This well-
coordinated emergency scenario proved its worth on the sudden departure of
CFO Mario Corti to Swissair in 2001, for example, enabling Nestlé to announce
the name of his successor, Wolfgang Reichenberger, the very same day. In
such urgent cases, the Board makes its decisions in writing.57 As well as eval-
uating the qualities of its “subordinates” on the Executive Board and setting
their salary bands, the Board of Directors also carries out its own self-evalua-
tion process on an annual basis. In this process, the qualifications and com-
pensation of the Chairman and the CEO are also discussed in their ab-
sence.58
The annual tour of the

markets provides the perfect op-
portunity for Board members to
get to know key managers from
around the globe. Here in Tianjin,
China, in 2002. 242
In comparison with the 1980s and 1990s, the Boards of large Swiss com-
panies are now occupied by less prominent personalities than in the past, with
the names of well-known, active politicians and the heads of other big com-
panies, in particular, notable by their absence. There are several reasons for
this change: today, the workload and level of responsibility of a Board mem-
ber are so great that parliamentarians and business leaders with already hec-
tic schedules in the political arena or within their own companies have less
and less time for a seat on the Board. This also explains the withdrawal of big
Swiss banks, one of which even declines all third-party mandates on principle.
Undoubtedly, the growing reluctance to take up a Board seat outside one’s
own company has also been driven by the criticism of multiple and above all
“cross” mandates in the context of the corporate governance debate. Contrary
to popular belief, however, these cross-mandates are not a symptom of cor-
ruption, but can serve as a control mechanism. For years, for example, Rainer
E. Gut and Helmut Maucher always kept a close eye on each other through
their reciprocal mandates in each other’s company. Well-meaning efforts to
improve corporate governance have also had a rather counterproductive effect
in another respect: the greater personal liability on the part of Board members
and the fact that they are now exposed to much more public criticism in the
media than ever before discourages prominent figures from applying for a
Board mandate. Some of those who nevertheless make this brave step refrain
from taking any initiatives on the Board until they have checked with their law-
yers first. Due to this external pressure, the focus of the work of a Board of Di-
rectors has shifted from a leadership function to one of control, and from the
main “Plenum” to its various committees. The principle of trust in the Execu-
tive Board has sometimes given way to one of suspicion, but instead of strength-
ening the Board of Directors as intended, this has tended rather to weaken it
and paradoxically strengthen the Executive Board even further.59 Nestlé Vice-
Chairman Andreas Koopmann is fully aware of this dilemma: “This body (the
Board of Directors) must be motivated to support the Executive Board in the
best way possible. This includes analysing the quality of operational manage-
ment on an ongoing basis, and the issue of whether executive competence is
sufficient must be continuously reviewed. This forward-looking leadership role
is more important than the control-related duties, which also have to be taken
seriously, but recently the aspect of control has assumed too much signifi-
cance […] there is a high risk of Boards of Directors concentrating too closely
on working through and ticking off checklists of auditing procedures.”60
The developments mentioned above have not failed to have an impact on
Nestlé’s Board of Directors. Not only the bosses of the big banks, but also those
from traditional large companies within the chemical and mechanical engineer-
ing industries have disappeared. With the birth of the “new economy” at the
beginning of the new millennium they were replaced by the heads of technol-
ogy companies – the Chairman of Sony, along with the bosses of smaller firms
such as Kudelski and Logitech from Lausanne, which, together with Bobst, have
strengthened Nestlé’s regional links with its immediate surroundings. The re-
lationship with Credit Suisse spanning several decades is being maintained –
243
albeit in only one direction following the era of Rainer E. Gut – by Peter Brabeck’s
seat on the Board of the CS Group. The relationship with Roche, once a unilat-
eral one with the presence of Fritz Gerber, became a new, reciprocal mandate
with Peter Brabeck’s seat on Roche’s Board and Roche Vice-Chairman Rolf
Hänggi’s place at Nestlé. The almost complete renewal of the membership of
Nestlé’s Board since 2000 is reflected in the fact that only three of its present
members – Jean-Pierre Meyers, Peter Böckli and Peter Brabeck, in that order –
were elected for the first time before the turn of the millennium.
The debate surrounding the 2005 dual mandate
On 18 January 2005, Nestlé announced in a press release that the Board of Di-
rectors had decided the previous day that Peter Brabeck would succeed Rainer
E. Gut as Chairman, while also remaining CEO, following Rainer E. Gut’s re-
tirement at the General Meeting of 14 April.61 The Board of Directors explained
this decision on the grounds of continuity and long-term added value for the
Group, whose strategic reorientation as a nutrition, health and wellness com-
pany was not yet complete and needed to be anchored as firmly as possible
in order to give any future CEO the necessary room for manoeuvre. Another
argument in favour of the dual mandate was the composition of the Board of
Directors and the Executive Board at that time. As there was clearly no seri-
ous contender within the Board of Directors – Peter Brabeck’s appointment as
Chairman had long been considered a given – this explanation was taken to
refer primarily to the Executive Board and could be interpreted to mean that
no sufficiently experienced candidate to succeed Peter Brabeck as CEO was
available from within its ranks. This interpretation was correct in view of the
fact that, at the beginning of 2005, the Executive Board was undergoing a gen-
erational shift.62 One half of the Executive Board’s members were about to re-
tire, while the other half were too new to their posts to have any realistic am-
bitions of becoming CEO.
Clearly aware of the potential for criticism concerning Peter Brabeck’s
dual mandate, the Board of Directors announced the simultaneous appoint-
ment of two Vice-Chairmen – Andreas Koopmann as the first and Rolf Hänggi
as the second – with the aim of guaranteeing the necessary checks and bal-
ances. In accordance with the recommendations of the Swiss Code of Best
Practice for Corporate Governance, the establishment of a dual role of Chair-
man and CEO would have to be accompanied by the appointment of an inde-
pendent “Lead Director” – a function that Peter Brabeck incidentally performed
at Credit Suisse – but the appointment of two Vice-Chairmen was more in line
with Nestlé tradition. During Helmut Maucher’s dual mandate (1990–1997)
and even beyond this until the end of his term of office as Chairman in 2000,
he had always had two extremely strong personalities at his side: Rainer E. Gut
as the first Vice-Chairman and Fritz Leutwiler, followed by Fritz Gerber, as the
second. This strong “triumvirate” of the 1990s clearly provided the 2005 Board
of Directors with a model for a counterbalance to the planned dual mandate.
addresses the 2005 General
Meeting. 244
According to the press release Andreas Koopmann, as the first Vice-Chair-

man, was to be the direct link to Peter Brabeck and chair those elements of
Board meetings at which the latter could not be present, during discussions
concerning the evaluation of his performance and his compensation, for ex-
ample. Ever since 2001, the Articles of Association of Nestlé S.A. have given
every Board member the opportunity to call a Board meeting in the absence
of the Chairman.63 Rolf Hänggi as the second Vice-Chairman was to chair the
Audit Committee and the newly created Finance Committee, as well as ensur-
ing the long-term focus of the Group’s financing.
The Board believed that with all these measures it had complied with the
rules of good corporate governance and pointed out that, with the exception
of Peter Brabeck, all its members were independent. The press release con-
cluded that Nestlé had always proceeded in a pragmatic and flexible manner
and that past experience had shown that both amalgamating and separating
the functions of Chairman and CEO had brought equally good results.
The initial reaction from the media and the financial world to this an-
nouncement was restrained, with no overwhelming enthusiasm but no harsh
criticism either. Peter Brabeck’s appointment as Chairman had been expected,
the dual mandate had been speculated upon and the Board’s justification with
all its “checks and balances” appeared somewhat hedged in places but cred-
ible on the whole.
The tables turned, however, when the Ethos Foundation in Geneva an-
nounced, at the beginning of March, its intention to prevent the planned dual
mandate at the General Meeting on 14 April by means of an amendment to
the Articles of Association. Two further amendments to these Articles were in-
tended to reduce the term of office of a Board member from five to three years
and the shareholding required for placing an item on the agenda at the Gen-
eral Meeting from 1 million to CHF 100,000.64 The Ethos Foundation was set
up in 1997 by Dominique Biedermann, former Chairman of the pension fund
of public-sector workers in Geneva, with the aim of promoting corporate be-
haviour with a clear emphasis on sustainability. The 2000 stock market crash,
which had made many investors more sensitive to these issues, helped the
foundation to gain popularity. In Nestlé’s case, the foundation was supported
by a number of Swiss public pension funds and by ACTARES, the successor
organisation to CANES. In contrast to these groups, however, Ethos – as the
manager of around 90 pension funds – had assets of CHF 900 million.
Like CANES before it, Ethos attempted to convince institutional US in-
vestors of its aims. Dominique Biedermann was particularly successful in his
campaign against Nestlé, gaining the support of Institutional Investor Services
(ISS), the most important organisation in this area. This gave him a powerful
ally, whose influence was likely to considerably improve the previously rather
slim chances of success by Ethos at the Nestlé General Meeting.
The Ethos offensive had the effect of suddenly placing Nestlé’s plans in
the spotlight of an emotive debate that was fuelled from various sides. Nestlé
attempted to counter the criticism from the financial world and the media,
which focused more and more on the dual mandate. At a road show in the US,
245
Peter Brabeck tried to prevent investors there from joining ISS and even man-
aged to receive votes from some of them at the General Meeting. Indeed, Rainer
E. Gut himself spent two months making daily phone calls aimed at present-
ing to major investors the Board’s considerations behind its decision and per-
suading them to reject the proposals from Ethos. He also spoke to the leaders
of ISS, who however remained unresponsive to his arguments.65 Gut also rep-
resented the Board’s perspective in an extensive interview with Neue Zürcher
Zeitung.66 Meanwhile, Brabeck held background talks with press representa-
tives in Lausanne and Geneva. During one of these briefing sessions, in order
to underline the seriousness of the situation, he mentioned that he would re-
sign all his offices if Ethos were to succeed in preventing the dual mandate.
This statement became public knowledge just a few days before the General
Meeting.67
The 2005 General Meeting

It was in this climate of tension that the General Meeting began in the Palais
de Beaulieu, Lausanne, in the early afternoon of 14 April 2005. In his opening
speech – the last in his role as Chairman – Rainer E. Gut attempted to calm the
waters and, after reminding those present of the competence of the Board of
Directors to appoint its Chairman and decide upon the composition if its com-
mittees, had this to say: “This decision (regarding the dual mandate), made
after deep reflection, results from a particular set of circumstances. In princi-
ple, we also believe that separating the two functions is the solution that would
have our preference. In fact, looking back over the past 85 years of Nestlé, you
will see that only 12 of them saw a manager assuming both roles simultane-
ously. Seven of those 12 years, by the way, were marked by the chairmanship
of Mr. Helmut Maucher who laid the base for the spectacular expansion of the
Group. At the present time, most members of the Board as well as of the Ex-
ecutive Board have not been in office very long. We also believe it to be im-
portant not to name a new CEO while the strategic re-orientation of Nestlé,
started by Mr. Brabeck in the year 2000, has not yet been concluded. We are
convinced that it is vital to ensure strategic continuity and strong leadership
at all times. This is why we refuse to be hobbled by voluntarily introducing lim-
itations that go beyond what Swiss law and the Swiss standards of corporate
governance prescribe [….] On these issues, Nestlé has always followed a prag-
matic policy, based on common sense and on the experience of its managers.
With Peter Brabeck, we have the certainty of entrusting Chairmanship and
management to a man who can be trusted and who is profoundly steeped in
the corporate culture and in the principles of Nestlé. Furthermore, he has the
competence and the charisma to lead Nestlé into an even brighter future.”68
Following a large number of votes both for and against the dual man-
date, the 2,539 shareholders present rejected the proposal by Ethos with a
slender majority of 50.55 per cent of the votes. With 35.94 per cent voting in
favour of banning the dual mandate, the Ethos-ISS alliance received an encour-
aging endorsement which, in its eyes, was further reinforced by the 13.51 per
takes over as Chairman of the
Board from Rainer E. Gut in
2005. 246
cent abstentions. Biedermann was himself amazed by the result, having hoped
at best for between 10 and 20 per cent of the votes.69 “I cannot deny that the
result of the vote is somewhat disappointing,” said Peter Brabeck in his speech
immediately after the ballot. It had not been his wish, he said, to be assigned
the dual mandate, but he had accepted it because it was the best for Nestlé
given the current situation. He went on to explain that any talk of him stepping
down should not be seen as a threat, but simply the natural consequence of
the rejection of the dual mandate. He would have interpreted this as a vote of
no confidence from the General Meeting and would therefore have stepped
down out of respect for Nestlé’s shareholders. He also added that in thinking
of stepping down he had lost sight of the fact that in Switzerland, unlike other
countries, it was not customary for the government to resign following a defeat
at the ballot box.70
Ethos was much less successful in its proposal for reducing the thresh-
old for adding items to the agenda at the General Meeting. The rejection by
74.08 per cent, with only 13.72 per cent of votes in favour and 12.20 per cent
abstentions, showed clearly that Ethos had been unable to gain support on this
point and proved, conversely, that the opposition to the dual mandate had
come primarily from US investors and that the relative success of Ethos would
never have been achieved without the help of ISS. The third proposal from
Ethos – to reduce the term of office for members of the Board of Directors from
five to three years – did not make it to the ballot. The quorum of two-thirds of
share capital required in accordance with the Articles of Association for an
amendment of this kind was not reached, as only 39 per cent of the share cap-
ital was represented at the 2005 General Meeting.71
In his own words, the voting over the dual mandate was Rainer E. Gut’s
“final battle” at the end of a long and successful career in Swiss business. He
wanted to – and had to – win it, and to this day remains very proud of having
won, even if with a smaller majority than expected. For this he also accepted
negative publicity in the media and, on the day after the General Meeting, be-
ing bombarded by an overwhelming horde of critics while appearing almost
alone on a live Swiss TV programme.72 Even Neue Zürcher Zeitung (NZZ), which
was not known for being critical of the business world, wrote the following un-
der the headline “A setback and unnecessary damage for Nestlé”: “But hardly
anyone can have reckon ed on such massive support for this proposal. This
real setback for the Board of Directors and its Chairman is unquestionably down
to the company’s attitude towards its shareholders and their representatives.
The clumsy, petty way in which the illustrious parent company of the world’s
largest food group handled the proposals in the run-up to the General Meet-
ing undoubtedly created an even stronger support base for the critical share-
holder groups.”73
On the issue of the dual mandate, the NZZ had this to say: “Such dual
mandates are not necessarily detrimental and need not always be a bad thing,
but in the case of large public limited companies in particular they are highly
controversial and have been under increasing fire from critical shareholder
groups for quite some time now. There may be various reasons why, after dec-
247
ades of largely opposing practice and contrary to the international trend, Nestlé
has returned to what is, for many shareholders, a contentious concentration
of power – the suggestion that CEO Brabeck harboured ambitions in this di-
rection has always been denied. However, it seems highly unlikely that the
company could not have contrived to achieve its preferred option of separat-
ing the two offices in good time. […] The hard-won solution achieved in the
face of such strong opposition, with the implicit prospect of a limited time-
frame, was not much of a cause for celebration despite the largely undisputed
calibre of the management at the very top of the Group.”74
In the weeks following the memorable 2005 General Meeting, the excite-
ment soon died down both within Nestlé and on the outside, having in any
case had no palpable impact on the image of the company or its top manager:
In a Financial Times league table of the World’s most respected companies
published in November 2005, Nestlé was ranked 19th, two places lower than
in 2004, while Peter Brabeck, as one of the World’s most respected business
leaders, actually moved up from 44th to 43rd place.75 Even if Nestlé had ex-
plained more clearly in advance of the General Meeting that the dual mandate
was only ever intended as an interim solution for two or three years, Ethos and
ISS would not have withdrawn their proposal.76 It was at the Full-Year Results
News Conference in 2006 that Peter Brabeck finally announced that he would
step down as CEO at the General Meeting in 2008 in order to concentrate on
the role of Chairman.77 Following the 2005 General Meeting, deciding to look
forward and learn its lesson instead of focusing on backward-looking criticism,
the company set about revising its Articles of Association.
New Articles of Association in the pipeline
In his first address as Chairman designate78 during the eventful 2005 General
Meeting and with the close outcome of the vote on the dual mandate still fresh
in his mind, Peter Brabeck promised that he would in future pay closer atten-
tion to the opinions of shareholders and set about revising the Articles of As-
sociation with this aim. He fulfilled this promise in August of the same year by
conducting a survey of shareholders – a first in Nestlé’s history – concerning
the potential revision of the Articles of Association. Around a quarter of all
shareholders took part in this survey. The five questions in the survey referred
primarily to the restrictive provisions that had been introduced in 1989 in a
completely different political, economic and financial environment to protect
against hostile takeovers, and now looked outdated in view of subsequent de-
velopments in the relevant area of Swiss legislation.79 The focus here was on
Article 14, Paragraph 3 of the Articles of Association: “When exercising their
voting rights, shareholders can represent, directly or indirectly, no more than
three per cent of the total share capital for their own shares and those they
represent.“80
The survey produced an astonishingly clear result with regard to this
point, with the overwhelming majority of shareholders in favour of the com-
248
plete removal of this clause from the Articles of Association.81 A closer look,
however, revealed a less clear-cut result: the vast majority of those in favour
of removing the article in question were foreign institutional investors, while
private investors resident primarily in Switzerland preferred to keep the pro-
tective restriction on voting rights.82
The next two questions in the survey were very closely linked to the is-
sue of restricted voting rights: According to Article 17 of the Articles of Asso-
ciation, Article 14, Paragraph 3 is one of those provisions which, in order to be
amended, require the presence of sufficient shareholders to represent at least
two-thirds of the share capital. In addition, any resolutions must be carried by
three-quarters of the shares represented. Today, however, these quorums –
also introduced at the 1989 General Meeting – are no longer achievable, as
over a third of currently issued share capital is now held by shareholders who
are not entered in the share register and are therefore not entitled to partici-
pate in or vote at the General Meeting (“dispo” shares)83. Therefore, the ma-
jority of shareholders – albeit a less clear majority than in the case of the three
per cent restrictive clause – were in favour of doing away with the two-thirds
quorum. Likewise, an almost equally clear majority as with the aforementioned
restrictive clause supported the abolition of the requirement that decisions be
approved by three-quarters of the shares represented. Again, however, these
two results revealed a split between two groups of shareholders: The “aboli-
tion lobby” were from the institutional camp, while private investors wanted
to see the protection offered by high quorums maintained.
The two last questions concerned the term of office of Board members
and the auditors. While a clear majority of shareholders were in favour of re-
ducing the term of office of Board members from five to three years, a small
majority wanted the duration of the auditors’ mandate to remain unchanged
at three years. However, a sizeable minority was in favour of reducing this man-
date to just one year. The extremely clear result in favour of a three-year term
of office for Board members was probably less a sign of mistrust than a wish
to see things brought into line with the practices of other multinational com-
panies.
With the issue of Board members’ term of office, Nestlé included in its
survey only one of the three concerns expressed by Ethos. The foundation’s
main demand, that of prohibiting the dual mandate, could not be made the
subject of such a survey because this would have meant the company back-
ing down from its clear position that the Board of Directors elects not only its
Chairman and Vice-Chairman, but also constitutes all its committees without
any input from the General Meeting. The third concern of Ethos, that of mak-
ing it easier to add items to the agenda of the General Meeting, effectively
resolved itself following its clear rejection at the 2005 General Meeting.
Once the results of the survey had been analysed, the Board of Directors
concluded that there was “broad agreement that the Articles of Association
should be updated”.84 Only a step-by-step approach was possible, however,
because the hurdle of the dual majority (two-thirds of share capital, three-quar-
ters of represented shares) required for the amendment of key elements of the
249
Articles of Association first had to be overcome. With this aim in mind, the
Board of Directors proposed to the 2006 General Meeting adding an Article 36
to the Articles of Association as a transitional provision with the following word-
ing:
1. The Board of Directors is requested to prepare a proposal for the total

revision of the Articles of Association of the company.
2. The revision of the Articles of Association of the company will be sub-

mitted to shareholders at the 2007 Ordinary General Meeting or later. The de-
cision taken by shareholders concerning such a revision must be reached with
a majority of two-thirds of represented votes; the provisions contained in Art.
16 and 17 regarding the requisite qualified majority and the special quorum
shall not apply.”85
This proposal was accepted by 98 per cent of the capital represented at

the 2006 General Meeting.86 In his address to shareholders before the vote was
held, Peter Brabeck pointed out that this non-application of the provisions of
the currently valid Articles of Association – even if legitimised by the General
Meeting – “could call for a process of legal clarification whose duration would
be difficult to predict”.87 His caution proved justified when, at the beginning
of June 2006, an individual shareholder filed a lawsuit with the Vevey district
court against this decision by the General Meeting.88 Until this court case has
been settled, the revision of the Articles of Association will have to wait.89 Only
then can the series of events triggered by the 1989 amendments to the Arti-
cles of Association be brought to a close. How long this will take, only time
will tell.
The new-look General

Meeting, 2006 style. 250
252
10. Human Resources/Trade Unions
Background
Following the acquisitions carried out during the second half

of the 1980s, Nestlé’s global headcount rose considerably.
While the total number of employees was 163,000 in 1987,
by 1990 it had, for the first time in the company’s history, just
topped the 200,000 mark. The acquisition of the Perrier Group
boosted the figure further to almost 220,000 in 1992. Follow-
ing a temporary dip to around 210,000 with the sale of the ho-
tel business in the US and various streamlining measures in
1993 and 1994, the headcount rose steadily to 230,000 in
1999, before falling back to 224,000 due to the divestment of
Findus and then reaching a historic high of 254,000 following
the acquisition of Ralston Purina in 2002.1 In 2005, Nestlé em-
ployed 253,000 people in over 150 countries, of which around
just 7,000 in Switzerland.2
253
It is clear that, in such a large company with staff all over the world, human
resources management must be decentralised due to the broad diversity of
conditions and traditions. For all these reasons, human resource management
and staff recruitment were more or less exclusively the responsibility of the
subsidiary companies. The Human Resources (HR) department at the Group’s
headquarters concerned itself primarily with the 2,000 or so employees at Vevey
and the 3,000 or so working in the centrally managed R&D area, as well as the
few hundred “expats” – individuals working outside their home country. In ad-
dition, this department also issued binding guidelines and methodologies for
HR policy for the Group as a whole, and was responsible for training at Group
level.
Despite the overall increase in the headcount, the restructuring proc-
esses in the US, UK, France and Italy triggered by acquisitions and the subse-
quent integration and consolidation resulted in significant job cuts at the start
of the 1990s for the first time in the company’s recent history. At the same
time, pressure also increased on the relevant department in Vevey to focus
more on co-ordinating HR policy on a worldwide basis. Expansion into China
and Central and Eastern Europe also placed unfamiliar demands on the recruit-
ment of management in these new countries. Due to the lack of suitable home-
grown candidates, the use of expats increased. The aim was for expats to be
involved only in the initial setting up of a new company or factory, and for these
expats to recruit local managers, hand responsibility over to them in due course
and then leave the country.
HR staff at the headquarters, however, were insufficiently prepared for
these new challenges. Helmut Maucher had always attached great significance
to HR, however, as highlighted by the fact that this was the only area – other
than Public Affairs – which reported directly to him. His approach to HR pol-
icy was one of a traditional “patron”, who – as far as was possible in a com-
pany of this size – personally followed the fate of individual employees. For
him, HR policy was a matter for management and was therefore the responsi-
Nestlé S.A.: Headcount (in thousands), Sales (in CHF billions), 1990–2005
199 201 218 210 213 220 221 226 232 231 225 230 254 253 247 253
250 100
200 80
150 60
100 46.4 50.5 54.5 57.5 56.9 56.5 60.5 70.0 71.7 74.7 81.4 84.7 89.2 88.0 86.8 91.1 40
50 20
0 0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Headcount
Sales
254
bility of line managers and not the HR department: “Generally, the Head of HR
is not the head of the ‘human resources’ themselves, but Head of the HR de-
partment … By focussing on the essentials and the things that really matter,
as well as ensuring that bosses perform their own HR and managerial func-
tions, HR departments can be reduced considerably in size.”3 Helmut Maucher
also put this theory into practice shortly after his arrival in Vevey, reducing the
size of the HR department by around 20 employees.
In view of the new challenges of the early 1990s, however, Helmut
Maucher realised that his unbureaucratic, personalised and intuitive person-
nel policy was reaching its limits and that it was time to switch to a more pro-
fessional approach. This was not least because the recruitment of qualified
staff, at managerial level in particular, had become an increasingly important
factor in international competition.4 Despite not being a great believer in writ-
ten statements – one of his favourite sayings was “More pepper, less paper” –
he summarised his personnel management principles for the first time in a
1991 document entitled “Management Commitment/Employee Involvement”.5
The aim of this document was to “promote a new style of management and
create a better, more innovative climate.”6 The document also represented an
attempt to involve employees more closely in the company’s decisions in view
of the simplified new structures – such as the recently created SBUs: “We will,
however, avoid the expression ‘participative management’ in this context, as
this term is ideologically loaded and can lead to misunderstandings; we believe
in the broad-based and long-term involvement of our employees in all issues
that concern their activities in the workplace.”7
The Nestlé Management and Leadership Principles
Helmut Maucher’s disinclination towards the written recording of principles

was particularly pronounced in connection with the corporate culture, because
he believed that a culture must be lived and not written down. In his book Mar-
keting ist Chefsache published in 1992, he explained why Nestlé had not up
until now had any formal corporate principles or a mission statement: “First of
all, such concepts are so similar that they are almost interchangeable and they
therefore lose any company-related relevance … if, however, the principles are
formulated in an overly specific manner, they no longer do justice to the diver-
sity of countries, products and cultures.”8 Four years later, however, he ob-
served in a strategy paper written for the Board of Directors that the large ma-
jority of new companies acquired over the last decade, the entry of Nestlé into
many new countries since the fall of the Berlin Wall and the related recruit-
ment of external employees now made it necessary to set down the funda-
mental aspects of this culture, in a document that was already being worked
on.9 By this he meant “The Basic Nestlé Management and Leadership Princi-
ples”, intended to replace and supplement the “Management Commitment/
Employee Involvement” of 1991. The new document was published in June
1997, just in time for the handover of the post of CEO to Peter Brabeck.10 The
A specially produced bro-

chure, designed to make life eas-
255 ier for expats.
timing of the publication was no coincidence, intended as it was in the spirit

of continuity to show that the company’s underlying values would continue to
apply even after the handover of the operational reins. Co-signed by Helmut
Maucher and Peter Brabeck, it was based on Maucher’s frequently heard ideas
and statements. The profile of a Nestlé manager (courage, solid nerves and
composure; the ability to learn, open-mindedness and perceptiveness; the abil-
ity to communicate and to motivate others; the ability to create a climate of
innovation; thinking in context; credibility), for example, was taken almost word
for word from Marketing ist Chefsache.11 As additional attributes the document
also mentioned the willingness to accept change and the ability to manage
change; international experience and an understanding of other cultures; broad
interests, a good general education, responsible attitude and behaviour, and
sound health.
The Nestlé culture, the real raison d’être of the document, was not dealt
with until the final – but then all the more detailed – chapter. This culture was
traced back to the company’s founding father Henri Nestlé, whose interna-
tional business activities were closely linked to local eating habits and thus
created the basis for the respect of the cultures and traditions of all countries.
Nestlé therefore accepted cultural and social differences, and was against any
kind of discrimination on ethnic, religious or other grounds. The document also
contained words which would prove prescient in the subsequent debate about
social responsibility in the age of globalisation: “Furthermore, Nestlé believes
that its activities can only be of long-term benefit to the company if these are
also beneficial to the country in question. In short, one can say: global think-
ing and strategies but local action and commitment.”
The document also mentioned the fact that the values of the Nestlé cul-
ture stemmed partly from the company’s Swiss roots, summarising the most
important as: a more pragmatic than dogmatic approach, realism, a strong
work ethic, integrity, honesty and quality, trust and mutual respect, a person-
alised, direct way of dealing with one another, thus keeping red tape to a min-
Since the 1990s, transpar-

ency has been the order of the
day in terms of the design of our
offices. The headquarters of
Nestlé India in Delhi is a prime
example. 256
imum, modesty, but with style and a sense of quality, openness to new trends
coupled with scepticism towards short-term fads.
The new version of the Principles (2003)
Over the years, the “Management and Leadership Principles” became a kind
of company constitution. Towards the end of 2002, Peter Brabeck decided the
time had come to revise the Principles: “They were an excellent bridge in a
time of change, but now they need to be updated in order to reflect the fu-
ture challenges facing our people, without radically changing the existing
work ethic or corporate culture.”13 This would be a “gentle” revision that would
take into account changes both within and outside the company over the pre-
ceding years. In his introduction to the revised 2003 version, Peter Brabeck
followed on from the foreword of the 1997 version by writing that, in the
course of its long history, Nestlé had demonstrated the enviable ability to
adapt in an environment of constant change without compromising its basic
principles or its core value system. This ability, he added, would be more im-
portant than ever in the coming years in view of the challenges resulting from
the size and complexity of the company.14 The new version, he wrote, con-
firmed the values to which Nestlé would always remain true, and focused
firmly on the skills and abilities that would secure the company’s future in the
years to come.
A comparison of the 1997 and 2003 versions does indeed reveal an im-
pressive degree of continuity, with around two-thirds of the original text hav-
ing been carried over almost word-for-word into the new version and making
up more than half of the new document.
All the more informative are the changes and differences in the 2003 ver-
sion, highlighting the development of Nestlé, but also its social environment,
over the preceding decade: responsibility for the well-being of consumers and
employees, improvements in the standard of living and quality of life every-
where for everyone, mutual respect and tolerance, pride in the company, loy-
alty and identification with Nestlé, proactive collaboration beyond conventional
internal borders, willingness to take risks, the exchange of knowledge and
ideas, thinking “outside the box”, initiative with the right to make mistakes
combined with the willingness to rectify and learn from them.
The attitude towards shareholder value is more subtly nuanced than in
the original version: “Nestlé favours long-term successful business develop-
ment and endeavours to be a company of choice for long-term oriented share-
holders. However, Nestlé does not lose sight of the necessity to improve short-
term results and remains conscious of the need to generate a healthy profit
each year.” In addition, the new version states that Nestlé aims not only to fol-
low, but also anticipate, consumer trends. The company also recognises its
commitment to free competition within a clear legal framework, as well as to
its “social responsibility”, a term that did not appear in the original 1997 ver-
sion. The new document reinforced the principle of decentralisation and
257
The Nestlé Management and Leadership Principles

(extracts, 1997)
General principles: Delegation:

“Nestlé is not a faceless company marketing to faceless “Members of the Nestlé management at all levels are more
consumers. It is a human company committed to respond- concerned with continuously adding value to the company
ing to the needs of individuals the world over.” than exercising formal authority. They delegate all that can
“Nestlé is more about people and products than sys- be delegated without abdicating their proper responsibil-
tems. Systems are necessary and useful but should never ity.”
be an end in themselves.”
Keeping employees in the picture:
Shareholder value: “The involvement of Nestlé people at all levels starts with
“Nestlé is committed to creating value for its sharehold- appropriate information and communication about the
ers. However, the company does not seek short-term profit overall activities of the company and the specific aspects
and shareholder value maximisation at the expense of suc- of their work. Any changes should be discussed and ex-
cessful long-term business development. But Nestlé re- plained. People should be invited to contribute their ideas
mains conscious of the need to generate a reasonable to the process.”
profit each year.”
Criteria for promotion:
Restructuring: “Apart from professional skills and experience, the capac-
“Nestlé is committed to continually improving its activi- ity and willingness to apply these principles are the main
ties, thus avoiding more urgent, drastic measures and criteria for promotion – and not a person’s passport, eth-
abrupt change as much as possible.” nic or national origin!”
Managerial style:
“Having at every level of the organisation a team with a
leader and not a team as a leader.”12
explained its limits – already mentioned in the first version – with the need for
operational efficiency, flexibility and Group-wide co-ordination. The document
also contains other terms such as “accountability”, “networking”, “operational
speed” and “strong focus on results”, in line with the management jargon of
the new millennium.
The significance attached by Nestlé to the “Management and Leadership
Principles” right from the start as a kind of cultural framework for the Group
was evident in the strategy paper of September 1997, the first under Peter
Brabeck as CEO: “These principles express our conviction that, although we
are obliged to adapt to local and regional conditions, we also have common
Nestlé principles that have to be respected everywhere …” Compliance with
these principles, he wrote, was also the prerequisite for employing managers
from outside the Nestlé Group.15 From 1998 onwards, the performance of man-
agers was also measured partly on the basis of the extent to which they im-
plemented these principles.16 The strategy paper released the same year stated
that there would be a more systematic approach to dealing with cases where
staff failed to adhere to the company’s principles and values, including possi-
ble disciplinary action.17
The “Nestlé Human Resources Policy” of 2002 was even clearer: “Any-
one who is not fully committed to following these principles cannot be a part
of the company.”18
258
Therefore, in addition to professional qualifications, the recruitment proc-

ess must also focus on whether a candidate fits the corporate culture: “Inte-
grating newcomers into the organisation is just as important as appointing the
right person.”19
Personnel policy as part of the overall strategy
Increasing globalisation and intensifying competition – namely during the boom 1

years of the new economy towards the end of the millennium – were having
an impact on the employment market, forcing the issue of personnel policy
closer and closer to the heart of the Group’s overall strategy. Taking this trend
into account, Peter Brabeck appointed a new Executive Vice President as Head
of HR at the beginning of 1999. At Executive Board level, Francisco Castañer
took on responsibility for HR. Like his predecessor José Daniel, however, he
was also in charge of the pharmaceutical business and liaising with L’Oréal,
as well as public affairs.
Peter Brabeck was not content merely with taking organisational meas-
ures – he also wanted to infuse a new spirit into personnel policy: “We need
to create a climate where there is a certain freedom to fail, and where those
people are promoted who made decisions and carried them out, even if they
were not always 100 per cent successful. We do not want to advance the ca-
reers of those who have never made a mistake, because they have never done
anything except apply the rules.”20 In response to the question in a 2001 inter-
view as to whether he himself had ever made any mistakes, Brabeck replied:
“I’ve made several excellent mistakes – excellent in what they taught me.
I mean, I pushed this company into the dry pasta business. It seemed like a
brilliant idea at the time. […] So we looked for acquisitions and in 1988 we
found Buitoni, which seemed to be a good company to establish us in this new
business. It turned out to be a mistake. We didn’t do enough analysis first and
1–2 Teamwork and communi-

cation have encouraged the crea-
tion of large, open-plan office
spaces. This is reflected in the
Nestlé offices in Kobe, Japan (1)
259 and Avanca, Portugal (2).
we didn’t dig deep enough to realise that the competitive advantage in the dry
pasta industry is not in the hands of the pasta producer but in the hands of the
pasta machine producer. They have the proprietary technology. There was noth-
ing Nestlé could gain by owning a dry pasta factory. Anyway, I realised that
pretty quickly, and I learned a big lesson. […] We’ve basically been selling off
the dry pasta business ever since. Still, Buitoni was a good buy, we gained an
excellent brand for our fresh and frozen Italian cuisine products, where our
technology really makes a difference. We all make mistakes. If you learn from
them, they make you stronger.”21
The higher priority of human resources was also expressed in the 1998
Strategy Paper: “Our human resources policy is, and will become even more
so, a vital issue for the long-term success of our company… (this success) is
closely linked to our ability to attract, develop, retain and motivate the people
Nestlé needs to manage its business in an ever-challenging environment.”22
These new circumstances also led to a gradual departure from previous prior-
ities: “While preserving our policy of internal promotion, we will be open to
the recruitment of talented people who have already proven their abilities in
other companies. […] For filling key manager and expert positions in the non-
traditional sectors of Nestlé where we need to fill important gaps, the recruit-
ment of external candidates is imperative.”23 According to the Strategy Paper,
the promotion of management at headquarters and in the markets had top pri-
ority, and was also the best means of preventing the loss of highly qualified
employees to rival companies. The aim was that flat organisational structures
everywhere would ensure that managers could take on a great deal of respon-
sibility right from the start of their careers.24 Flat structures, however, also had
the disadvantage that employees had fewer opportunities for promotion and
had to stay in the same job for longer. This made job satisfaction an even more
important factor.25 Back in 1998, Nestlé began systematically identifying peo-
ple within the Group with particularly high development potential, closely fol-
lowing their careers and consciously advancing them with succession plan-
1 Nestlé respects the

culture and customs of its
employees. At the Himeji factory
in Japan, for example, staff
practise a traditional form of
exercise. 260
ning in mind. The company defined around 1,200 key positions worldwide for
which two successors were earmarked. The resulting Talent Pool therefore
comprised around 2,500 managers of various levels.26 In 2002, a Leadership
Programme designed together with the London Business School and a “De-
velop People” initiative were launched, with 4,000 members of senior manage-
ment benefiting over the following two years alone.
Peter Brabeck observed in 2001 that Nestlé was receiving an increasing
number of unsolicited applications, but was also losing just as many highly
promising employees because the company was not in a position to assign
them motivating tasks. He called for HR management to be put on a more pro-
fessional footing.27 The HR department responded by setting up a special web-
site. This website facilitated a more targeted selection of applicants and, with 2
its direct links to the markets, ensured better international collaboration in the
recruitment process. In 2004, this website received over 35,000 spontaneous
applications.28 In addition, Nestlé also stepped up its participation in company
presentations at universities and other recruitment forums. The success of
these efforts was reflected, among other things, in a survey of students car-
ried out in 2003, which ranked Nestlé as Switzerland’s employer of choice. In
its dealings with young people, the company also observed that: “Staff devel-
opment has moved away from its strictly hierarchical approach, which is why
employees starting out in their careers are no longer attracted to traditional or-
ganisational structures.”29 Nestlé had taken this development into account in
good time with its publication one year earlier of a document entitled “Nestlé
on the Move to Flat and Flexible Organisations”, which observed the move
away from the existing pyramid-shaped and function-based structure to a net-
work organisation based on results.30 In line with Helmut Maucher’s previous
theories, this was a reminder of the fact that responsibility for recruitment and
the subsequent development of employees’ careers lay with the line manag-
ers, with the HR department playing only a supporting role. The “Nestlé Human
Resources Policy” published at the same time was even clearer on this mat-
ter: “HR managers and their staff are there to provide professional support in
personnel issues, but are no substitute for the responsible (line) managers.”31
Again in this relationship, continuity was ensured, even in the midst of
change.
The advancement of women
At the beginning of the 1990s, Nestlé was a company whose management, at

the headquarters in any case, lay almost exclusively in the hands of men. Of
the 120 members of the Management Conference in Vevey, which consisted
of all managers from Assistant Vice President upwards, only four were women.32
Maucher wanted to change this and, in line with his motto “One woman is a
token gesture, two women are a policy,”33 he appointed not just two but three
women at headquarters as the heads of important departments that were in
the process of evolving rapidly: Environmental Policy, HR and Eastern Europe.
2 The Nestlé Recruitment

Competence Center (NRCC) was
set up to manage the numerous
spontaneous applications that
261 the company receives each year.
1–2 Workers at the Stouffers

prepared products factory in
Springville, USA. 262
3 Machine room at the

Nescafé factory in Orbe,
Switzerland.
4 Labelling of ice cream

packaging at the Chembong
263 factory in Malaysia.
He also implemented this motto at Board of Directors level, appointing Vreni

Spoerry from Switzerland and Lucia Santa Cruz Sutil from Chile as its first two
female members in 1992.34 Commitment to the advancement of women was
also expressed in successive strategy papers. The one published in 1996 even
foresaw a specific proportion of women in senior management, though not ac-
tually mentioning any figure,35 and the 1997 edition stated: “Our staff devel-
opment policy will focus particularly on the advancement of our female per-
sonnel.”36 In this vein, that same year Nestlé appointed an equal opportunities
officer within the HR department as part of the “Deeds not Words” initiative
by Swiss industry, which had been launched among others by Rainer E. Gut.
Peter Brabeck lived up to the rhetoric when, in 1998, he appointed a forty-year-
old female researcher to succeed, as Head of the Nestlé Research Centre,
Werner Bauer who had been appointed Market Head for South Africa.37 He
also discussed the issue of the advancement of women in a 1999 presentation
to students at the Swiss Federal Institute of Technology in Zurich, expressing
the hope that greater flexibility in HR policy and closer attention to personal
wishes would enable Nestlé to attract more women into managerial positions.
He admitted that, while Nestlé was striving to keep improving things in this
area, it was still “at an early stage in the learning curve”.38
There was considerable room for improvement at Vevey in particular, be-
cause senior management at the Centre consisted extensively of people with
international careers. Due to the mobility that this demanded, this had proven
to be much more difficult for women, particularly those with a family and chil-
dren. Despite this, of the 200 members of the Management Conference in
Vevey in 2005, ten per cent were female, and the proportion had also increased
in middle management, thanks not least to better opportunities to combine
family and career, with flexible working hours, part-time work, teleworking,
childcare services, etc.39
Over the last few years, Peter Brabeck has also promoted several women
to senior posts in Vevey. He appointed the female Canadian Market Head to
1 Christiane Kühne is head

of the new Corporate Wellness
Unit, which she presented to the
2006 General Meeting of Nestlé
S.A. in Lausanne. 264
lead the SBU Chocolate and Confectionery, thus reducing, however, the number
of female Market Heads worldwide to just one. He also appointed women to
head the Supply Chain, Intellectual Property and Corporate Wellness units. In-
terestingly – and perhaps not coincidentally – all three cases involved newly
created units in this form. The almost complete absence of women at the top
of Nestlé’s national subsidiaries can be explained by the mobility requirements,
as mentioned above, which are even greater at this level. Normally, top jobs
of this kind can only be attained via numerous stopovers in as many countries
and occasional stints at the Centre. And, because the route to Nestlé’s Exec-
utive Board has so far – apart from a few, though ever-increasing, exceptions
– been via the role of Market Head, no women have broken this particular glass
ceiling to date.40 3
The HR department in Vevey is aware of the problem of the under-rep-
resentation of women at senior management level, but takes the view that it
cannot be solved by artificially imposing sexual equality. The solution, it is be-
lieved, would involve separate career planning for women that takes their spe-
cial needs into account.41
Compensation policy
In view of the lack of qualified managerial staff, at the end of the 1990s Nestlé
found itself obliged to rethink not only its recruitment but also its compensa-
tion policy. Staff salaries, it found, would have to be brought into line with the
highly competitive employment market and should be flexibly tailored to the
market concerned, as well as reflecting the performance and potential of every
employee. It was for this reason that the 1998 Strategy Paper contained the
first mention of long-term incentives and a variable salary component42, and
the Management Report for the same year stated that the total compensation
of an increasing number of employees was based on the achievement of goals
2 The researchers at the

2 Nestlé Research Center (Vers-
chez-les-Blanc, Switzerland) are
among the best in their field, car-
rying out groundbreaking work.
3 Relevant technical qualifi-

cations are essential for anyone
working in our factories – here,
the animal feed factory in
265 Aubigny, France.
set for the individual or the company as a whole.43 The Strategy Paper for the
following year went on to state that: “The variable component of total com-
pensation will continue to rise for most managers with the aim of increasingly
tying their remuneration in with the evolution of the company’s results. This
variable component, originally linked to the year’s results in the form of a bo-
nus, should gradually incorporate long-term incentives in the form of share op-
tions, initially limited to the upper echelons of management.”44 The level of the
variable component would be proportionate to the total compensation; at the
lower and middle salary levels, the fixed salary would remain the most impor-
tant component.45 When setting total compensation, comparisons were also
increasingly made with other companies.46
In 2001, the share option plan was expanded considerably to comprise
1,600 managers in Vevey and the markets.47 The link between the variable el-
ement of compensation and the personal performance of the individual also
called for a more systematic approach to measuring this performance. The doc-
ument entitled “Nestlé on the Move” even established a causal relationship
1 between a less hierarchical organisation and a new compensation policy: “It
is unthinkable to apply traditional compensation practices in such a new kind
of organisation.” The reduction in the number of hierarchical levels, it was
claimed, left a vacuum in the pay review process, which had previously always
been linked closely to promotions. This created a need for new mechanisms
for achieving a salary increase independently of a promotion. The trend to-
wards increasing the variable component of the salary would probably slow
down, but was irreversible. This variable component would, in future, depend
increasingly on performance and less on the discretion of the line manager.48
Despite all the national differences, Nestlé’s compensation policy applies world-
wide: “Nestlé strives to position itself as an employer with salary levels above
the industry average.”49 However, general salary increases are only justifiable
in the event of high inflation, or when dictated by the law or collective bargain-
ing agreements.50
1 A training seminar at 2
Rive-Reine (La Tour-de-Peilz,
Switzerland).
2 Participants learn about

the placement of Nestlé products
on the shelves of major stores –
as here, in the Manor depart-
ment store in Vevey, Switzer-
land). 266
Training as part of the corporate culture

3
Training and development have always played an important role at Nestlé.
In the mid-1950s, the company set up the “Institut pour l’Etude des Mé-
thodes de Direction de l’entreprise” (IMEDE) in Lausanne in order to train its
senior managers together with those from other companies. After some years
it became clear, however, that an in-house establishment would be better suited
to Nestlé’s needs. In 1963, therefore, the company set up its own training cen-
tre in the former administration building in Vevey, followed in 1971 by a move
to the historic “Rive-Reine” villa right beside the lake between Vevey and Mon-
treux, where accommodation was also available. Nestlé continued to support
the IMEDE on its own until Helmut Maucher succeeded at the end of the 1980s
in creating a broader financing base and transforming it into an institution that 4
was supported by the Swiss business world as a whole. Subsequently, he – in
collaboration with Ciba-Geigy Chairman Louis von Planta – was also success-
ful in merging IMEDE with the Geneva-based International Management Insti-
tute (IMI) in 1989 to form Lausanne’s International Institute for Management
Development (IMD), as it is known today.51
Helmut Maucher considered management training to be just as impor-
tant as research, and saw it, like the latter, as an investment in the future. Un-
der his leadership, Rive-Reine thus underwent a major expansion programme
in the first half of the 1990s. A hotel and training centre were built alongside
the original 19th century villa, doubling total capacity to around 2,000 course
participants per year in 1996. In addition to specialist training, provided prima- 5
rily by Nestlé managers in a part-time teaching capacity, the focus for Helmut
Maucher was also on communicating the corporate culture. In his eyes, Rive-
Reine played an important role in the cohesion of the Group: Here, people from
more than a hundred countries come together for one or two weeks at a cen-
tral location close to the headquarters, where they can familiarise themselves
with the Centre and how it operates, as well as the country of origin of Nestlé,
whose values so strongly shape the culture of the company. They get to know
one another, and the international networks that are established in Rive-Reine
often last well beyond the courses themselves. Personal encounters with top
management from Vevey are a unique feature of these courses. Peter Brabeck,
like Helmut Maucher before him, has always aimed to spend at least an hour
answering questions and listening to participants during all important courses
if possible – i.e. up to thirty times a year. All Executive Board members and
SBU Heads followed his lead, providing participants with a first-hand impres-
sion of the people with executive responsibility for the Group. Encouragingly,
this tradition has continued to this day, and is an integral part of each
course.52
Training and development opportunities are not the exclusive preroga- 3 The Nestlé training
tive of senior management at Nestlé. They exist at all levels, from on-the-job centre, Bangkok (Thailand).
training in the factories, where two-thirds of the Group’s employees actually
work, through regional training centres for middle management in the markets 4 The highly acclaimed IMD
to courses at Rive-Reine. In this way, for example, around 65 per cent of all business school in Lausanne
(Switzerland) was born out of the
IMEDE, set up by Nestlé in 1957.
5 Rive-Reine is the Nestlé

training centre in La Tour-de-
Peilz, Switzerland. It is housed
in the Villa Augusta, which
belonged to Auguste Roussy,
former Nestlé Chairman, and
267 completely renovated in 1996.
personnel benefited from training in 2002.53 This proportion is likely to have in-
creased in the meantime, with technological progress having opened up greater
training opportunities in the form of e-learning, for example. In order to better
co-ordinate training provision within the Group, a Corporate Training function
was set up in Vevey in 2001.54 Despite the expansion, the capacity of Rive-
Reine does have its limits, and in recent years the training centre has started
offering more external courses in the local markets.55
The focus here has been on the emerging economies of Central and East-
1 ern Europe and South-East Asia.56 The Nestlé Human Resources Policy high-
lights the fact that the importance attached to training has not changed since
Helmut Maucher’s day: “Learning is a part of the corporate culture. The desire
to learn is a non-negotiable requirement for employment at Nestlé.”57
Trade unions
The presence of Nestlé – with its almost 500 factories in over 80 countries with
a wide range of political, economic and social systems and traditions – makes
the occasional outbreak of social tension almost unavoidable, not least as a
2 consequence of the need to adapt to changing market conditions. Despite this
and apart from a few exceptions, Nestlé has always succeeded in avoiding ma-
jor social conflict, thanks above all to its decentralised and conscientious per-
sonnel policy, which involves tackling problems on the spot in dialogue with
the employees, who in most factories are organised into unions. This success
is no doubt also partly attributable to the fact that – again with a few excep-
tions – even the largest Nestlé factories have no more than around 2,000 em-
ployees, operating as smaller and therefore manageable units, where direct
contact is the norm. Vevey has therefore adopted a strict policy of not inter-
fering in negotiations between subsidiaries and trade unions or other employee
representatives. This policy was not welcomed by union representatives un-
successful in putting their concerns to the local Nestlé subsidiaries. They and
their supporters had previously found their way to the headquarters, in order
– often with the backing of Swiss trade unions – to protest and to seek con-
tact with the Executive Board. Members of a small, communist-inspired un-
ion, for example, which was not recognised by Nestlé Japan, made no less
than four long trips to Vevey with delegations of up to 70 people in the late
1980s and early 1990s, with the aim of voicing their concerns, but without suc-
cess.58 More serious, around the same time, were the labour disputes in the
Philippines and in Columbia, which led to strikes and the occupation of facto-
ries. After some years, the situation on the labour front had eased off to the
point where Vevey observed that: “Relations between Nestlé and employee
representatives remained good in 1992; both sides are conscious of the fact
that clear communication and constructive dialogue is vital to ensuring a har-
monious partnership.”59
At the end of 1994, Helmut Maucher informed the Board of Directors
that relations with “sensible” trade unions had improved, while those with the
1–2 Workers’ representatives

from Himeji, Japan (1) and
Springville, USA (2) in discus-
sion. 268
“dogmatic” ones had deteriorated. The latter, he said, feared losing their influ-
ence because of the increasing closeness in collaboration between the person-
nel and the senior management of the company, due not least to the “Man-
agement Commitment/Employee Involvement”.60
Perrier
The acquisition of the Perrier Group in 1992 presented Nestlé with social prob-
lems on a whole new scale, which this time could not fail to reach the Execu-
tive Board in Vevey. It soon became clear that the headcount at the Group’s
headquarters – the Vergèze factory, the biggest employer in the southern
French département of Gard with its 2,400 employees – was too high and pro-
ductivity too low. What is more, extensive overcapacities had arisen due to the
decline in sales following the 1990 benzene crisis in the US (see chapter on
Perrier, page 102, 120). An initial restructuring plan for the reduction of 450
jobs, primarily through early retirements, was implemented in 1993 with no
notable resistance from the pro-communist CGT (Confédération Générale du
Travail) union, whose members made up the majority of the workforce. A sec-
ond plan envisaged a further headcount reduction of 600 jobs at the beginning
of 1994. As the quota of early retirements had almost been used up, redun-
dancies became unavoidable.61 Now the CGT protested publicly and called a
strike and a demonstration in Nîmes, the capital of the département, which at
18 per cent had one of the highest rates of unemployment in France. The man-
agement of Nestlé Sources International stuck to its plan, while promising to
ensure that every employee made redundant would be found another job in
the region.62 Sales of the little green bottle had increased by ten per cent, thanks
above all to exports to the US, which had started rising for the first time since
the benzene crisis, while sales in France were down seven per cent.63
Nevertheless, the situation remained deadlocked. The Paris court of ap-
peal ordered Nestlé, at the beginning of 1995, to withdraw its original plan.
This “victory” made it easier for the CGT to accept a compromise that cut the
number of redundancies by ten per cent to 550.64
Despite a further headcount reduction, during which the age for early re-
tirement was lowered to 53, productivity at the factory remained a “cause for
concern” at the end of 1997. The Perrier brand posted an operating loss of
CHF 45 million, while the Group’s other water brands saw operating profit of
almost ten per cent and internal real growth of around seven per cent.65
Thanks to a series of targeted measures – the introduction of PET and
half-litre bottles, of Perrier Fluo in various flavours and of Eau de Perrier, a less
carbonated version – sales started rising encouragingly from 2000 onwards.
Productivity at Vergèze, however, still left much to be desired. At 600,000 bot-
tles per employee in 2004, it was three times lower than at San Pellegrino.66 In
addition, the partial changeover to PET had further weakened the already low
profitability of the bottle factory belonging to the spring. At the same time,
pressure from the main competitor Danone and the ever-stronger store brands
had increased further. At the end of 2003, the management of Nestlé Waters
269
France entered into a new round of negotiations with the trade unions with
the aim of further downsizing the Vergèze workforce by means of additional
early retirements from age 55. This was a realistic option, as by now a large
number of employees had reached this age. While the minority unions were
prepared to compromise, the CGT remained steadfastly opposed.
Peter Brabeck was losing his patience, and realised that the hopeless sit-
uation could only be resolved by grasping the nettle. On the sidelines of a meet-
ing with journalists in Paris on 2 May 2004, he implied that Nestlé might sell
Vergèze if the situation did not improve. This threat was all the more credible
given that investigations had revealed that, contrary to long-held beliefs, the
Perrier brand was not bound to the spring from which it originated and that
Nestlé could therefore theoretically continue to produce Perrier anywhere in
the world. Peter Brabeck’s words had the desired effect, and were followed by
further negotiations with all trade unions of Nestlé Waters France on 23 July
2004, which resulted in an agreement that foresaw the early retirement of more
than 1,000 employees aged over 55 within three years at all production sites
in France – including those of Vittel, Contrex and Hépar – as well as 276 new
appointments plus new investments, in Vergèze in particular. The CFDT and
CFE/CGC unions approved the agreement, but because the majority union, the
CGT, refused to sign, it could not come into force.67 The management of Nestlé
Waters France responded to this new hurdle with a further plan to divide the
company into four regional units, aimed at ensuring greater autonomy in ne-
gotiations with the unions and weakening the power of the CGT, which was
concentrated in Vergèze in particular.68
It was at this point that France’s then Minister for Economic Affairs,
Finance and Industry, Nicolas Sarkozy, intervened. He invited the management
of Nestlé Waters France to a meeting at which he insisted above all that pro-
duction in Vergèze should be maintained. His guests agreed to continue dis-
cussions with the CGT, provided that they renounced their opposition to the
July agreement, which management was not prepared to renegotiate.69 One
week later, the CGT relented, but refused to assist in the implementation of
the agreement, which was then carried out without them.70 Nestlé implicitly
withdrew its threat to sell Perrier. On 2 May 2005, the longest and most diffi-
cult social conflict in Nestlé’s history to date was finally laid to rest. The agree-
ment included the voluntary early retirement of 356 Vergèze employees – out
of a total headcount of 1,954 – combined with investments in the modernisa-
tion of production facilities.71 As the final act, the Verrerie du Languedoc bot-
tle factory was sold in July 2006.72
The European works council
Parallel to the troubles at Perrier, Nestlé came into further contact with the
world of the unions in the mid-1990s, this time at the European level. Based
on the Maastricht Treaty, in 1995 an EU directive came into force obliging all
companies with over 1,000 employees, of which at least 100 worked in two
270
different EU states, to set up a European works council. This ruling also ap-
plied to companies such as Nestlé which were based outside the European
Union; in total, more than 40 Swiss firms were affected. According to the di-
rective, the works council should meet at least once a year and focus on infor-
mation and consultation with regard to company plans that could have an im-
pact on jobs. Nestlé was prepared for this change, having contributed to the
discussions about the directive on the employer’s side in the framework of the
UNICE,73 and having itself had in place informal consultation mechanisms at
the European level since the 1980s. The main thrust of the directive, whose
implementation was placed in the hands of the individual companies and their
social partners,74 was in keeping with the ideas of the “Management Commit-
ment/Employee Involvement” document. What was less welcome at Nestlé,
however, was the externally imposed obligation to institutionalise a dialogue
process that should have remained voluntary and “within the family”. By then,
the meetings of Nestlé’s European works council, which were even held twice
a year, had become routine, and the 2004 Management Report stated that:
“We feel that the European works council functions on the basis of a construc-
tive relationship. We continue to view the trade unions and employee repre-
sentatives as valuable partners, and promote ongoing dialogue whenever con-
flicts arise.” In this context, meetings are held with the International Union of
Food Workers (IUF).75
Although the headquarters have been increasingly involved in labour dis-
putes in the last fifteen years, the following principle still holds true: “Employ-
ment relations are the clear responsibility of local management and are dealt
with at the appropriate level: first in the factories and warehouses, then at the
regional or national level, in accordance with local laws and practices.” In ad-
dition, the following proviso applies: “Nestlé only becomes involved with trade
unions or other employee representatives in activities relating to employment
and working conditions or issues connected with the workplace.” Ultimately,
the rights of management must take precedence in negotiations with the trade
unions.76 “We do not, however, respond to unrealistic demands from the un-
ions.”77 Nestlé’s Corporate Principles also emphasise employees’ right to set
up trade unions, but state that this right must be freely exercised and stress
“the right of the employee to decide freely whether to join, or leave, an em-
ployee representative body of this kind…”78 The closure of a factory should be
carried out in full accordance with local legislation, and redundancy plans de-
vised that take into account the legitimate interests of the affected staff. “All
reasonable efforts are made to limit as far as possible the negative social im-
pact of such a situation”.79
Nestlé was aware that timing also played an important role in the inter-
play between economic decisions and their social consequences: “Between
the financial markets, social partners and the supervisory authorities, there is
a huge variety of views with regard to the issue of time. While the financial
markets and the competitive environment demand rapid decisions, the social
partners and governments tend to allow much more time for the necessary re-
structuring of industry. As in the past, we will continue to seek creative and
271
socially acceptable solutions when restructuring and resizing our industrial in-
frastructure, and we will maintain our long-term strategy, which by definition
takes into account the interests of all stakeholder groups.”80
Columbia
In Columbia, where Nestlé has been active for over 60 years, the company has
been faced with enormous challenges given the situation there, which from
time to time has come to resemble a civil war. More than once in the 1990s
its four factories, which are spread throughout the country, and its employees
found themselves caught in the crossfire between the conflicting parties in the
form of the leftwing guerrillas of the FARC (Fuerzas Armadas Revolucionarias
de Colombia), the right-wing “paramilitares” and the national army. The tense
political situation also poisoned relations between management and the union
Sinaltrainal (Sindicato Nacional de Trabajadores de la Industria de Alimentos),
to which more than half of the workforce of around 1,600 belonged. Follow-
ing the murder of several of its officials by unknown assailants, Sinaltrainal
suspected Nestlé of colluding with the paramilitares, who they assumed had
carried out these murders. In turn, members of management – sometimes to-
gether with their families – were the victims of kidnappings possibly orches-
trated by the FARC. The situation came to a head when, in 1998, Nestlé ac-
quired from the US company Borden the Valledupar powdered milk factory,
which was located in the far north of the country. It soon became clear that
labour costs there were three times higher than in the county’s other milk fac-
tories. At the beginning of 2002, the management of Valledupar therefore sub-
mitted the draft of a new collective bargaining agreement to the trade union.
Despite almost 30 rounds of negotiations within the space of a year no
new agreement was signed, so in February 2003 both parties turned to a court
of arbitration, as required by Columbian law in such cases. This court rejected
all additional claims from Sinaltrainal. The judgement dictated that existing em-
ployees should retain their current conditions, but granted Nestlé the right to
take on new workers at lower wages under a new collective bargaining agree-
ment. Both parties were unhappy with this compromise, and took the case to
the supreme court which, in July 2003, upheld the court of arbitration’s deci-
sion in all its elements by a 5 to 2 majority, and imposed the ruling with imme-
diate effect. As a result, no further negotiations with the trade union were
held.
The ruling by the supreme court judges did not bring any automatic im-
provement in the competitiveness of Valledupar, but it did offer a way out of
the deadlocked situation. In September 2003, Nestlé Columbia offered exist-
ing factory employees the chance to take an extremely attractive voluntary re-
dundancy package, which in addition to generous compensation also included
retraining opportunities and help in setting up their own business. In total, the
company set aside USD 8 million for this purpose. Representatives of the Em-
ployment Ministry monitored the implementation and ensured that it was car-
272
ried out on a completely voluntary basis. Of the 192 existing employees, 191
accepted the offer. As an interim solution aimed at keeping the factory run-
ning, Nestlé recruited temporary staff who were employed under the legal
terms and conditions applicable to this category of worker. Following the take-
over of Valledupar by Dairy Partners America (DPA), a joint venture between
Nestlé and the New Zealand firm Fonterra81, Nestlé ensured that these tempo-
rary appointments were made permanent under the conditions previously laid
down by the court of arbitration.82
The Valledupar dispute also attracted attention outside Columbia, not
only due to its unusual outcome but also because, against the backdrop of the
country’s political and social tensions, it was a highly emotive issue. Some
trade unions in Switzerland – in the framework of the 2004 Annual General
Meeting, for example – did not shy away from accusing Nestlé of having acted
dishonestly and of suppressing the unions in Columbia. Peter Brabeck coun-
tered this accusation with the reminder that union membership levels in Nestlé’s
Columbia factories were up to 60 per cent, in contrast to a national average of
just 5 per cent. In addition, he pointed out, the average wage of Nestlé em-
ployees in Columbia was almost four times the legal minimum. The importance
attached by Nestlé to the troubles in Columbia was also underlined by the fact
that, in April 2003, AMS Zone Head Carlos Represas – and in November of the
same year Peter Brabeck – travelled in person to Valledupar to talk to Sinal-
trainal representatives. They did not, however, intervene in the ongoing nego-
tiations which, in accordance with Nestlé’s long-term policy, even in this case
remained the sole responsibility of the local subsidiary.
Child labour
Behind the quarter of a million direct employees of Nestlé are at least four times
as many people who indirectly work for the company. This includes first and
foremost dairy and coffee farmers with whom Nestlé has day-to-day contact
when they deliver their raw materials, but also the far greater number of cof-
fee and cocoa growers with whom there is no direct contact because the com-
pany primarily purchases their products via middlemen on the international
market. As indirect employees, these million or so people – usually independ-
ent farmers or members of co-operatives – are naturally not subject to the busi-
ness principles of Nestlé. Despite this, nowadays an internationally active com-
pany is also expected to apply its internal rules to its external partners. Nestlé
takes this expectation into account with the following statement in its Corpo-
rate Principles: “Nestlé insists on honesty, integrity and fairness in all aspects
of its business activities, and expects the same from its business partners and
suppliers of raw materials, goods and services.”83 The Human Resources Pol-
icy adds that: “Our main suppliers and service providers should also be in-
formed of and comply with our Corporate Principles.”84
However, Nestlé lacks the ability to impose these principles outside its
own production sites and office premises, because “ultimately, the govern-
273
ments are responsible for establishing a legal framework to ensure that human
rights are respected”.85
A prime example of this dilemma is provided by the debate, triggered by
a report published in 2001 by the UNICEF office in Benin, surrounding the is-
sue of child labour on the cocoa plantations of West Africa, which meet around
two-thirds of the world demand for cocoa. This debate concerned an issue that
had previously been more or less ignored.86 Like other major chocolate produc-
ers, Nestlé found itself faced with questions it could not answer. The Corporate
Principles stated that Nestlé did not employ any children who had not yet com-
pleted compulsory education. The company had also signed up to ILO Conven-
tions 138 and 182,87 but could not provide any guarantees that these principles
were also respected by the 1.5 million or so cocoa farmers in West Africa. Rapid
action was called for. On 4 May 2001, representatives of the UK chocolate in-
dustry, including some from Nestlé, met with a hastily established government
taskforce at the Foreign Office in London. It was decided to commission a study
of the working conditions on 2,000 cocoa plantations in Côte d’Ivoire and 1,000
in Ghana, the two main producer countries.88 The study published the follow-
ing year by the International Institute of Tropical Agriculture (IITA) in collabora-
tion with the ILO revealed that the large majority of farmers investigated did not
employ slave labour and that more than 96 per cent of the children working on
the plantations were members of the farmer’s own family. It was therefore not
slave labour, but it was still child labour.89 In addition, the study highlighted du-
bious working conditions in which children were exposed to toxic pesticides
and herbicides or were forced to clear weeds using dangerous machetes.90
In view of this situation, in November 2002 Nestlé – together with other
chocolate producers, NGOs and trade unions – founded the International Co-
coa Initiative (ICI), which was based in Geneva and consulted the ILO as an ad-
visory body. Parallel action was taken in the US. The aim of the ICI is to ensure
responsible working conditions for cocoa production and to eradicate the worst
forms of child labour by means of certification awarded on the basis of onsite
checks. It has not been possible to complete these checks due to the chaos of
civil war in the main producer country of Côte d’Ivoire, resulting in the delay
of the originally envisaged completion date of 1 July 2005, but it is hoped that
half of all cocoa farms in Côte d’Ivoire and Ghana will have been through the
certification process by mid-2008. In the meantime, various measures have
been initiated by the ICI aimed at improving the income and earnings of cocoa
farmers in West Africa, including educational programmes for children that are
transmitted by radio and intended as a substitute for missed schooling. By mid-
2005, these measures had already reached 33,000 farms with a total of 200,000
children,91 and have succeeded in reducing child labour in Côte d’Ivoire by half.
While the chocolate industry responded appropriately to the problem, without
pressure from the NGOs the goals to date would not have been achieved.92
The experience of the issue of child labour in West Africa has also been
incorporated in the latest version of the Nestlé Corporate Principles dated
November 2004. They provide a sensitive picture of the problem, which is by
no means black and white: “It is generally recognised that the causes of child
274
labour are complex and that poverty, differences in economic development,

social value systems and cultural conditions are among the causes. Nestlé is
convinced that development policy must take into account the social and le-
gal situation in the individual countries. Measures aimed at eradicating child
labour must serve the welfare and best interests of the children, as an ill-ad-
vised policy and hasty operational measures could make the situation worse
for the children concerned.”93 The 2005 Management Report stated clearly
that: “Nestlé expects its suppliers to adhere to the Nestlé Corporate Principles,
or else they run the risk of the partnership being terminated.”94
Outlook
Over the last 15 years, Nestlé’s personnel policy has been both professional-
ised and globalised. Even if the main responsibility still lies with the markets,
in this decade-and-a-half the Executive Board in Vevey has been much more
closely involved in this area, not least in order to ensure that – despite all the
variations in conditions in the individual countries – the basic values of person-
nel management are the same worldwide. This explains the increasing number
of directives on this topic that have been issued since the turn of the millen-
nium in particular. In view of increasing competition in the employment mar-
ket and the ageing population in Europe and Japan, the demands on person-
nel policy are unlikely to ease off in the coming years. Nestlé must work harder
than ever to find – and keep – the best people. Otherwise, the company risks
jeopardising its enviable key figures: annual staff turnover of just five per cent
and an average length of services of 27 years at the time of retirement.95
At their conference in April 2005, Peter Brabeck reminded the Market
Heads – continuing on from his thoughts back in 1998 concerning a new ap-
proach to personnel management – that a flexible structure and a performance-
based culture called for the ability to accept different solutions for different
businesses.
It also called for the courage, he said, to confront poor performance, the
humility to ask for help and the willingness to develop others and to give them
room for manoeuvre.96
275
276
11. Nestlé and the Public
Controversy
The heritage: the infant formula controversy

In any analysis of the relationship between Nestlé and the pub-
lic over the last fifteen years, one cannot ignore a pivotal event
that now lies twice as many years in the past, shook the com-
pany to its core and occupied it for a full decade thereafter:
the controversy about infant formula in the Third World.1 It all
began in August 1973 with a report in the UK New Interna-
tionalist magazine, whose backers include Oxfam, one of Brit-
ain’s largest charities. The report accused the food industry in
general, and Nestlé in particular, being the market leader in
this area, of using unethical methods to sell infant formula in
Third World countries. These methods allegedly discouraged
mothers from breastfeeding, thereby endangering the health,
and even life, of their babies due to milk frequently being pre-
pared with unclean water. And indeed, certain infant formula
marketing methods used with great success for decades in
industrialised countries had been transferred to developing
countries without sufficient thought for local circumstances.
This approach was targeted by activists, who brought it to the
public’s attention, often with a great deal of exaggeration. The
quality of the products themselves, however, was never ques-
tioned even by the most forceful critics.
277
The WHO Code

The crisis itself unfolded in the USA, where Nestlé was not even marketing in-
fant formula at the time. In 1977, religious groups called for a boycott of Nestlé
products. A conference hosted by the World Health Organization (WHO) and
the United Nations Children’s Fund (UNICEF), attended by both the manufac-
turers and their critics, plus other NGOs, led to the adoption of a Code, in May
1981, by the World Health Assembly (WHA) in Geneva, the WHO’s decision-
making body. The Code is based on the conviction that breast milk is best for
babies, but recognises that there is a legitimate market for substitute products
if mothers do not breastfeed, or only do so partly. The Code sets out a number
of restrictions on the sale of breast milk substitutes (see box).2
Helmut Maucher, who had just taken office as CEO, worked hard to over-
come this crisis. In 1982 he oversaw the drafting of internal rules on the im-
plementation of the WHO Code, some of which were actually stricter than the
requirements of the Code itself. That same year he also set up an independent
commission in the USA. Chaired by Senator Edmund Muskie, this commission
was tasked with monitoring the Code’s implementation. All these efforts led
to the lifting of the boycott in the USA in 1984. It had had virtually no com-
mercial impact, but had seriously damaged the company’s image.
In early 1991 Nestlé decided, at the request of the Muskie Commission,
to discontinue free supplies of infant formula to Third World hospitals.3 These
free supplies were in fact permitted under the WHO Code, but the wording of
the provision in question was drafted in a way that left great scope for inter-
pretation, and critics were not slow to use this loophole.4 This was a problem
that ran throughout the WHO Code, which was in essence a compromise doc-
ument.
Whilst the debate in the USA slowly petered out following this conces-
sion, it still raged strong in the UK where, in the summer of 1991, the Church
of England urged its followers to boycott the hugely popular Nescafé.5 The na-
tional church had little faith in the credibility of Nestlé’s unilateral agreement
The key provisions of the WHO Code
1. Manufacturers must not advertise their products to 3. Packaging must be labelled in the most widely used
the public, engage in direct contact with mothers or give languages of the country in question, and must include in-
free samples to mothers, not even via hospitals or other structions on safe use.
health facilities.
4. Packaging must also include a reference to the fact

2. Material incentives must not be used to encourage that breastfeeding is preferable to bottle feeding.
sales representatives to increase turnover.
278
to discontinue free supplies to hospitals and only lifted the boycott when free
supplies were also officially prohibited by the WHO in 1994.6 This boycott had 1
had no commercial impact, either – in fact, sales of Nescafé in the UK actually
increased whilst it was in force – but the support of a national institution with
a high standing lent moral gravitas to the remaining critics even after the end
of the boycott. The protest in the UK endured throughout the 1990s. The Chair-
woman of the Baby Milk Action Coalition became the movement’s spokesper-
son. Her annual appearances at the Nestlé General Meetings, at which she re-
peatedly accused the company of infringements against the WHO Code,
attracted attention, but very little sympathy from shareholders.
AIDS adds a new dimension to the debate 2

The rapid spread of AIDS, especially in southern Africa, added a new dimen-
sion to the debate. Although the WHO had already ascertained that around
one-third of children born to HIV-positive mothers were also infected with the
virus, and that infection via breast milk was a possibility which could not be
excluded, it recommended, in a joint report compiled with UNICEF in 1992,
that breastfeeding should still be encouraged nevertheless. The protection con-
ferred by breast milk against other diseases was concluded to outweigh the
risks of infection.7 Nestlé concurred.8 Any other stance would have rekindled
the debate. The Baby Milk Action activists, for example, who suspected the
company had been using AIDS as an argument to promote infant formula in
preference to breastfeeding since the early 1990s, would certainly have had
something to say.9
In a further statement drafted in May 1997, the WHO and UNICEF offi-
cially acknowledged that the HIV virus could be transmitted by breastfeeding, 3
and that over a third of the babies affected were infected in this way. Depart-
ing from the 1992 report, this statement contained a telling phrase worded to
the effect that the children of HIV-positive mothers were exposed to less risk
1 Members of Bureau
Veritas confirm that Nestlé
complies with the OMS code.
4
2–4 Since 2000, Nestlé has

been working together with the
Nigerian Red Cross to produce
information brochures about
AIDS. It also organises meetings
run by individuals who are
knowledgeable about the prob-
lems and medicosocial conse-
279 quences of this disease.
of becoming ill or dying if they were not breastfed, providing a balanced alter-
native form of nutrition were available.10 Nestlé never, however, took advantage
of this statement to promote the sale of infant formula in the countries where
AIDS was rife. But when asked to do so by the local health authorities, Nestlé
South Africa did make products available for a special programme aimed at pre-
venting the transmission of the HIV virus from mothers to their babies.11
Nestlé attempts to end the controversy once and for all

Although the controversy slowly died down after the end of the UK boycott in
1994, Helmut Maucher pursued his efforts to end it once and for all. He nur-
tured contacts with the heads of the WHO and UNICEF, and found that com-
munication with the former was constructive, but more difficult with the lat-
ter. In spite of relatively successful attempts to engage with activists in the
USA in the early 1980s, he felt this was a less useful exercise because of the
activists’ lack of interest in actually identifying solutions. As soon as one prob-
lem had been dealt with, they found another. Maucher was able to draw some
comfort from the fact that the activists were gradually losing government sup-
port. In his view, there was only one way for Nestlé to conduct itself: with hon-
esty and integrity.12
When he took over as CEO in 1997, Peter Brabeck decided he would aim
to put a lid on the controversy by the year 2000. He opted for a more aggres-
sive policy encompassing a frank admission of past errors and an acknowl-
edgement that such errors might indeed happen again in the future.13 He met
the same opposition as his predecessor, however, at least at UNICEF. An at-
tempt at discussion with Carol Bellamy, UNICEF’s Executive Director in New
York, drew a blank as Ms Bellamy failed to see the benefit of further talks. In-
itial contact with the new Director-General at the WHO, Gro Harlem Brundt-
land, was more positive.14 She was willing to organise a meeting of industry
representatives and activists to try and end the enduring conflicts surround-
ing the Code’s interpretation. This signalled a move by the WHO, having left
this issue largely to UNICEF in past years, to reclaim the initiative. The WHO,
after all – not UNICEF – was the actual guardian of the Code. Its highest or-
gan, the WHA, met to consider issues of implementation and interpretation
every two years. The proper period of time for feeding a baby exclusively on
breast milk, or an appropriate substitute, was a recurrent theme of debate. The
Code talks of “up to the age of between four and six months”15. This open-
ended wording had frequently given the activists grounds to accuse manufac-
turers of infringing the Code. Whilst industry representatives welcomed Mrs
Brundtland’s “roundtable” initiative, the activists failed to respond to the invi-
tation, thereby demonstrating yet again how little interest they really had in
finding a solution to the conflict.16 Faced with these delaying tactics, Brabeck
pushed for a clear guideline. When the WHA representatives met in 2001 they
decided to set the specified timeframe at six months. Nestlé acted on this de-
cision immediately, and internal instructions to subsidiaries were amended as
required.17
280
Interpretation and monitoring of the WHO Code

Another grey area of the WHO Code related to the question of who was ulti-
mately responsible for monitoring it. The document places this responsibility
with both governments and manufacturers, and also tasks NGOs with bring-
ing any non-conformities to the manufacturers’ attention.18 The outcome of
this was that the various players tended to pass the buck amongst themselves.
Nestlé wanted to see the implementation of national codes, as the WHO Code
indeed envisaged.19 These efforts initially met with modest success. Ten years
after adopting the WHO Code, only nine countries had integrated the corre-
sponding provisions in their national legislation, whilst 66 had made absolutely
no move in this direction.20 Under Peter Brabeck’s aegis, the company renewed
its efforts towards the end of the 1990s. Without doubt, these endeavours con-
tributed to prompting numerous developing countries to include the provisions
of the WHO Code within their national legislation in some shape or form. In a
survey conducted in 1999 in connection with this initiative, the governments
of 54 developing countries confirmed that Nestlé adhered to the provisions of
the WHO Code.21
Another important element in Brabeck’s strategy of taking the offensive
was the new edition of Nestlé’s own internal instructions – over 20 years old
by now – on implementing the Code. The 2004 instructions codified a range
of individual measures which had been implemented in previous years – reg-
ular auditing, for example, with annual results to be forwarded to the Audit
Committee of the Board of Directors. In particularly serious cases, internal au-
diting was supplemented by external auditing by independent bodies, along
the lines of the Muskie Commission in its day. Nestlé had already resorted to
this course of action at the end of the 1990s, when it had appointed external
specialists to investigate public accusations, made by a former employee in
Pakistan, of alleged infringements of the WHO Code by the local Nestlé sub-
sidiary. These accusations had been reported in the European press.22 The new
instructions also formalised the existing ad hoc system of a “WHO Code Om-
budsman” guaranteeing confidentiality for Nestlé staff wishing to notify the
company of infringements against the Code without going through the usual
hierarchical routes. The instructions also specified that in the event of conflict
between a national Code and the Nestlé Regulations, the stricter of the two
bodies of requirements was to be adopted.23 Brabeck made it absolutely clear
that failure to follow these instructions would be punished – with dismissal, in
the worst cases.24
Although external monitoring of Nestlé operations has only ever been
practised in exceptional cases such as that of Pakistan,25 Brabeck was per-
suaded that such monitoring could be useful even without a specific motive,
and in 2002 he commissioned Bureau Veritas, the international auditor, to as-
sess the marketing of infant formula by Nestlé in three African countries which
the auditors were invited to select themselves. Bureau Veritas subsequently
spent five weeks investigating Nestlé practices in South Africa, Nigeria and
Mozambique. They came across only three minor infringements, none of which
was however deemed a systematic contravention of the WHO Code.26
One of the aims of

Nestlé’s social actions is to con-
tribute to the health and nutrition
of infants, in countries such as
281 Brazil.
Various attempts have been made in recent years to pursue dialogue with
the activists, who joined forces in the 1990s to set up the International Baby
Food Action Network (IBFAN). Regrettably, however, it has become apparent
that Helmut Maucher was right when he claimed, back in the 1990s, that these
groups have not the slightest interest in dialogue because a final solution to
the problem would deprive them of their whole raison d’être.27 Even though
IBFAN tried to portray itself as an international organisation, its impact was re-
stricted mainly to the UK, where it enjoyed a level of credibility that extended
into circles one would not normally associate with activists. In 2003, for ex-
ample, the Financial Times refused to include infant formula manufacturers in
its index for socially responsible investors, in effect placing this industry on a
par with tobacco and arms producers.28 In the same year, the prestigious Brit-
ish Medical Journal (BMJ) published a report on the marketing practices of
various manufacturers of infant formula, including Nestlé, in Togo and Burkina
Faso. The report undoubtedly originated from IBFAN sources and had been
written without the involvement of the companies cited.29 In recent years, how-
ever, the activists have found themselves victims of a growing credibility def-
icit and plummeting interest amongst the public.30
Communication
A new communication policy emerges from the controversy

Whilst the baby formula controversy had no negative impact on Nestlé’s busi-
ness results, it certainly tarnished the company’s image and affected morale
amongst the workforce. Feeling unfairly victimised, employees became intran-
sigently defensive, which made it all the more difficult for the outside world to
understand Nestlé’s attitude. The mixed mood of defiance and resignation was
still lingering when Helmut Maucher arrived in Vevey in 1980. He later de-
scribed the mood in these words: “At the time, our Swiss employees were
shocked by the infant formula row in which Nestlé and others found them-
selves involved. They were outraged, in fact. In these situations, one often sees
a certain type of mechanism, especially in good companies with good people:
the herd instinct sets in, and people close ranks; it’s not true, they say, it can’t
be true. Perfectly understandable, of course, but absolutely the wrong thing
to do.”31
Perceiving itself to be under siege, Nestlé “pulled up the drawbridge”,
so to speak, which only added to the negative feeling against the company.
Maucher understood that he had to break out of this vicious circle. And that
could only be achieved with the kind of frank and open information policy which
would solve both problems – i.e. image and motivation. Deciding on a change
of tactic, Maucher moved from the defensive to the offensive. This was all the
easier for him as he had experienced the difficult initial years of the crisis at a
distance in his then post as Market Head of Germany, so he was less emotion-
ally involved than the staff and management at headquarters. Not being bur-
dened with any personal responsibility for this inherited liability, he also felt a
282
The Nestlé Nutrition

Duchess Club teaches Nigerian
schoolchildren the basics of
283 nutrition.
sense of freedom and took advantage of every opportunity to give interviews

and write articles. On top of his many speeches, he made over 300 public state-
ments during the nearly twenty years he spent in office as CEO and Chairman.32
There can hardly have been a single topic he did not comment on insofar as it
was in some way related to Nestlé and the commercial, social and political en-
vironment in which the company operated. Through this broadening of hori-
zons he was gradually able to divert attention away from infant formula. He
made clever use of the notoriety which the company had acquired through the
controversy to portray Nestlé in a positive light. It was in this sense that the
controversy provided the point of departure for a new information policy.33
This new policy was more than just a cosmetic correction, it was a rad-
ical U-turn. In over a century of existence Nestlé had defined itself almost ex-
clusively by its products. The company as such remained in the background
and, apart from the Management Report, which featured consolidated figures
from 1968 onwards, and events such as the General Meetings and press con-
ferences, did not believe it was accountable in any way to the public at large.
The opening up of the Nestlé information policy went hand in hand with a
strengthening of the “corporate identity” and the new brand policy34, and thus
formed part of a more comprehensive communications strategy. In spite of the
greater emphasis on the company, however, its products remained the central
preoccupation and object of identification. At Nestlé, “communication” has al-
ways meant communication with consumers first and foremost, be it through
advertising, consumer information on packaging or via the Internet, an inter-
active medium that has become increasingly important in recent years. In a
Nestlé market, therefore, the Communications Director is the Head of Adver-
tising, not the Head of PR. At Vevey, too, advertising is the responsibility of
the communications department (Business Communications, B/COM, currently
SGDU), while the press service takes care of contact with the media. Its new
name as of 1995 – Corporate Communications (CC) – was intended to identify
it as part of the overall communications structure. But there has always been
Communication from the

Group can be found displayed
throughout the world, such as
here in the Kobe metro in Japan. 284
a clear division of work between the two units: B/COM-SGDU sells the prod-
ucts, CC the image. The CC team was enlarged in the mid-1990s, partly to
meet the needs of a greater Internet presence.
Communication is a management task

In spite of the expansion of CC, it was always clear that the real “press spokes-
person” at Nestlé was Maucher himself. PR work came under his direct re-
sponsibility and he regarded dealing with journalists as a “matter for the man-
agement”: “I necessarily devote a lot of time to contact with the press, this is
work that falls to the Delegate, and is his direct responsibility,” he declared to
the Board of Directors in 1989.35 Other members of the Executive Board only
spoke to the media very rarely. Only the CFO and the press spokesperson sat
with him on the podium at the half-yearly press conferences – in Zurich in the
spring, and in Vevey in the autumn.
But although Maucher made personality a feature of Nestlé’s communi-
cation, he never lost sight of the need to keep the spotlight firmly on the com-
pany itself: “Communication is most effective in person, that is the best mode
of transmission. But we know, or certainly believe, that a personality cult is
wrong. Communication should serve and profile the company, not the person.
Company heads come and go, and we must therefore see ourselves as a link
in a chain, and be conscious of this.”36
Maucher also liked to use his interviews to comment on topics of de-
bate; he called this “management by provocation”.37 A good example of such
provocation was his interview in November 1996 with the German magazine
Stern, in which he reiterated his unequivocal support for the use of genetic en-
gineering in the food industry, much to the dismay of some at Nestlé Germany,
who, in the light of the growing tide of opposition against this technology,
feared for their sales.38 Believing that in the long-term, it would be impossible
to feed the world without increased use of this technology, Maucher had ex-
pressed the same views in an interview with one of the big German dailies ex-
actly three years earlier. His words had not triggered any reaction at that time.39
But there had been a change of mood in the intervening period, and not just
in Germany. The BSE scandal in the UK had stirred up Europe-wide anxiety
about contaminated food, and these concerns now attached themselves to ge-
netically modified products, even though the two problems were not in the
slightest related. There were no genetically modified products available in the
markets of Continental Europe in 1996, but the autumn of that year saw first-
time harvesting of large quantities of soya and corn from genetically modified
crops in the USA, so the perceived danger was now no longer so distant.
Maucher was fully aware of this situation when he spoke to Stern reporters,
and he enjoyed the provocation all the more. At times, he was also using me-
dia interviews as an indirect means of addressing his own workforce: “If there’s
anything about me in the newspapers, it will be read far more widely by our
people than any announcements or circulars addressed to them directly. I once
called it ‘management by Interview’.”40
285
Maucher handed over responsibility for PR work to Peter Brabeck in 1995,

even before Brabeck had officially been named as the next CEO. His predeces-
sor’s marked identification with the company meant that Nestlé’s image coin-
cided almost wholly with the image of its CEO, and this represented both an
opportunity and a risk for Brabeck in his future role as CEO. The opportunity
lay in that he could build on a solid base and that Nestlé could benefit from
Maucher’s charisma for a further three years. Apart from General Meetings,
Maucher no longer appeared as the official company representative, but con-
tinued to comment on general topics outside the scope of daily business in
numerous interviews, articles and speeches. As soon as he became CEO,
Brabeck took charge of press conferences and, in contrast to his predecessor,
gathered all his Executive Vice Presidents around him in order to signal that
from now on, Nestlé would be managed by a team, even if – in the Maucher
style – it was a team with a clear leader.41 Apart from these official appear-
ances, Brabeck commented little in the press during the three-year transition
period until Maucher stepped down as Chairman, preferring to use the time to
build up his own information policy. He knew – and therein lay the risk – that
a company whose image had been based on a single personality for so long,
might have difficulty finding a new image once that person retired. Rainer E.
Gut, Maucher’s designated successor as Chairman, had underlined his inten-
tion to remain in the background even before his nomination.
Given the forthcoming change of Chairman, Nestlé therefore had to learn
to speak for itself rather more than in the past. This called for an information
policy built on facts rather than on personality, and based more on planning
than on intuition. It was no coincidence that Brabeck, during his first meeting
of the Executive Board as CEO, approved a Nestlé Information Policy drafted by
his Head of PR and giving the management and the subsidiaries their first set
of binding rules on dealing with the media.42 The goal was not to restrict infor-
mation in any way, but on the contrary, to enable the management and the sub-
sidiaries to cultivate greater contact with journalists. Neither were the new rules
Press conference in 2003. 286

a rejection of decentralisation, which is very valuable in PR work in particular,

but rather an attempt to make the subsidiaries aware that whatever they said
could also impact on the Group as a whole, and that if in doubt, they should
seek advice from Vevey in advance.43 Under the pressure of the general accel-
eration in financial reporting, Brabeck also suggested imposing a new pace on
corporate information policy: until 1999, the results press conferences had al-
ways taken place towards the end of April or early May, but in 2000 and 2001
Brabeck brought them forward to mid-March. He went one step further in 2002
and scheduled the press conference at the end of February to coincide with the
day on which the year-end results were announced this having already been
moved forward from the end of March to the end of February back in 1999. For
practical reasons, this change of timing necessarily went hand in hand with a
change of venue: whereas the results press conference was formerly held in
Zurich, it was moved to headquarters in Vevey in 2002.44 The autumn press con-
ference, which had always been a Vevey event anyway, was also brought for-
ward by a month, from the end of November to the end of October.
Financial reporting
The infant formula controversy was not the only driving force behind a more
open information policy. Financial analysts and journalists were also exerting
growing pressure to provide more detailed financial reporting, and this had an
impact of at least equal proportion. Financial reporting had also been a pretty
modest affair at Nestlé until into the mid-1980s. There had been occasional
meetings with investors since the early 1970s, but always at the latter’s initi-
ative. But with growing interest from US investors following the takeover of
Carnation in 1985 and the introduction of “American depository receipts”
(ADRs) a year later, Nestlé took the initiative in 1986 by organising its very first
series of meetings – in no fewer than seven cities across Europe and the USA
– with analysts of leading banks and other financial institutions.45 These meet-
ings, which became the present roadshows – tours by the Group management
to various financial centres following the publication of the year-end and half-
year results – have now become an indispensable element of corporate infor-
mation policy. They are at least as important, if not more so, as the press con-
ferences, because they can have a direct impact on the Nestlé share price. By
the end of the 1980s, Nestlé was one of the first Swiss companies to place
contact with the financial world on a professional footing by setting up an In-
vestor Relations (IR) department reporting directly to the CFO and communi-
cating daily with financial analysts. The latter are in permanent contact with
financial journalists and therefore also have an indirect influence on opinions
about the company, and hence on its image.
Although Maucher was aware of the close relationships between finan-
cial analysts and journalists, he found it far easier to get along with the latter.
“The company was not built solely on the basis of calculations by financial an-
alysts,” he said in 1994 to the Board of Directors, “the concept of Return on
Invested Capital should not be seen merely from a financial perspective, but
287
from an industrial one, too.”46 His scepticism towards the financial world was
also reflected in sometimes sarcastic remarks about “shareholder value fetish-
ism”.47 He rarely accompanied the roadshows, and largely left all other con-
tact with the financial world to his CFO and the Investor Relations department.
This reticence was not well-received amongst the analysts. Maucher himself
was fully aware that his attitude was outdated, and said in an interview to-
wards the end of his period in office as Chairman: “I have never devoted large
amounts of time to certain things such as investor relations, for example; he
(Brabeck) will have to take care of all that now, as I would have had to do if I
were in his position now.”48 His successor did just that, and got involved in the
roadshows right from the start. Since the mid-1990s, the increasing pressure
to perform had fuelled an explosion in the financial world’s demands of cor-
porate reporting. This was compounded by the need to supply ever greater vol-
umes of information to the regulatory authorities and stock exchanges. Just
as listings on some Continental European stock exchanges in the early 1970s
had prompted the first meetings with financial analysts, so the first-ever pub-
lication of an interim report in 1989 was a prerequisite for a listing on the Lon-
don Stock Exchange, where Nestlé became the first Swiss company quoted
since 1954.49 A listing on the New York Stock Exchange (NYSE), which had
been a serious option back in 1994, would have obliged Nestlé to comply with
the extremely detailed rules and regulations of the American Securities and
Exchange Commission (SEC). These rules were subsequently tightened up even
further under the Sarbanes-Oxley Act. Back at home, meanwhile, the stock
exchange was also shaping its members’ information policies to an ever greater
degree. The Rules of Admission of the Swiss Stock Exchange (SWX), for
example, contain detailed requirements regarding the publication of press
releases with a bearing on share prices; such press releases may not be
published during trading sessions.
The growth in financial reporting is also reflected in the length of the
financial section of the Management Report, which has increased considerably
1 Road show in Zurich

(Switzerland) in 2003. 288
since 1990. From 1990 to 1998, it filled 32 pages. In 1999, however, that number
more than doubled to almost 67, and from then on this section became a sep-
arate booklet. In 2005, it contained no fewer than 100 pages. Since 1992, both
sales and operating income have been quoted by geographic regions and prod-
uct groups in line with the requirements of segment reporting.50
Genetic engineering provides a new source of dispute

In addition to the media and the financial world, the 1990s also saw Nestlé
having to make more information available to a growing number of other tar-
get groups, including the NGOs, whose concerns ranged from consumer and
environmental protection to fair trade with the Third World. Corporate social 2
responsibility (CSR) became the new buzzword as these groups demanded that
companies be held accountable for the impact of their actions on the environ-
ment in the very broadest sense. This development was no surprise for Nestlé,
which had been one of the first multinationals to gain experience of dealing
with NGOs in the mid-1970s, in connection with its infant formula. Paradoxi-
cally, however, it was this very experience that coloured Nestlé’s view of these
groups, which it saw as merely a temporary nuisance factor. Vevey did not
start to take the NGOs more seriously until after it became apparent that they
had the potential to be a permanent and powerful source of opposition.
They were first mentioned at the end of 1998, in an official strategy pa-
per: the paper claimed the NGOs had, in many cases, become political plat-
forms and enjoyed a high public profile, even though they represented minor-
ity social groups. The paper mentioned that the WHO Code issue was only one
of many examples, and that almost all multinationals now found themselves
exposed to pressure from these groups in one form or another.51
The following year, Nestlé itself came under fire from Greenpeace, a par-
ticularly active environmental NGO, for its commitment to genetic engineer-
ing, and was plagued by several noisy demonstrations outside some subsidi-
aries and the head office in Vevey. Towards the end of the 1990s it even looked
as though genetic engineering would become the successor to the infant for-
mula issue as the focus of criticism against Nestlé. In contrast to the latter
problem, however, the genetic engineering debate only impacted marginally
on Nestlé, at least in Europe, which was the sole region in the world where the
opponents of this new technology were highly vocal and had a considerable
influence on public opinion. Surveys in the German-speaking countries revealed
that a large majority of consumers rejected the idea of genetically modified
food, but had very little against the use of the same technology for medical
purposes. It was not possible to dispel these misgivings, even by making more
information available in the form of a brochure52 and an exhibition at the Ali-
mentarium in Vevey53, which was also shown in other countries. Nestlé also
felt the commercial impact of this negative consumer attitude when it tried un-
successfully to launch genetically modified products in Germany and Switzer-
land.54 In the UK, high levels of opposition were expressed through the name
by which such genetically modified foods became known: “Frankenstein Food”.
2 SWX Swiss Exchange in

289 Zurich.
Brabeck had this situation in mind during a talk he gave to students at the Uni-
versity of Oxford towards the end of 1999, when he said that Nestlé should
not, and could not, force technology upon the consumer, and would always
remain committed to total transparency and freedom of consumer choice. Like
his predecessor, however, he remained fundamentally in favour of genetic en-
gineering, believing that responsible research and application of this technol-
ogy could contribute to keeping the world’s population supplied with food. As
a global corporation we also have global responsibilities, he said, and cannot
1 neglect the pressing needs of an overwhelming majority due to the opinion of
a minority of critics. Where raw materials are legally approved and accepted
by consumers, Nestlé will therefore go on using them, ensuring that all prod-
ucts meet Nestlé’s stringent safety criteria and that genetically modified ele-
ments are declared where required.55
Maucher’s firm commitment to genetic engineering had created an im-
pression that this issue was as important to Nestlé as it was to Monsanto, No-
vartis and later Syngenta. The reality was very different, of course: Nestlé did
not cultivate any genetically modified plants and undertook research in this
area principally to keep pace with scientific development.56
Nestlé was not actively involved in genetic engineering, after all; it merely
purchased raw materials, some of which – soya and maize, for example – were
increasingly subject to genetic modification. Trying not to detract in any way
from the positive views previously expressed by Maucher, Brabeck endeav-
oured to adopt a rather more discreet modus operandi to take Nestlé some-
what out of the critics’ line of fire and leave the main responsibility for con-
sumer information to those corporations for whom, unlike Nestlé, genetic
engineering was a core business.
2 From 2001 onwards, this more differentiated attitude was also reflected
in Nestlé’s official position on genetic engineering: the introductory text noted
that Nestlé had always taken account of the varying opinions of its consum-
ers around the world. Only after that, in second place, comes Nestlé’s acknowl-
edgement of genetic technology and its potential to increase food production
and support sustainable agricultural practices, for example by reducing the use
of water and pesticides. Nestlé therefore supports the responsible application
of genetic technology for food production based on sound scientific research.
Both the WHO and the FAO have confirmed that genetically modified crops
are as safe as their traditional counterparts. As there are no international rules
for declaring genetically modified products, Nestlé will adhere to national leg-
islation, which may well result in different solutions in different parts of the
world.57 The latter remark was intended to take the wind out of the sails of the
critics who accused Nestlé of double standards.
Nestlé’s Corporate Business Principles

Years of concentrating on the infant formula problem had prevented Nestlé
from addressing other topics. Immediately after coming to office, Brabeck
1 Greenpeace demonstra- therefore expanded the Public Affairs department (PA) so that, instead of de-
tion against GMOs in 1996 in
front of Nestlé’s headquarters in
Vevey.
2 In 1998, the Alimentarium

(Vevey, Switzerland), the food
museum established by Nestlé,
organised an exhibition on the
subject of genetic modification:
“Gene Worlds – Focus on Food”. 290
voting all its attention to the infant formula controversy and the implementa-
tion of the WHO Code, it could also act as an effective early warning system 3
to identify, analyse and then remedy other high-profile problems with the help
of colleagues at headquarters and in the subsidiaries.58 What Helmut Maucher
had started with the media back in the 1980s – an opening up and a broaden-
ing of issues – Brabeck now undertook with the other corporate stakeholders.
The Corporate Business Principles, published in 1998, emerged as the first re-
sult of these measures.59 This was not to say, however, that the company had
existed entirely without principles until then. Nestlé had always had principles,
but they were either scattered throughout individual documents of varying im-
portance or, as in many other areas of Nestlé’s activities, were in fact unwrit-
ten laws – and those, strangely enough, are sometimes the ones that people
adhere to most strictly. Here, too, however – as with the Nestlé Management 4
and Leadership Principles which had been published a year earlier60 – the
Group’s size and complexity called for some kind of codification. Pressure from
NGOs and other areas of the public rendered this all the more necessary. And
whereas the Management and Leadership Principles tended to be directed in-
wards, the Corporate Business Principles were aimed at familiarising the many
Nestlé stakeholders with the Group’s outward conduct. The close link between
the documents was reflected in the fact that the introduction to the Corporate
Business Principles harked back to the central element of the Management
and Leadership Principles: Nestlé shall not favour short-term profit at the ex-
pense of successful long-term business development.
The introduction to the Corporate Business Principles stated that Nestlé 5
adheres to local legislation in all countries. This might have sounded like some-
thing entirely self-evident, but it was important to capture it in writing, because
there was an impression in some circles that multinational companies lived in
some extraterritorial zone outside any legal jurisdiction. The Corporate Busi-
ness Principles go on to proclaim Nestlé’s respect for international agreements
including, in addition to the WHO Code, the relevant provisions of the Interna-
tional Labor Organization (ILO) and the Guidelines for Multinational Enterprises
published by the Organisation for Economic Cooperation and Development
(OECD).
Such an extensive list of topics clearly demonstrated how much the prob-
lems had evolved and multiplied over the years. Infant formula was just one of
many other issues. The Corporate Business Principles have proven invaluable
since they were first drafted, and have provided answers to virtually all the
questions asked of Nestlé by its many stakeholders. In 2002, the ten principles
of the UN Global Compact were also added to the Corporate Business Princi-
ples. 3 Nestlé is committed to
sustainable development, and
this includes organising the col-
lection of waste left behind by
climbers at Everest Base Camp.
4 Following Hurricane
Katrina in the US in 2005, Nestlé
Waters North America, Inc.
distributed, with the aid of
NGOs, millions of bottles of
water to victims.
5 In 2002, Indonesia fell

victim to severe flooding. Nestlé
distributed Nescafé and other
291 products to the regions affected.
Nestlé’s Corporate Business Principles
1. National legislation and international recommenda- 8. Environmental protection: Nestlé Environmental

tions must be adhered to; Management System (NEMS), efficient, sustainable use of
renewable resources, minimisation of adverse environmen-
2. Responsible communication with consumers, par- tal impact, responsible disposal of waste;
ticularly children, should promote the consumption of food
in moderation; there must be a solid scientific basis for 9. The Nestlé Water Policy: sustainable use, protection
claiming health-promoting effects; of water resources, minimisation of water consumption
for production purposes, treatment of used water;
3. Strict compliance with the WHO Code on the mar-
keting of infant formula; 10. Agricultural commodities: support for sustainable,
socially acceptable, ecologically sound agricultural pro-
4. Protection of human rights within Nestlé’s sphere of duction methods, provision of assistance and know-how
influence; to farmers, use of new technologies, preservation of ge-
netic diversity, direct procurement and quality premiums
5. Respect for employee rights: communication, pri- where appropriate, transparent pricing policy, founding
vacy, integrity, data protection, training, non-discrimina- member of the Sustainable Agriculture Initiative (SAI);
tion, competitive salaries and benefits, safe and healthy
working environment, foundation of trade unions, no 11. Nestlé Corporate Governance Principles: shareholder
forced labour; rights and responsibilities, equitable treatment of all share-
holders, duties and responsibilities of the Board of Direc-
6. No child labour; tors, disclosure and transparency;61
7. Fairness in dealing with business partners, no cor- 12. Guidelines for contributions and donations62
ruption, avoidance of conflicts of interest, obligation of
suppliers to comply with Nestlé’s Corporate Business Prin- 13. Summary of infant formula marketing policy63
ciples, fair competition, ongoing dialogue with the author-
ities and NGOs;
Co-operation
The UN and its Specialized Agencies

Intergovernmental organisations now rank amongst the most important and
influential stakeholders. In contrast to the NGOs, however, which are not ac-
countable to any electorate, they are appointed and controlled by national gov-
ernments. NGOs can only exercise pressure, but these intergovernmental or-
ganisations have the power to issue binding standards to which both public
and private sectors must adhere. Nestlé had already felt the impact of this
through the WHO Code, but this episode had also provided an opportunity to
acquire experience of dealing with organisations such as the WHO, the FAO
and UNICEF – experience which other corporations did not (yet) have. Parallel
to these contacts, and independently of this issue, relationships were also
formed with other organisations inside and outside the UN system: with the
World Trade Organisation (WTO), for example, the United Nations Conference
on Trade and Development (UNCTAD) and the European Union (EU). Many of
these relationships had their origins in the extensive international network
which Helmut Maucher had built up through his active membership of various
business committees, particularly the European Round Table of Industrialists
292
The 10 Principles of the “UN Global Compact”
1. Protect human rights within company’s sphere of 7. Precautionary approach to environmental chal-
influence lenges
2. No abuse of human rights in own corporation 8. Responsible interaction with the environment
3. Freedom of assembly and recognition of right to 9. Development and diffusion of environmentally

engage in collective bargaining friendly technologies
4. Elimination of all forms of forced and compulsory 10. Combat corruption64

labour
5. Abolition of child labour
6. Elimination of discrimination at work
Donation policy
Contrary to the traditional maxim, “Do good and talk about more closely into line with the transition to a health, nu-
it”, Nestlé spent a long time doing just the opposite.65 Rec- trition and wellness company, by giving preference to
ognising that a visible commitment to social, humanitar- projects aimed at guiding people, especially children, to-
ian and cultural causes could provide a useful way of en- wards a healthy lifestyle in which food plays a positive
hancing the corporate image, Maucher initiated change in role.66 Thus the 2004 version of the Corporate Business
this area, too, and Nestlé became one of the main spon- Principles states that “at least half of the annual donation
sors of the Salzburg and Lucerne Festivals. In 1991, Nestlé budget managed by our Group’s companies should be
set up the Fondation Nestlé pour l’Art to mark its 125th an- aimed at programmes devoted to nutrition, health and
niversary. The Foundation uses the revenues from its start- well-being of children and young people.”67 Nestlé’s do-
up capital to promote talented, primarily young, people nation policy has also evolved in that the company now
with a connection to Switzerland and an interest in art, provides substantially more information about its activities
music, theatre or dance. Although Nestlé is represented in this area.68
on the Board, the Foundation enjoys full freedom in the
choice of its projects, of which it has supported over 1,000
in its fifteen years of existence.
Nestlé attaches equal importance to sponsoring nu-
trition, health, education and sports projects. The company
has also supplied emergency aid to victims of natural ca-
tastrophes and armed conflict – to Southeast Asia, follow-
ing the tsunami at the end of 2004, for example, or during
the Lebanon War of August 2006. Nestlé’s decentralised
structure is an advantage in all these areas: projects can
be planned and monitored by the subsidiaries in consulta-
tion with local authorities and NGOs, and emergency aid
in the form of food or water, for example, can be supplied
to the appropriate point of contact swiftly and with a min-
imum of bureaucracy. Headquarters in Vevey merely is-
sues general guidelines and assists with co-ordination. In
2003, Peter Brabeck brought Nestlé’s sponsoring policy
293
(ERT), an association of the heads of Europe’s 50 biggest corporations, and

the International Chamber of Commerce (ICC). After stepping down as CEO,
he was Chairman of both organisations for two separate two-year periods, al-
though the timeframes overlapped to some extent. Maucher viewed the World
Economic Forum (WEF) as another important platform for contacts and regu-
larly attended the annual meetings in Davos.
At the WEF meeting in 1999, the then UNO Secretary General, Kofi An-
nan, presented the “UN Global Compact”, an initiative aimed at bringing mul-
tinational companies together with UN agencies within the framework of ten
principles (see box “The 10 Principles of the ‘UN Global Compact’” on page
293). Nestlé joined immediately, recognising that its own Corporate Business
Principles largely coincided with those of the Global Compact, and provided a
good basis for future work with the UN and its Specialised Agencies. When,
shortly after the launch of the UN Global Compact, Kofi Annan called on the
ICC and UNCTAD to draw up a series of Investment Guides to promote direct
investment in the world’s 49 Least Developed Countries (LDC), Nestlé saw a
fresh opportunity, and volunteered to help author the guides. The company’s
traditionally strong presence in poor countries and long experience of these
markets allowed it to add a number of practical suggestions to the guides,
which have been published for eight countries in Africa and Asia since 1999.
The first of these publications related to Ethiopia. Thus, without knowing it,
Nestlé set in motion a train of events which would catch up with the company
some years later.69 In 2001, Nestlé joined the newly founded UN Advisory Coun-
cil for Sub-Saharan Africa, also set up with the intention of promoting direct
investment. Nestlé operated factories in ten countries in this region, so here
again, it was able to contribute valuable advice.70 Peter Brabeck had taken over
most of Helmut Maucher’s international mandates and contacts following the
latter’s retirement, and this type of practical co-operation was exactly how he
preferred to work.
The WHO is a good example of the new type of partnership with the UN’s
Specialized Agencies. After almost twenty years of dialogue devoted virtually
exclusively to the WHO Code and its implementation, a more high-profile area
of activity was emerging for the future: obesity, an issue to which Nestlé had
already devoted considerable attention since the 1980s. In 2003, given the
growing problems in this area, the WHO began work on preparing a global
strategy on nutrition, physical activity and health, particularly amongst chil-
dren. Having been invited to contribute its ideas to the debate, the food indus-
try set up a taskforce chaired by a Nestlé representative. Nestlé was well pre-
pared for this role as it had already done substantial preliminary work in
connection with its nutrition, health and wellness strategy and was also able
to draw on the experience gained through its research and product ranges in
this area. Talks with the WHO revealed that the health ministers and industry
representatives held very similar views. Numerous improvements which Nestlé
was already in the process of implementing in connection with its “60/40+”71
programme, found their way into the WHO strategy which was approved by
the WHA in May 2004. They include reducing the fat, sugar and salt contents
Peter Brabeck, David Syz,
former Swiss State Secretary for
Economic Affairs, and Klaus
Schwab, President and founder
of the WEF, during the sympo-
sium organised by the Swiss
State Secretariat for Economic
Affairs, the UN Global Compact
and UNCTAD at the UN in
Geneva (Switzerland) on
29 October 2002. 294
The eight UN millennium goals and their implementation

by Nestlé
Goal 1 Goal 6
Eradicate extreme poverty and hunger Combat HIV/AIDS, malaria and other diseases
by purchasing CHF 8 billion worth of raw materials from through partnership with the International Federation of
developing countries each year, by means of a sustaina- Red Cross and Red Crescent Societies (IFCR) in Geneva in
ble agricultural policy and by providing technical assist- connection with the African Health Initiative 201073, and
ance to dairy and coffee farmers; through own initiatives such as those to combat dengue
fever and blindness;
Goal 2
Achieve universal primary education Goal 7
by actively promoting school programmes in many devel- Ensure environmental sustainability
oping countries; e.g. by using ammonia as a cooling agent instead of ozone-
damaging CFCs, careful use of water and treatment of
Goal 3 wastewater;
Promote gender equality and empower women
through special projects within own operations and at the Goal 8
local level; Develop global partnerships
in addition to the partnership with the IFCR, through col-
Goal 4 laboration with the UN High Commissioner for Refugees
Reduce child mortality (UNHCR) to supply water to over 200,000 Somali refugees
through nutrition programmes, e.g. to remedy lack of in Ethiopia.74
iron;
Goal 5
Improve maternal health
by working together with NGOs on health education and
hygiene programmes;
of food; developing new, less expensive and healthier products with high nu-
tritional value; providing frank and easily understood information for consum-
ers and only allowing health claims with an appropriate scientific basis and re-
sponsible marketing. The industry rejected other WHA recommendations such
as a tax on “fattening” foods or government subsidies for “healthy” ones.72
This was very important, given that certain voices associated with the WHO
wanted to see the food industry subjected to the same kind of restrictions as
the tobacco industry: warnings about fat and sugar content on chocolate, for
example. Nestlé maintained there were no “good” or “bad” foods, only good
and bad eating habits. The dialogue between the WHO, the industry and the
NGOs continues, not least in the long-established Codex Alimentarius Com-
mission under the auspices of the WHO and the FAO.
There were also fresh points of contact with the UN itself: Nestlé had not
experienced any difficulty integrating the ten elements of the UN Global Com-
pact in its Corporate Business Principles, and the company now found it easy,
drawing on its many years of operations in the Third World, to apply concrete
examples to the eight Millennium Development Goals which the UN had set
itself to mark the start of the new millennium.
Peter Brabeck is also one of the fifteen members of the UN’s Eminent
295
1–4 Since 2003, Nestlé has

been collaborating with the UN
Refugee Agency (UNHCR) in the
practical and financial develop- 3
ment of solutions for Somalian
refugees living in the Jerer Valley
in eastern Ethiopia with regard to
clean drinking water. The project
involves constructing a 22 km
pipeline to transport pumped and
purified lake water to the vil-
lages, with the aim of reducing
the very high mortality rates, of
infants in particular. 296
297
Persons Group, set up to identify solutions for countries which receive too lit-
tle revenue for their raw materials, whether because they produce excess
volumes or monocultures.75
World Trade Organisation (WTO)

As a company that operated multinationally long before the term “globalisa-
tion” was coined, Nestlé has always been interested in ensuring the greatest
possible freedom with regard to world trade in raw materials and finished prod-
ucts, open markets, unbureaucratic investment opportunities and an unhin-
dered exchange of persons and know-how. Nestlé recognises, however, that
global rules are equally important, and that the above goals could not be
achieved without such a framework.76 It was quite natural, therefore, that the
company took a great interest in the WTO’s work and tried to promote the lat-
ter’s goals as far as it was able. Most contact took place in the context of eco-
nomic interest groups such as the ICC and the ERT. Nestlé also benefited in-
directly from Helmut Maucher’s strong position within these bodies.
Since the beginning of the new millennium, Nestlé’s greatest concerns
in connection with the WTO had been the dismantling of duties on agricultural
products from developing countries and the abolition of agricultural subsidies
by the EU and the USA. This would be of benefit to both developing countries,
whose raw materials would attract higher prices, and to consumers and tax-
payers in industrialised countries, who would see an increase in their purchas-
ing power.77 Brabeck repeatedly commented on this in public. In an article pub-
lished in 2003 in the Guardian, a UK newspaper with a critical stance on
globalisation, he emphasised that, instead of paying subsidies to European
farmers, one ought to increase aid for agricultural development in the poorer
countries in order to protect them from big price fluctuations in raw materials
such as coffee beans. He also criticised the fact that industrial nations not only
sealed off their markets to agricultural products from developing countries, but
In Brazil, the NUTRIR

programme supported by Nestlé
provides nutritional education
to schoolchildren, based on the
aspects of familiarisation,
cultivation, balance, cooking
and eating. 298
that they also dumped their own highly subsidised agricultural products on
Third World markets.78 Nestlé was supported in this by the UNCTAD Secretary-
General, who said that economic players could best meet their obligations in
terms of social responsibility by encouraging free trade and building up the
Third World countries’ own capacities.79
European Union (EU)

As with the WTO, Nestlé used predominantly indirect routes to defend its in-
terests vis-à-vis the European Union (EU). At the political level, this was essen-
tially via the ERT, which was an important driver in the 1980s and 1990s for
the creation of the single European market and currency. General economic
and legal issues were clarified with the European Commission and the Euro-
pean Parliament by the industry associations. The Union of Industries in the
European Community (UNICE) was responsible for matters of industrial and
social policy, whilst the Confederation of the Food and Drink Industries of the
European Union (CIAA) took care of issues relating to the food industry, for ex-
ample health claims.80 The CIAA was strongly in favour of the creation of the
EU food safety authority (the European Food Standards Agency, EFSA), as com-
mon rules are in the industry’s own interest. Problems that only concerned a
certain product category were brought to the attention of the EU authorities
by the relevant specialist associations such as CAOBISCO, the Association of
Chocolate, Biscuit and Confectionery Industries of the European Union, which
participated in years of debate on the European Cocoa Directive.81
Non-governmental organisations (NGOs)

Working with NGOs proved less straightforward than with the intergovernmen-
tal organisations. With the dawn of the new millennium, Brabeck adopted a
differentiated approach to dealing with the NGOs. Speaking to students at the
University of St. Gallen at a symposium in May 2001, where he encountered
Thilo Bode, the then Director of Greenpeace International, he said there were
two types of NGOs: those with a genuine, practical concern about specific
projects, and those he termed “campaign NGOs”. Nestlé, he said, was itself a
member of the former category, which includes NGOs such as Swisscontact,
set up to promote vocational training in developing countries, and Ecolink in
South Africa, whose many tasks include identifying sources of water supplies
for remote villages.
Nestlé also, however, nurtured contacts with the second category, and
actually appreciated some of the positive aspects of their work in that cam-
paign NGOs turned the spotlight on certain problems that had previously been
poorly understood. And with some 25,000 internationally oriented NGOs – not
to mention local organisations – this resulted in so many spotlights that it ul-
timately became difficult to see anything at all. Furthermore, many NGOs had
widely diverging interests, so satisfying them all was an impossible task. While
Nestlé was prepared to listen to the NGOs, it had to make its own decisions in
299
the final instance. Brabeck also criticised the NGOs for not concentrating on
the real problems, but rather on those that promised to attract most publicity.
This, he said, was why they primarily targeted multinationals.82
Wanting to demonstrate Nestlé’s willingness to engage in dialogue, com-
1 pany representatives contacted Oxfam shortly afterwards. Oxfam was one of
the most influential NGOs, and had played a prominent part in initiating the
campaign against infant formula almost three decades earlier. This time, the
issue in question was another important product for Nestlé: coffee. By 2001,
world prices for green coffee had fallen to a historic low, and both Oxfam and
other NGOs were placing part of the blame for this on Nestlé, the world’s larg-
est purchaser of green coffee. The company tried to counter this criticism in
talks with Oxfam, arguing that low coffee prices had nothing to do with the
policies of the big buyers, but were caused by excess supply due to the forced
cultivation of coffee in Brazil and Vietnam. And although Nestlé buys around
12 per cent of the global green coffee harvest, the company argued that its in-
fluence on prices was in fact minimal given that speculative trading on the cof-
fee exchanges in New York and London involved ten times the amount of cof-
fee that actually physically changes hands. Furthermore, Nestlé has absolutely
2 no interest in low prices, as these tend to impact on the quality of the green
coffee – and Nestlé depends on top-calibre quality. One should also bear in
mind, argued the company, that the real cost involved in producing Nescafé
flows from the state-of-the-art technology in use, the cost of green coffee be-
ing of secondary importance. Nestlé was also helping to increase coffee con-
sumption. Whilst the latter had risen by 17 per cent in the past ten years, sales
of Nescafé had increased by 40 per cent during the same period. Of the 27
Nescafé factories worldwide, 14 were located in the Third World, including 11
in coffee-producing countries which, taken together, produced over half the
total volume worldwide. Nestlé did not run any of its own coffee plantations,
preferring instead to buy most of the green coffee it needed on the global mar-
ket. And for over 30 years, Nestlé had purchased around 15 per cent of its re-
1 Nestlé built a dairy prod-

ucts factory in Moga, India in
1961 and developed a successful
milk district thanks to collabora-
tion with local communities. The
factory and its employees form
part of the region and of its de-
velopment. 3
2 This collaboration came

about through the creation of
drinking water networks for
schools.
3 Peter Brabeck being wel-

comed by the Moga community. 300
quirements from the producers direct, which guaranteed the latter a higher
price plus a premium for quality. This 15 per cent was equivalent to 110,000
tonnes – far more than the total volume purchased by all the fair trade organ-
isations, e.g. Max Havelaar, together. In many countries Nestlé also provided
technical aid to coffee growers and was, together with other food companies,
a founding member of the recently created Sustainable Agriculture Initiative
(SAI), which encouraged sustainable agricultural development in the Third
World.83
These arguments seem to have convinced Oxfam. And yet, in a report 4
published in March 2002, Oxfam nevertheless noted that buyers are the ones
to profit from the regrettable situation affecting the coffee growers: “Low cof-
fee prices may be bad for poverty in the Third World, but they are good for
Nestlé.”84 The dialogue with Oxfam had not been entirely fruitless, however, as
the NGO subsequently amended its statement in a second report published in
September of the same year, in which it acknowledged that Nestlé had no in-
terest in low coffee prices.85 The viewpoints held by the two parties seemed to
converge in other areas, too. Thus Nestlé was able to concur with Oxfam’s de-
mand that coffee prices should be held within a certain range by achieving a
better equilibrium between supply and demand, but rejected the suggestion
that excess supply should be reduced by destroying large quantities of inferior
quality beans. Nestlé and Oxfam were also in agreement over the need for in-
dustrial nations to dismantle agricultural subsidies. This would give coffee-pro-
ducing countries a greater chance of exporting other agricultural products, too.
In this context Nestlé acknowledged for the first time that the fair trade con-
cept could make a contribution to improving the situation of coffee growers.86
A potential crisis as the point of departure for new initiatives

Any satisfaction regarding the initial results of this blossoming partnership with
an NGO was shortlived. Shortly before the end of 2002, Oxfam launched two
further attacks on Nestlé: in a report on the EU’s common agricultural policy,
Oxfam accused Nestlé of secretly benefiting from EU subsidies for milk ex-
ports whilst criticising the EU’s agricultural policy in public.87 Whilst this re-
port also mentioned other corporations, Oxfam’s second attack was targeted
squarely at Nestlé: a week before Christmas 2002, Oxfam organised a protest
demonstration outside the head office of the UK Nestlé subsidiary in London.
Oxfam claimed Nestlé was demanding that Ethiopia, one of the world’s poor-
est countries that was then in the grip of a devastating famine, pay USD 6 mil-
lion in compensation for the nationalisation of one of its companies under the
Mengistu regime in the 1970s. The attack even stirred up old associations –
still lying dormant in the UK – from the era of the infant formula controversy,
and was imbued with added emotional “clout” by the deliberate pre-Christmas
timing, chosen no doubt with donations in mind. Nestlé was taken completely
unaware. No one in Vevey really knew the facts of the case, so several days
passed before the company could even react to the criticisms. What had hap-
pened? In 1986, Nestlé had acquired the German Schweisfurth Group, owner
4 The Tours research centre

(France) focuses in particular on
301 improving coffee plants.
of Elidco, an Ethiopian milk business that had been nationalised in accordance

with the local legislation at the time. Nestlé had also inherited the Schweis-
furth Group’s claim for compensation against the Ethiopian government. But
as there was virtually no chance of ever obtaining this money, the claim had
gradually been forgotten. In 1998 the government sold Elidco to a private in-
vestor for over USD 8 million, without repaying any money to the rightful owner.
The scenario changed when, in 2001, the World Bank called on Ethiopia to set-
tle its old debts to create a favourable climate for new investment. The gov-
ernment invited creditors to make themselves known: the forty claims that this
prompted included the claim filed by a local attorney appointed by Schweis-
furth, who had already had dealings, albeit unsuccessful, with the government
1 in the past. The information about this chain of events had not found its way
to Vevey before Oxfam went public. Although other well-known companies
were also among the creditors, and the entire programme was part of a strat-
egy that had been agreed by the government and the World Bank, Oxfam por-
trayed it as a unilateral initiative on the part of Nestlé.
Three days before Christmas, a Sunday, Brabeck published a statement
to avert what threatened to become a PR catastrophe. In it, he legitimised the
original claim by stressing how important it was for Africa’s development that
governments respect international law. He then went on immediately to say,
however, that Nestlé had no interest whatsoever in taking money from a coun-
try currently in the grip of an acute crisis. The USD 1.6 million which the gov-
ernment in Addis Ababa had already offered, plus any other sums to emerge
from the negotiations, would all be earmarked for aid in Ethiopia, with a view
to both short-term emergency assistance and long-term development. This
was to be done in consultation with the IFRC, with whom Nestlé had initiated
a partnership six months previously to combat AIDS in Africa. Brabeck con-
cluded by expressing regret that this issue had resulted in hasty communica-
tions and misperceptions about Nestlé. There had, however, been at least one
positive benefit in that it had focused attention on Ethiopia.88
This conciliatory gesture took the wind out of the sails of Brabeck’s crit-
ics. In January 2003, Nestlé and the Ethiopian government agreed on compen-
sation of USD 1.5 million, to be paid in two instalments.89 The first payment
was split equally between the IFRC and Caritas Schweiz to aid the anti-famine
effort, while the second payment went entirely to the UNHCR to fund a water
supply to a refugee camp in Ethiopia. Specialists from Nestlé Waters were in-
volved in this project as consultants. The same year, as another direct result
of the agreement, Nestlé specialists from the UK also began to provide tech-
nical assistance to coffee growers in Ethiopia. Thus what had started out as a
crisis, and could have ended with a dented image, became the point of depar-
ture for a close partnership with a high-profile humanitarian institution (IFRC),
an important UN agency (UNHCR) and a country in which Nestlé had previ-
ously scarcely been present at all. Brabeck’s comment that the crisis had served
to turn world attention towards Ethiopia was by no means empty rhetoric.
Relations with Oxfam did not suffer any lasting damage, either. The two
erstwhile opponents met up in 2003 in the context of an association set up by
1 In the Philippines, a
support programme for coffee
producers has been in place
since 1962. 302
the coffee industry, the Common Code for the Coffee Community (CCCC). The
CCCC brings together producers, traders, processors, trade unions and NGOs
with the aim of applying ecologically sound, sustainable and socially accepta-
ble criteria to improve the entire coffee supply chain, from bean cultivation
through to consumption. In September 2004, having adopted a Code of Con-
duct which Nestlé signed, the CCCC then embarked on programmes to improve
the quality of green coffee and working conditions on the plantations.90
The Ethiopia crisis had another unexpected effect in that the local coffee
growing project took on a new dimension from 2004 onwards, not least be-
cause Ethiopia, the original home of Arabica coffee, produces some of the
world’s best coffee beans. In 2005, the project comprised over 500 coffee
growers in eight villages, all working towards improving the quality of their 2
coffee through better growing methods.
In partnership with the Nestlé plant research centre in Tours, France, the
growers even managed to develop a new coffee variety, Aba Buna.91 This project
was overseen from the start by Nestlé UK, which ensured that Oxfam and other
NGOs heard about the activities. The Fairtrade Association was alerted to the
project, for example, and expressed interest in certifying the resultant coffee
under its Fair Trade label. Nestlé UK saw this as a good opportunity to become
active in a niche market whilst enhancing its image at the same time, but had
to convince Vevey first. Nestlé purchased around 15 per cent of its green cof-
fee requirements direct from growers in Mexico, Côte d’Ivoire, China, Indone-
sia, Thailand, the Philippines and Vietnam, which brought in higher revenues
for the growers by cutting out middlemen. The company also provided the
growers with long-term technical assistance in connection with cultivating and
improving their crops. Nestlé had already outlined this policy in a brochure
published back in 1994.92 But Maucher had believed one should not confuse
“social obligations and company marketing” and had spoken out against “so-
cial marketing”.93 Brabeck was sceptical, too, but Nestlé UK and the SBU re-
sponsible believed there was a lot to be gained from moving into the growth
market in “Fair Trade” coffee, a segment which already accounted for 10 per
cent of the total coffee market in the UK. Their arguments finally prompted
Brabeck to revise his views and in October 2005, Nestlé UK launched Nescafé
Partners’ Blend under the Fairtrade Foundation label. This blend contains Ara-
bica coffee from both Ethiopia and El Salvador.94 There are similar opportuni-
ties in other markets, but Nestlé Sweden is the only subsidiary so far to have
followed suit by selling Fair Trade certified roast and ground coffee under its
traditional brand, Zoegas. In 2003, Nespresso had already launched an inde-
pendent AAA Sustainable Quality Programme in partnership with another NGO,
the Rainforest Alliance.95
Corporate social responsibility (CSR)

Brabeck’s change of opinion in relation to “social marketing” was not a spur
of the moment decision, but the result of careful reflection about the forms
corporate social responsibility should take: “I have the strong feeling that we
2 In 2005, Nestlé UK
launched Nescafé Partner’s
303 Blend, a fair-trade product.
are moving towards a new paradigm of consumer goods marketing,” he told

the assembled Market Heads at their conference in April 2005 in Vevey. “Our
consumers not only see in our brands a bundle of functional and emotional
benefits, but they also expect broader accountability from those brands. […]
They are interested in the accountability of the brand; they want, for example,
to understand how the brand helps to address any potential negative side ef-
fects such as obesity in children, pollution, helping the coffee farmers to get
a better life and avoiding the use of slave labour. This means that the social
reputation challenges which, in the past, were more linked to a corporation,
are now being increasingly associated with individual brands, in particular our
corporate strategic brands. Social and reputation issues can therefore no longer
be exclusively the domain of Public Affairs and Issue Management, but have
to be incorporated into a brand essence profile. […] The brand must learn to
address the needs of multiple stakeholders in a consistent and coherent way.
[…] Long-term profitable growth will require a whole set of relationships not
only with our consumers, customers and suppliers but also with local commu-
1 nities, social groups, citizens, employees, etc.[…] To achieve this, we will have
to learn to listen more carefully to consumers, employees and all those who
are close to the communities.[…] The art will be to be able to distinguish be-
tween noise and conviction, between superficial fads and strong undercur-
rents. In this sense, we have to completely revisit the content of our consumer
communication. […] We therefore have to ensure that, for example, a Nescafé
consumer understands that Nescafé cares about the coffee farmers, and that
a Nestlé chocolate consumer understands that Nestlé chocolate carries the
certainty that no slave workers were involved in the production process.”96
Brabeck no longer believes that creating shareholder value necessarily
has to exclude consideration for the concerns of the various stakeholders, but
can embrace them within “shared values”. In an interview in mid-2006 he sum-
marised his views as follows: “In the nineties, CEOs were only interested in
shareholder value. Even back then, I always criticised this as being too one-
1–2 Launched in Costa Rica,

Nespresso AAA sustainable qual-
ity programmes enable growers
to achieve the best production
quality and sell their crop for the
best prices. 304
sided. Now, however, no one dares pronounce the words ‘shareholder value’,
all anyone talks about now is CSR. The pendulum has swung the other way
[…] Here at Nestlé we were long-time followers of the Calvinist principle: Do
good and don’t talk about it. You no longer get far by doing that. If you do good
these days, you should make sure people know about it. Otherwise you are al-
lowing those who do nothing but criticise to shape public opinion.”97
The fact that Nestlé had long remained quiet about its contributions in
the context of corporate social responsibility is also due to the company’s pri-
ority for action over loud propaganda – setting up milk districts, for example,
and providing technical aid to developing countries, aid which benefited local
farmers and was also in the company’s own long-term interest. Over the dec-
ades, this type of pragmatic support became something so natural that no one
felt the need to talk about it. This did, however, create a discrepancy with re-
gard to how Nestlé was perceived by outsiders. Wishing to compensate for
this, the company began supplementing its Management Report with a sub-
stantial appendix from the year 2000 onwards, in the form of a special report
devoted to a different theme each year, from environmental protection to sus-
tainability, staff development, coffee and Nestlé’s activities in Africa and Latin
America.98
In an internal presentation, Brabeck pointed out that corporate social re-
sponsibility was actually an invention of capitalism. Early industrial entrepre-
neurs used to make homes, schools and hospitals available to their workers.
This welfare later attracted the criticism of the trade unions, who preferred to
have the money to do all that themselves. Today, however, they complain that
companies do too little in this area.99
From time to time, Brabeck also voiced his rejection of the view that com-
panies should “give something back” to society, because this logically presup-
posed they had taken something away. In his view, profit need not rule out a
social conscience.100 A business can only thrive in the long term if it is good
for shareholders and all other stakeholders alike.101 He did not believe that
shareholder value and sustainability were mutually exclusive. Nestlé had learnt
from past experience: “In the 1990s we clearly opposed the one-side maxim-
isation of short-term shareholder value, and paid a heavy price for this on the
stock exchange and among investors. In my opinion – then and now – our ac-
tions must be determined by a clear, long-term vision and long-term respon-
sibility.”102 Stakeholders have become shareholders, because pension funds
have turned more and more people into stockholders, albeit indirectly. His goal,
said Brabeck, was to create long-term value for investors, not satisfy the short-
term expectations of traders interested only in quarterly results. Social respon-
sibility should not rest entirely on the good intentions of the company boss,
but should be part of overall corporate strategy. If Nestlé tries to support cof-
fee growers and generally encourages sustainable agricultural practices, it does
so partly because it perceives such action to be in its own interest as well; if
companies equate social responsibility with a set of rules imposed on them
from the outside, or see it as a charitable exercise, it will no doubt fail.103 Ad-
herence to codes of conduct is necessary, but not sufficient in itself.104
305
It appears that efforts to keep the public better informed about Nestlé’s
social commitments are slowly paying off. A survey across 21 countries con-
ducted in 2005 by GlobeScan, an international corporate image-assessment
agency, showed that Nestlé scored a 41 per cent approval rating – double the
rating achieved by its two biggest competitors in the food and beverages sec-
tor. This score rose to 56 per cent in the developing countries, and even topped
the 70 per cent mark in the Philippines, India and Indonesia. Only three of the
twenty-one countries returned negative assessments: in Australia, Italy and
the UK. On its home territory, Oxfam appears to enjoy much greater prestige
(+72) than Nestlé (–12).105
Water as an issue of the future?

Issues come and go, and some also come around again. The size of the waves
they create also depends to some extent on the general political climate at the
time. The mood of ideological confrontation during the final phase of the Cold
War in the 1970s and early 1980s saw the multinationals become, for the first
time, the preferred targets of criticism in the context of the Third World de-
bate. Nestlé experienced this phase at first hand in the guise of the infant for-
mula controversy. After the antagonism between East and West had died down,
environmental issues became a catalyst for criticism on the back of events
such as Bhopal and Chernobyl in the mid-1980s. Nestlé was not affected by
this development until a decade later, and then only from the sidelines, so to
speak, through the debate about genetic engineering. But with the advent of
globalisation and the first vocal manifestation by its opponents at the WTO
Conference in Seattle in 1999, the multinationals again found themselves at-
tracting a different form of criticism, one that was less ideological, but no less
belligerent. Nestlé became a target again, this time not due to any specific
problem, but simply as a symbol of globalisation. In June 2003, for example,
the headquarters in Vevey became the scene of a demonstration by anti-glo-
balisationalists meeting in parallel to the G 8 Summit in Evian. One year later,
Vevey witnessed a protest march by farmers led by José Bové, the French farm-
ing agitator. Nestlé survived both episodes by keeping a cool head, although
a glass door was smashed during the second protest. In other cases, some
issues simply disappear of their own accord in time. Things went pretty quiet
on the coffee front, for example, after green coffee prices returned to a rela-
tively normal level. The same was true of the outcry in respect of child labour
on the cocoa plantations in West Africa after an investigation established that
the extent of the problem was much less than originally feared.106
Water is an area that is likely to occupy a great deal of Nestlé’s attention
in coming years, for obvious reasons: Nestlé is currently the world’s largest
producer of bottled water. The share of this business in total sales rose from
one per cent in 1990 to almost ten per cent in 2005, and is likely to climb even
further in the future.107 At the same time, water looks set to become the most
important raw material of the 21st century. Hence fresh conflicts are inevita-
ble. Acting on the experience of past disputes, Brabeck squared up to this de-
Slogan for a demonstra-

tion in front of the Vevey (Swit-
zerland) headquarters during the
G8 meeting in Evian (France) in
May 2003. 306
bate in good time and attempted to occupy the terrain of conflict before the
critics could do likewise. In the spring of 2000, for example, he used the World
Water Forum in The Hague to put things into perspective: even with over 70
sources worldwide, Nestlé’s water business used just 0.0006 per cent of the
Earth’s total supply of freshwater.108 He drew attention to the Nestlé Water Pol-
icy, which, in addition to sustainable use of sources, is also aimed at reducing
the volume of water used in production109 and at promoting sustainable agri-
culture.110
Brabeck knew, of course, that simply pointing out Nestlé’s tiny part in
global water consumption would not be a sufficient argument in the long
term,111 and subsequent years indeed brought renewed criticism of the com-
pany’s use of water. Brazilian activists, for example, accused the company of
lowering the water table through excessive use of the local aquifer at São
Lourenço. In 2005, Nestlé appointed Bureau Veritas to investigate this issue,
as it had done when faced with allegations of infringing the WHO Code. The
investigation revealed that the accusations were not factually correct, and that
Nestlé had conducted itself in accordance with Brazilian legislation and had
actually removed less water than it was permitted to do by the local authori-
ties.112
Brabeck added that, even if motivated solely by its own business inter-
ests, Nestlé could not take the risk of overusing an aquifer as the latter would
surely run dry sooner or later as a result of such action.113
In contrast to the São Lourenço case, which activists ensured became
known outside Brazil, similar criticism of Nestlé’s use of aquifers in the USA
remained limited to the immediate area. Beyond these individual cases, water
remains a potentially inflammatory issue. Brabeck has suggested on several
occasions that general water consumption should be subject to market mech-
anisms in the same way as the bottled water business114 and is very under-
standing for the view that water is a commodity like any other, and should
therefore be priced accordingly.115 This has led to suspicions amongst some
critics that Nestlé wanted to move into the water utilities business, which has
never, however, been the company’s intention. Whatever happens, water is
likely to remain an issue. But “the best kind of issue management is one that
prevents issues from occurring in the first place!”, as Peter Brabeck said at a
conference of public affairs specialists in the summer of 2005, and that applies
to the water business as well.116
307
Transformational Challenge — Nestlé 1990 to 2005
Epilogue
In the 140 years since its creation, Nestlé has repeatedly dem-
onstrated its ability to adapt, as inspired right from the begin-
ning by the company›s founder: Not only did he move from
Frankfurt am Main to Lake Geneva, transform himself from a
pharmacist’s assistant first into an independent “tinkerer” and
industrialist and ultimately into an internationally active entre-
preneur, but he also changed his name from Heinrich Nestle
to Henri Nestlé as a sign of respect for his new French-speak-
ing environment. Expansion into new countries and cultures,
evolving consumer habits and new technologies are nothing
out of the ordinary for Nestlé. On the contrary – the last dec-
ade and a half has been shaped by the speed and dimension
of changes that have demanded a particularly high degree of
adaptability, as well as the ability to maintain a balance between
continuity and change. Despite ever-increasing competition
from private labels and weak growth on the market as a whole,
Nestlé has nevertheless succeeded in satisfying contradictory
consumer needs and delivering the promised progress with
regard to organic growth and revenue. The company has ap-
plied a “multi-strategy” focused on both developing and in-
dustrialised countries and taking into account both low and
high income groups, as well as both traditional product areas
and the latest trends. Ahead of many of its competitors, Nestlé
– led by Helmut Maucher – launched an impressive strategy
of expansion and created the organisational framework for this
growth step. Under Peter Brabeck, Nestlé then went on to
concentrate more closely on internal growth. The streamlin-
ing undertaken by many companies has been achieved not
primarily via radical cutbacks and a strong focus on a small
number of business areas, but by successfully combining com-
plexity with efficiency. At the operational level, processes, data
and systems have been standardised worldwide via the GLOBE
project and individual business areas have received new, au-
tonomous organisational structures tailored to their individual
needs, while all elements perceived directly by the consumer
309
– taste, brands, etc. – have remained in the hands of largely

decentralised, local decision-makers. In terms of strategy,
Nestlé has looked increasingly towards the areas of nutrition,
health and wellness, disposing of a large proportion of the
transformation levels and businesses responsible for process-
ing agricultural raw materials.
With these organisational and strategic adjustments,
Nestlé did considerably well at maintaining a dynamic balance
between continuity and change during the period from 1990
to 2005. This achievement is all the more impressive given
that this was not only a time of large-scale political, economic
and technological transformation, but that it also saw a gen-
erational change at the top of the company. The transition
from Helmut Maucher to Peter Brabeck is aptly illustrated by
way of the renovation of the headquarters during the period
from 1997 to 2000: The cornerstones of the building remained
unchanged and – to the outside world – the appearance of the
historically protected work by Lausanne architect Jean Tschumi
looks practically the same as before the renovation. By con-
trast, the windows and façades and above all the interior of
the building are completely new, having been adapted in line
with today’s requirements. Offices were made transparent
with glass walls facing the corridors, thus letting more day-
light into the interior. Mobile partition walls allowed for more
flexible usage, below the floors in the corridors, space was
created for IT cabling. In order to ensure the continued func-
tioning of the headquarters, the renovations were carried out
in stages. In this renovation process, many parallels with the
transformation of the company itself can be seen: Both pro-
cedures were based on a solid foundation and combined old
and new in a meaningful way, and both were largely planned
and implemented in collaboration between the former CEO
and his successor.
Nestlé’s firm foundation and values have enabled the
company to venture into new geographical, product-based,
R&D-related and organisational areas without taking any un-
reasonable risks and without fundamentally questioning tra-
310
Epilogue
ditional structures. Overcoming the controversy surrounding

infant formula released new energy and strengthened the
company’s self-confidence. Nestlé opened itself up to devel-
opments that had long been considered almost “taboo”, by
no longer excluding direct sales to consumers or fair trade and
making contact and working together with groups and com-
panies that had previously been perceived more as rivals, such
as hard discounters and certain NGOs. In all these efforts
Nestlé benefited from its pragmatic approach, which belongs
to the company’s Swiss heritage. This approach protected
Nestlé from focusing too closely on the latest buzzwords and
delivering itself up to overly enthusiastic consultants. It re-
sisted the temptations of “shareholder value” and “new econ-
omy”, not out of stubbornness, but by interpreting these terms
in its own way and integrating them into its business: The
former by continuously adding value for the benefit of share-
holders while maintaining a long-term approach and taking
the concerns of other stakeholders into account, and the sec-
ond by launching the GLOBE project. In its core business in
particular, Nestlé has done exceptionally well in identifying
long-term trends and distinguishing them from temporary
fads: It was not until the consumer need for healthy nutrition,
identifiable since the late 1980s, had proven to be a long-term
trend that it could become the basis for Nestlé’s transforma-
tion into a “Nutrition, Health und Wellness Company”. Over
the last decade and a half, Nestlé has also proven itself to be
an organisation that is willing to learn, taking mistakes such
as the marketing of LC1 as the starting point for improvements.
Its strong corporate culture, which favours gradual evolution
over abrupt change, has reduced the risk of serious or even
irreparable mistakes being made. At the same time, this tra-
dition-based culture meant that changes made over that time
period were not always perceived to their full extent by the
outside world, which is why internal and external perceptions
of Nestlé still do not quite match. We hope we have succeeded
in at least some areas in minimising, if not eliminating, dis-
crepancies in perception by providing additional information.
311
At the same time, we are aware that, given that Nestlé has
been in existence for almost ten times longer than the period
we have covered, this book can be no more than a snapshot
in the company’s history, and we will have to wait to hear from
future historians whether the decisions made during this 15-
year period were the right ones for securing long-term suc-
cess. One thing, however, is certain: Change, together with
all its accompanying risks and opportunities, will remain the
challenge of every commercial enterprise.
312
314
Appendix
I. Executive Board Members, 1990–2005 316
II. General Organisation of Nestlé S.A., 1 January 2005 318
III. Key Figures, 1990–2005 320
IV. Acquisitions and Divestments, 1990–2005 (selection) 322
V. Nestlé Research Centres, 1990–2005 (by country) 330
VI. Abbreviations 332
VII. Directory of Diagrams and Tables 338
VIII. Nestlé Publications (selection) 340
IX. Footnotes 344
X. Index (Individuals and Companies) 360
Publication data 366
315
Appendix
I. Executive Board Members, Tschan, Rudolf

1986–1992 Zone Asia, Oceania
1990–2005
Mahler, Alexander E.
1986–1993 Zone Latin America
Chief Executive Officers
Suter, Brian
1987–1997 Research & Development
Maucher, Helmut. O
1980 Executive Vice President, Member of the Executive Com- Morf, Rudolf
mittee 1987–1993 Technical
1981–1997 Chief Executive Officer;
+United States of America (until 1991), Gasser, Rupert
Human Resources, Corporate Affairs, Environment (until 1992–1997 Strategic Business Group 1, Technical Coordination,
1995) Quality Management, Environment
1997–2002 Technical, Production, Environment, Research & Develop-
1990–2000 Chairman of the Board ment
ab 2000 Honorary Chairman
Crull, Timm F.
1992–1994 Zone United States of America, Canada
Brabeck-Letmathe, Peter
Véron, Philippe
1992–1997 Executive Vice President: Strategic Business Group 2, 1993–1997 Zone Europe
Communication, Marketing, 1997–1999 Strategic Business Units, Mineral Water, Marketing
+Corporate Affairs (1995–1997)
1997– Chief Executive Officer; Garrett, Michael W.O.

+Nutrition Strategic Business Division (1997–2003), 1993–1996 Zone Asia, Oceania
Perrier Vittel Group (2000–2002) 1996–2005 Zone Asia, Oceania, Africa
2005– Chairman of the Board Braun, Felix R.
1993–1996 Zone Latin America
Represas, Carlos E.
Executive Vice Presidents (in chronological order) 1994–1996 Zone United States of America, Canada
1996–2004 Zone United States of America, Canada, Latin America
Pagano, Camillo Corti, Mario A.

1978–1991 Marketing, Products, Canada 1996–2001 Finance, Control, Legal, Tax Information Systems & Logis-
tics, Purchasing, Export
Daniel, José Raeber, Robert
1979–1997 Africa, the Middle East, Pharmaceutical products, 1997–2001 Zone Europe
Exports, Raw materials, Liaison with L’Oréal, Human
Resources
Castañer, Francisco
1997– Pharmaceutical and Cosmetic Products, Liaison with
Domeniconi, Reto F. L’Oréal, Human Resources, Corporate Affairs
1985–1996 Finance, Control, Legal, Taxes, Administration
Cella, Frank
2000–2003 Strategic Business Units, Marketing
Masip, Ramón
1986–1993 Zone Europe
1993–1996 President & Chief Operating Officer-Food, Africa, the Mid-
dle East, Mineral Water, Joint Ventures
316
I. Executive Board Members
Olofsson, Lars
2001–2005 Zone Europe
2005– Strategic Business Units, Marketing
Reichenberger, Wolfgang H.
2001–2005 Finance, Control, Legal, Tax, Purchasing, Export
Bauer, Werner
2002– Technical, Production, Environment, Research and Devel-
opment
Dijk, Frits van

2003–05 Nestlé Waters
2005– Zone Asia-Oceania-Africa
Bulcke, Paul
2004– Zone United States of America, Canada, Latin America,
Caribbean
Marra, Ed
2004–2005 Strategic Business Units, Marketing
Cantarell, Luis
2005– Zone Europe
Donati, Carlo M.
2005– Nestlé Waters
Deputy Executive Vice Presidents
Blackburn, Peter H.
1989–1991 Chocolate and Confectionery
Johnson, Chris
2000– GLOBE Programme, Information Systems, Strategic
Supply Chain, eNestlé, Group Information Security
Dijk, Frits van

2002 Nestlé Waters
Cantarell, Luis
2003–2005 Nutrition Strategic Business Division
Laube, Richard T.
2005– Nestlé Nutrition
317
Appendix
II. General Organisation of Nestlé S.A., 1 January 2005
Board of Directors
of Nestlé S.A.
R. E. Gut
Chairman
Chief Executive Officer
P. Brabeck-Letmathe
General Secretariat GLOBE, IS/IT, Nestlé Nutrition Pharma/Cosmetics

SSC, eNestlé, GIS
(B. Daniel) Ch. Johnson L. Cantarell F. Castañer
Finance and Control Corporate Technical, Strategic Business Human Resources/

Production, R&D Units and Marketing 1 Corporate Affairs
W. H. Reichenberger W. Bauer E. Marra F. Castañer
Zone EUR: Zone AMS: Zone AOA: Nestlé Waters

Europe Americas Asia, Oceania, Africa
L. Olofsson P. Bulcke M. W. O. Garrett F. van Dijk
1
Member of the Executive Board Michael W. O. Garrett retired on 30 April SBUs: Dairy; Coffee & Beverages; Choco-
2005 and was replaced by Frits van Dijk as of 1 May late, Confectionery & Biscuits; Ice Cream; Food; Pet-
2005. Care; FoodServices
Carlo M. Donati, member of the Executive Board as
of 1 January 2005, became Chairman and CEO of
Nestlé Waters as of 18 February 2005.
318
II. General Organisation of Nestlé S.A.
319
Appendix
III. Key Figures*, 1990–2005
1990 1991 1992 1993 1994 1995

in millions of CHF
Sales to customers 46 369 50 486 54 500 57 486 56 894 56 484
EBITA (before 2002 = Trading Profit) 4 656 5 086 5 637 6 140 6 004 5 498
Net profit 2 272 2 470 2 698 2 887 3 250 2 918
Free cash flowa) 1 600 1 675 937 2 427 1 728 917
Operating cash flow 3 828 4 301 3 816 5 198 4 620 3 839
Data per share
Dividendb) (in CHF) 2.0 2.2 2.4 2.5 2.7 2.7
Dividend increase (in %) 0.0 7.5 9.3 6.4 6.0 0.0
Total shareholder returnc) (in %) –16.5 25.0 33.8 13.9 –0.7 4.4
Share price evolution (in %) –19.3 22.5 31.7 12.0 –2.8 2.3
Pay-out ratiod) (in %) 32.4 32.0 32.2 32.7 31.7 35.6
RIG (Real Internal Growth (in %) 3.3 4.1 3.3 1.7 2.3 3.4
OG (Organic Growth (in %) 4.8 N.A. 6.3 3.7 4.0 6.5
Personnel 199 021 201 139 218 005 209 755 212 687 220 172
Factories 423 438 482 489 494 489
* As published at the time of announcement. a) Operating cash flow less capital expen- b) Dividend for the year concerned but paid in
Restatements on comparatives made in the fol- diture, disposal of tangible assets as well as the following year
lowing years on these published figures have not purchased, disposal of intangible assets, income
been taken into account from associates, movements in minority interests
320
III. Key Figures
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
60 490 69 998 71 747 74 660 81 422 84 698 89 160 87 979 86 769 91 075
5 862 6 880 7 100 7 914 9 186 9 218 10 940 11 006 10 970 11 720
3 401 4 005 4 291 4 724 5 763 6 681 7 564 6 213 6 717 7 995
2 691 4 390 3 706 5 501 5 599 4 938 6 278 6 361 6 640 6 557
5 633 7 401 6 372 8 187 8 851 8 614 10 248 10 125 10 412 10 205
3.0 3.5 3.8 4.3 5.5 6.4 7.0 7.2 8.0 9.0
13.2 16.7 8.6 13.2 27.9 16.4 9.4 2.9 11.1 12.5
14.7 53.9 37.9 –1.0 31.0 –4.5 –14.8 7.8 –1.0 34.4
12.6 52.3 36.6 –2.4 29.6 –6.3 –17.2 5.5 –3.7 32.1
34.7 34.4 34.8 35.2 36.9 37.1 35.9 44.8 46.3 43.8
2.7 3.2 3.3 3.6 4.4 4.4 3.4 2.2 2.9 4.2
5.1 6.9 5.2 3.8 5.4 9.7 4.9 5.1 4.5 6.2
221 144 225 808 231 881 230 929 224 541 229 765 254 199* 253 000 247 000 253 000
489 495 522 509 479 468 508* 511 500 487
c) (Dividend for the year concerned but paid in d) Dividend for the year concerned but paid in * incl. Purina
the following year) / Share price at 31.12) + share the following year / (profit for the period attributable
price evolution from 1.1 to 31.12 to the Group / Weighted average number of shares
outstanding)
321
Appendix
IV. Acquisitions, Participations, Joint Ventures and Divestments, 1990–2005 (selection)
Acquisitions, holdings, joint ventures (JVs) Divestments

(in CHF millions) (in CHF millions)
Year Name Area Further detail CHF Name Area CHF
1990 874 237
Curtiss Brands (US) Chocolate & Chocolate division Swissôtel (CH) Hotels
confectionery of RJR Nabisco (JV with Swissair)
(“Butterfinger”,
“Baby Ruth”)
Superior Brand (US) PetCare Alupak (CH) Aluminium packaging
Walt-Disney (US) JV
Coca-Cola
Nestlé Refreshments Co. JV
(CCNR) (US)
1991 640 71
Alco Drumstick (US) Ice cream Disch (CH) Confectionery
La Campiña (MX) Milk
Intercsokoládé (HU) Chocolate 97%
1992 4758 457
Perrier (FR) Water Stouffer Restaurants Catering

(USA)
Vittel (FR) Water from 52% to 99% Cain’s Coffee (USA) Coffee, food service
Čokoládovny (CZ) Chocolate 46.12%, JV UHT milk businesses

in Spain and the US
Hirz (CH) Milk
Clarke Foods (UK) Ice cream
Nestlé Dairy Farm Ice cream Agreement

(HK, CN)
Allfelx (NZ) PetCare
Serti (FI) PetCare
Nanda Pasta (AU) Culinary products
Bernard Food (US) Culinary products
322
IV. Acquisitions, Participations, Joint Ventures and Divestments

1993 1 676 1 641
Finitalgel (IT) Ice cream 62% Volvic, Saint-Yorre, (Parts of Perrier

Vichy, Thonon acquisition)
Magnolia (PH) Ice cream Favorite Foods (US) Milk
Dairy Maid (ZA) Ice cream Stouffer Hotels (US) Hotels
Vera (IT) Water
San Bernardo (IT) Water
Deer Park (US) Water
Utopia (US) Water
Korpi (GR) Water
Lechera del Sur (CL) Milk
Longa Vida (PT) Milk
Confiança (BR) Confectionery & biscuits
Montarroio (PT) Beverages
1994 1 973 1 325
Goplana (PL) Chocolate Cosmair (US, Canada) Cosmetics > to L’Oréal
Alpo (US) PetCare
Warncke (DE) Ice cream
Miko-Avidesa (ES) Ice cream
Campina (NL) Ice cream
Foremost Foods (TW) Ice cream
San Bernardo (IT) Water From 72% to 95%
San Pellegrino - Water From 25% to 46%

Garma (IT/FR)
Dreyer’s Grand (US) Ice cream 17%
323
Appendix

1995 1576 448
Rossiya (RU) Chocolate 49%
Conelsa (ES) Ice cream Wine World Wine

Estates (US)
Dolce (EG) Ice cream
Campina (NL) Ice cream
Peter’s (AU) Ice cream
Pacific Dunlop (AU) Ice cream & milk Certain parts only
Ducky (TH) Ice cream
Bona (FI) Nutrition
Nestlé Milkpak (PK) 56%
Torun Pacific (PL) Cereals Via CPW
La Azteca (MX) Chocolate
Regina (NZ) Chocolate
Compania Pozuelo Confectionery & biscuits

Hnos (CR)
Costa Rican Cocoa Chocolate & confectionery

Products (CR)
Čokoládovny (CZ) Chocolate From 46% to 68%
Peñaclara (ES) Water
Hidden Springs (PH) Water 50%
Winiary (PL) Culinary products 73%, JV
Supmi Satki (ID) Culinary products 80%
324

1996 1122 96
Permier/Eventyr (DN) Ice cream
Zhukowsky Ice cream JV

Khladokombinat (RU)
Sohat (LB) Water 49%
Konditer (RU) Confectionery
ZWZA Goplana (PL) Confectionery From 52% to 77%
Osem (IL) Culinary products 40%
Perrier Group of Water From 61% to 100%

America (US)
Société des Eaux Water 49%

Minérales Libanaises
(LB)
Nestlé Korea Ltd. (KR) From 82% to 100%
O’Pee Chee (CA) Confectionery
1997 903 332
Ault (CA) Ice cream This division only Contadina, (US) Canned tomato
products
Dairy World (CA) Ice cream This division only
D’Onofrio (PE) Ice cream & chocolate 81%
Nestlé Dairy Farm Ice cream From 51% to 100%

(HK, CN)
Shanghai Fuller Ice cream & milk

Foods (CN)
Long An (VN) Water From 33% to 43%
Manantiales (MX) Water From 50% to 100%
Perrarina (VE) PetCare
Basotherm (DE) Pharma Via Galderma
325
Appendix

1998 4031 236
Borden Brands Int. Milk From Borden Brands Libby’s (US) Canned meat and fish
Klim and Cremora
brands in particular
Mis Süt (TR) Milk To 60%
Drammen Is (NO) Ice cream
San Pellegrino (IT) Water From 50% to 100%
Kamskaya (RU) Confectionery
Altaï (RU) Confectionery
Spillers (UK) PetCare
Jupiter (HU) PetCare
Darrow (BR) Pharma Via Galderma
Nycomed-Amersham Pharma Via Galderma

(northern Europe)
Locéryl (CH) Pharma Via Galderma
Nestlé Philippines (PH) From 55% to 100%
Nestlé Bangladesh, From 60% to 100%

Ltd. (BD)
326

1999 440 253
Ghadeer (JO) Water Malaysia Cocoa Cocoa processing;

MFG (MY) joint venture
Guilems (AG) Water JV Laura Secord (CA) Chocolate & confectionery
Nestlé USA novelty Ice cream JV Hills Bros. (US) Coffee

ice cream business
and Pillsbury’s U.S.
Häagen-Dazs Pillsbury
Guangzhou Ice cream to 90% Cocoa processing in Italy

Refrigerated Foods
(CA)
La Universal (EC) Biscuits Cheese production

in Argentina
Excelcia Food Ltd. (IN) Biscuits
Svitoch (UA) Confectionery 89%
Totole (CN) Cooking aids 80%
La Cocinera (ES) Culinary products
2000 2846 780
UCC Ueshima Coffee Beverages Vending machines Findus Frozen products

Co. Ltd (JP) frozen products in Europe
Kekkuti (HU) Water
Aberfoyle Springs Water

Ltd. (CA)
Valvita (ZA) Water
Black Mountain (UA) Water
Fresh Water (AG) Water
PowerBar (US) Nutrition
Cargill’s petfood PetCare

business (AG)
Joe (RO) Confectionery
Nestlé Mackintosh KK Chocolate & confectionery

(JP)
Summit Autonomous Pharma

(US)
327
Appendix

2001 18766 484
Ralston Purina (US) PetCare David & Sons (US) Snacks
Häagen-Dazs (US) Ice cream Purchase of 50% Gebr. Jung (DE) Ingredients for baked goods
Pillsbury JV stake in
the US and Canada
Dar Natury (PL) Water
Al Manhal (SA) Water 51%
Aqua Cool Water HOD business

(US, UK, FR)
Sansu (TR) Water
Glaciar (AG) Water
Uzdrowisko Naleczow Water

(PL)
Haoji (CN) Cooking aids 60% new:

Haoji Food Co. Ltd.
Snow Brand Milk Milk JV

Products Co. Ltd. (JP)
2002 5395 4684
Chef America (US) Culinary products Food Ingredients Flavours

Specialities (FIS) (CH)
Schöller (DE) Ice cream Alcon Pharma,

partial IPO of 25%
Aqua Cool (GB/FR) Water
Sparkling Spring (US) Water
Saint Spring (RU) Water
Eden Vale (GB) Milk
Sporting (DE) Nutrition
Dairy Partners Milk JV with Fonterra

Americas
Sporting Nutrition Via PowerBar

Sportlernahrung GmbH
(DE)
Laboratoires Innéov (FR) JV with L’Oréal
328

2003 1950 725
Dreyer’s Ice cream Trinks (DE) Distribution company

Grand Ice Cream (US)
Mövenpick (CH) Ice cream Eismann (DE) Distributor of frozen

products
Powwow (EU) Water, HOD
Clearwater (RU) Water
OJSC Volynholding Cooking aids

(UA)
2004 633 266
Valiojäätelö (FI) Ice cream
Boissons Gazeuses Water

des Frères Zahaf
Group (DZ)
2005 1180 108
Wagner Culinary products 49% Condensed milk

Tiefkühlprodukte business in Greece
GmbH (DE)
Delta Ice Cream (GR) Ice cream
Musashi (AU) Nutrition
ESD SA (Européene Nutrition

de Santé et
de Diététique)
owner of
Protéika (FR)
PT Nestlé Indofood Culinary products JV with PT Indofood

Citarasa Indonesia (ID) Sukses Makmur Tbk
329
Appendix
V. Nestlé Research Centres, 1990–2005 (by country)
Location Country Creation Closure/Sale Issues Status 2005

(merger with)
Lausanne CH 1987 Basic research CRN
Orbe CH 1958 Coffee, beverages, cereals, foodservice (beverages) PTC
Broc CH 1975 1998 Chocolate –
Konolfingen* CH 1974 Milk, nutrition, food service (milk) PTC
Kemptthal* CH 1947/58 2003 Culinary, flavours (Singen)
Ludwigsburg* DE 1952/72 1998 Coffee, sauces –
Weiding* DE 1975 2003 Infant food, desserts (Singen)
Singen DE 2003 Culinary, infant food PTC
Badajoz SP 1977 1998 Tomatoes –
Beauvais FR 1972 Ice cream PTC
La Meauffe FR 1971 1990 Yoghurt, cheese (Lisieux)
Lisieux FR 1990 Yoghurt, chilled dairy PTC
Tours FR 1970/85 Plant biology R&D
Corbie* FR 1986 Pet food (Amiens)
Creully FR 1989 1998 Clinical nutrition (Konolfingen)
Amiens* FR 1986 Pet food R&D
Vittel FR 2004 Water PTC
Hayes* GB 1930/74 1990 Canned goods –
York* GB 1989 Chocolate, confectionery PTC
Casa Buitoni* IT 1988/2004 Italian cuisine R&D
Robbio* IT 1961/72 1992 Cheese –
Parma* IT 1988 Ice cream R&D
Bjuv* SE 1963 2000 Frozen products –
Singapore SI 1982 Asian cuisine R&D
Quito EQ 1983 1998 Local raw materials –
Van Nuys* US 1953/85 1994 Milk, creamer –
St. Joseph* US 1953/85 2002 Pet food (St. Louis)
St. Louis* US 2002 Pet food PTC
Fulton US 1984 1994 Chocolate –
* Acquisition
330
V. Nestlé Research Centres
Location Country Creation Closure/Sale Issues Status 2005

(merger with)
Marysville US 1956 Coffee, tea, foodservice (beverages) R&D
New Milford US 1981 2005 Foodservice (Orbe)

(Marysville)
(Konolfingen)
Solon US 2001 Frozen products R&D
Abidjan CI 1994 2003 Local raw materials –
Sderot IL 2001 Snacks R&D
Shanghai CN 2001 Culinary R&D
331
Appendix
VI. Abbreviations BIC

Business Information Centre
Department at the Nestlé headquarters
60/40+ Test
The 60/40+ blind test with consumers is intended to ensure BMJ
that Nestlé products always do better than competitor ones on British Medical Journal
taste and nutritional value.
BPW
AAA Beverage Partners Worldwide
Highest credit rating (Standard & Poor’s, Moody’s) Joint venture between Nestlé and Coca-Cola for ready-to-drink
Nescafé and Nestea
AAP
American Academy of Pediatrics BSE
Bovine Spongiform Encephalopathy, commonly known as
ABB “mad cow” disease
Asea Brown Boveri
BTC
ACTARES Business Technology Center
Successor organisation to CANES GLOBE Research Center (Vevey)
ADR CAGR
American Depositary Receipt Compound Annual Growth Rate
AFTA CAN
ASEAN Free Trade Area (Comunidad Andina de Naciones)
Andean Common Market
AIDS
Acquired Immunodeficiency Syndrome CANES
(Convention d’actionnaires Nestlé)
AMS Critical Nestlé shareholder group
Zone Americas (North and Latin America, Caribbean) (later > ACTARES)
AOA CAOBISCO
Zone Asia-Oceania-Africa Association of Chocolate, Biscuit and Confectionery Industries
of the European Union
ASEAN
Association of Southeast Asian Nations CC
Corporate Communications
B2B Media department at Nestlé headquarters
Business to Business
CCCC
B2C Common Code of the Coffee Community
Business to Consumer
CCNR
B/COM Coca-Cola Nestlé Refreshment Company
Business Communications Joint venture between Nestlé and Coca-Cola (later > BPW)
Marketing and Communications department (today > SGDU) at
Nestlé headquarters CEFTA
Central European Free Trade Association
BAB
Branded Active Benefits CEO
Protected, health-promoting ingredients added to existing Chief Executive Officer
products
CERN
BAI (Conseil Européen pour la Recherche Nucléaire)
Branded Active Ingredients European Organisation for Nuclear Research
Previous name for > BAB until 2003
CFC
BECA Chlorofluorocarbon
Business Excellence and Common Application
Joint IT project implemented by Zone > AOA in the 1990s - a CFDT
precursor to > GLOBE (Confédération Française démocratique du Travail)
A French trade union
332
VI. Abbreviations
CFE/CGC EEA
(Confédération française de l’encadrement - Confédération European Economic Area
générale des cadres)
A French trade union for managerial staff EFSA
European Food Safety Authority
CFO
Chief Financial Officer EFTA
European Free Trade Association
CGT
(Confédération Générale du Travail) EPFL
A French trade union (Ecole Polytechnique Fédérale Lausanne)
Federal Institute of Technology (Lausanne)
CHF
Swiss franc ERT
European Round Table of Industrialists
CIAA
(Confédération de l’Industrie Agro-Alimentaire) EU
Confederation of the Food and Drink Industries of the Euro- European Union
pean Union
EUR
CJD Zone Europe
Creutzfeldt-Jakob Disease
EUR
COGS Euro
Cost of Goods Sold
FAO
COO Food and Agriculture Organisation of the United Nations
Chief Operating Officer
FARC
CPW (Fuerzas Armadas Revolucionarias de Colombia)
Cereal Partners Worldwide Revolutionary Armed Forces of Colombia
Joint venture for breakfast cereals between Nestlé and General
Mills FIS
Food Ingredients Specialties S.A.
CS Former Nestlé company for researching and producing food
(Crédit Suisse) flavourings. Sold to Givaudan in 2002.
A Swiss bank
GATT
CSN General Agreement on Tariffs and Trade (today > WTO)
(Comunidad Sudamericana de Naciones)
South American Community of Nations GCs
GLOBE Centers
CSR Regional GLOBE centers in the Zones
Corporate Social Responsibility
GDR
DPA German Democratic Republic
Dairy Partners Americas
Joint venture between Nestlé and Fonterra (New Zealand) in GLOBE
milk GLObal Business Excellence
Programme aimed at standardising data, processes and infor-
EBIT mation systems at Nestlé
Earnings Before Interest and Taxes
HHFG
EBITA Hand-held Foods Group (Nestlé Group)
Earnings Before Interest, Taxes and Amortisation
HIV
EBITDA Human Immunodeficiency Virus
Earnings Before Interest, Taxes, Depreciation and Amortisation
HOD
EBRD Home and Office Delivery
European Bank for Reconstruction and Development
HR
Human Resources
333
Appendix
HTML KMC
Hypertext Markup Language Key Markets’ Conference
Conference of the heads of Nestlé’s biggest markets
IAS
International Accounting Standards Labior
(Laboratoire Biologique Orbe)
IBFAN Biological laboratory in Orbe
International Baby Food Action Network
LDC
ICC Least Developed Countries
International Chamber of Commerce
LGOs
ICI Local GLOBE Organisations
International Cocoa Initiative
LTF
ICCR Low Temperature Freezing
Interfaith Center on Corporate Responsibility
Group of religious organisations focusing on corporate social M&A
responsibility in the USA Mergers and Acquisitions
ICCO Mercosur
International Cocoa Organisation (Mercado Común del Sur)
Southern Common Market
IFRC South America
International Federation of Red Cross and Red Crescent Socie-
ties MH 97
Market Heads 1997
IITA Rationalisation programme by Nestlé
International Institute of Tropical Agriculture
NAFTA
ILO North American Free Trade Agreement
International Labour Organisation
NATO
IMD North Atlantic Treaty Organisation
International Institute for Management Development
NCCE
IMEDE Nestlé Chilled Culinary Europe
(Institut pour l’Etude des Méthodes de Direction d’Entreprise)
Name of > IMD before 1989 NEMS
Nestlé Environmental Management System
IMI
(International Management Institute) NGO
International Management Institute Geneva (today IMD) Non-Governmental Organisation
IPO NICC
Initial Public Offering Nestlé Ice Cream Company
IR NICE
Investor Relations Nestlé Ice Cream Europe
ISO NNC
International Organization for Standardization Nestlé Nutrition Center
ISS NPPC
Institutional Shareholder Services Nestlé Purina PetCare
IT NRC
Information Technology Nestlé Research Center
Nestlé centre for basic research in Lausanne
IUF
International Union of Food, Agricultural, Hotel, Restaurant, NSBD
Catering, Tobacco and Allied Workers’ Association Nutrition Strategic Business Division
334
VI. Abbreviations
NSI SAARC
Nestlé Sources International South Asian Association for Regional Cooperation
NZZ SAI
(Neue Zürcher Zeitung) Sustainable Agriculture Initiative
A Swiss newspaper Co-founded by Nestlé in 2002
OECD SAP
Organisation for Economic Cooperation and Development Systems, Applications and Products for data processing
A German software company involved in the GLOBE project.
OTC
Over-The-Counter (products) SBG
Strategic Business Group
OXFAM Nestlé organisational form that comprises many > SBUs.
Oxford Committee for FAMine Relief
A British charity SBU
Strategic Business Unit
P/E ratio Nestlé organisational form that performs product-related stra-
Price-Earnings Ratio tegic functions from the headquarters.
PA SEC
Public Affairs Securities and Exchange Commission (in the USA)
PC SGDU
Personal Computer Strategic Generating Demand Unit
Department at the headquarters responsible for marketing
PET (previously B/Com)
Polyethylene Terephthalate
SKA
PPP (Schweizerische Kreditanstalt)
Popularly Positioned Products A Swiss bank (today Credit Suisse)
Product for consumers with limited purchasing power
SKU
PPP$ Stock Keeping Unit
Purchasing power parity (per capita) in US Dollar
SOA
PR Sarbanes-Oxley Act
Public Relations Act governing corporate reporting in the USA
PTC STOXX
Product Technology Center A share index
PVC SWX
Polyvinyl Chloride Swiss stock exchange
R&D TFA
Research & Development Trans Fatty Acids
R&G TNI
Roast & Ground (Coffee) Transnationality Index
Measures the internationality of a company, based on the aver-
Reco age of the following quotients: foreign assets/assets, foreign
Research Company sales/sales and employees abroad/employees.
Name of Nestlé research centres until 1995
UK
RIG United Kingdom
Real Internal Growth
(without acquisitions/divestments and price and exchange-rate UHT
influences) Ultra-high temperature
Ultra-high-temperature processing: procedure aimed at
ROIC increasing the shelf life of liquids by rapidly heating and then
Return On Invested Capital immediately cooling them
335
Appendix
UNCTAD Definitions
United Nations Conference on Trade and Development
UNHCR
United Nations High Commissioner for Refugees Corporate governance
Refers to the system of mutual controls in corporate manage-
UNICE ment. In concrete terms, it involves the allocation of compe-
(Union des Industries de la Communauté européenne) tencies, responsibility and supervisory functions between the
Union of Industries in the European Community Board of Directors, the Executive Board and the shareholders.
Good corporate governance ensures transparency and helps to
UNICEF identify and eliminate negative developments within a corpora-
United Nations International Children’s Emergency Fund tion at an early stage.
The conditions for entry onto the Swiss Exchange define a
UNO series of minimum requirements. On 1 July 2002, the Swiss
United Nations Organisation Code of Best Practice (or “Swiss Code”) was also introduced
by the umbrella association of the Swiss economy (econ-
USA omiesuisse), listing the rules of good corporate governance.
United States of America
Globalisation
USD Globalisation is the increasing international networking of eco-
US dollar nomic, political, social and cultural relationships. Countries and
markets are becoming increasingly strongly tied due to new
US-GAAP communications technologies, the elimination of trade barri-
Generally Accepted Accounting Principles in the US ers, falling transport and transaction costs and new forms of
information processing. This is promoting the movement of
USSR persons, products and finance across national borders.
Union of Soviet Socialist Republics The first wave of globalisation took place in the second half of
the nineteenth century, up to the beginning of the First World
WBCSD War and was followed by a period lasting until the end of the
World Business Council for Sustainable Development Second World War during which governments and parts of the
economy retreated into protectionism and isolationism. This in
WEF turn was followed by the years of reconstruction and postwar
World Economic Forum boom and, depending on the point of view, a second phase of
globalisation began as early as the 1970s, but by the latest at
WHA the start of the 1990s.
World Health Assembly
Annual meeting of the > WHO Market
Nestlé unit with own profit and loss responsibiilty. In the case
WHO of locally managed businesses (e.g. beverages, confectionery),
World Health Organisation a market is led by a market head who reports to the Zone
head, while globally managed businesses (e.g. Nestlé Waters)
WTO are led by a global business executive officer who reports to
World Trade Organisation the global head of the division concerned.
WWW Country
World Wide Web At Nestlé, a market unit that comprises the locally managed
businesses within an independent nation. A country is led by a
country head with profit and loss responsibility who reports to
the market head.
Zone
A term used within Nestlé for the geographical collection of a
number of markets (e.g. Germany, the Oceania region) and
regionally managed businesses (Nestlé Chilled Dairy Europe)
according to geographical criteria in an organisational unit.
The original five Zones I to V became the three Zones Europe

(EUR), Americas (AMS) and Asia-Oceania-Africa (AOA) in 1996.
Parenteral nutrition
The administration of nutrients directly to the bloodstream, cir-
cumventing the gut (infusion, injection, etc.)
336
VI. Abbreviations
Enteral nutrition
Oral administration in liquid form or by means of a feeding
tube.
Bottom line growth

Net income or profit. Shown at the bottom of the income
statement.
Top line growth

Growth in revenue. Gross sales or operating income. Only indi-
cates how well a company has generated additional sales but
does not take into account operational efficiency, which can
strongly influence profits.
337
Appendix
VII. Directory of Diagrams and Tables Part II Strategies and their Implementation
Part I Background and Environment 3. Key Managers and Strategies
Chairmen, Vice-Chairmen and CEOs (1981–2005) P. 81

1. Background
Investments 1986–1996 (excluding pharmaceuticals P. 87
and water) (in CHF millions)
Food & Beverages Sales of Major Food Companies, P. 28
1990/1997/2005 (in USD billions) Sales Evolution, 1994–2004 (in USD billions) P. 91
Nestlé & Anglo-Swiss Factories and subsidiaries, 1905 P. 30 Average Yearly Sales Growth, 1994–2004 (in %) P. 91
First Nestlé Factory on each Continent P. 33 Impact of Exchange Rates, 1990–2005 P. 92
EBITDA Evolution, 1994–2004 (in USD billions) P. 93
2. The Political, Economic and Social Average yearly EBITDA growth, 1994–2004 P. 93
Environment and its Impact on Nestlé
Number of Nestlé Regions and Countries by Zones, 1990/2000 P. 40 4. Business Mix and Brand Policy
Evolution of Dividends, 1990–2005 (in CHF) P. 43
Strategic Transformation: the Driver of Longer Term P. 99
Distribution of Share Capital by Nationality, 1992–2005 (in %) P. 48 Food & Beverages Performance Improvement
Share Capital by Investor Type, 1994–2005 (in %) P. 49 Proportion of Total Sales by Product Group, P. 100
1992/1995/2000/2005 (in CHF billions and in %)
Effects of the Four Key Factors influencing Nestlé’s Sales, P. 50
1996–2005
World Population and Proportion Urban, 1975–2025 P. 57 5. Geographic Expansion: Zones and Markets
(in billion and %)
Top Eight Markets, 2005 (in % of total sales) P. 140
Breakdown of Global Nestlé Sales, 1990–2005 (in %) P. 62
Nestlé Factories in China, 2005 P. 143
Facts on the Use of Fresh Water P. 68
The Food Industry Value Chain P. 69
Major Acquisitions in the Food Industry, 2000 (in USD billions) P. 71
Growth Comparison of the Largest Retailers and Companies P. 73

of the Food & Beverages Industry between 1993/94
and 2005 (sales in USD billions)
338
VII. Directory of Diagrams and Tables
6. Organisational Change Part III Nestlé and its Stakeholders
ASEAN Countries P. 154

Organigramme of Nestlé SA, 1992 P. 165
The Five Geographical Nestlé Zones, 1992–1995 P. 168 Nestlé Share Price, 1990–2000 (in CHF) P. 228
Nestlé Share Price, 2001–2005, after Splitting 1:10 (in CHF)
First Nestlé Factories in the ASEAN Countries and their P. 169
Division of Labour, 1995/1997 Dividend yield, 1990–2005 P. 233
Rationalisation Programmes, 1997–2005 (in CHF billions) P. 170 The Members of the Nestlé Board of Directors from P. 238
1990 to 2005 (in chronological order, according to the P. 239
The Three Geographical Nestlé Zones since 1996 P. 172 date on which they were elected)
Number of Factories, 1990–2005 P. 175

7. GLOBE
Nestlé S.A.: Headcount (in thousands), Sales P. 254
(in CHF billions), 1990–2005
Impact of GLOBE/IS/IT on EBITA, 1995–2008 P. 188
(Total costs as % of sales)
R&D Expenses, 1990–2005 (in CHF millions) P. 205
Nestlé’s R&D Network, 2005 P. 208

P. 209
339
Appendix
VIII. Selected Nestlé Publications* 1997

The Basic Nestlé Management and Leadership Principles.
Les principes de gestion et de «leadership» chez Nestlé.

Annual Reports and Principles
Die grundlegenden Management- und Führungsprinzipien von
Nestlé.
1990–2005
Nestlé Annual Report 1990–1993, 1998, 2002, 2004

Management Report 1994–2005.
Nestlé Corporate Business Principles.
Nestlé Rapport Annuel 1990–1993,
Rapport de Gestion 1994–2005. Principes de Conduite des Affaires du Groupe Nestlé.
Nestlé Jahresbericht 1990–1993; Nestlé Unternehmensgrundsätze.

Geschäftsbericht 1994–2005.
Principios Corporativos empresariales de Nestlé.
Principi Aziendali Nestlé.

1999–2005
Financial Statements (Appendix to the Management Report).

Environment
Rapports financiers (Annexe au Rapport de Gestion).
Finanzielle Berichterstattung (Beilage zum Geschäftsbericht).

2003
Nestlé and Water. Sustainability, Protection, Stewardship.

2002–2005
Nestlé et l’eau. Gérer, protéger et sensibiliser durablement.
Corporate Governance Report.
Rapport sur le Gouvernement d’entreprise.

2002
Bericht zur Corporate Governance.
The Nestlé Sustainability Review.
Nestlé – Rapport sur le développement durable.

2003, 2004, 2005
Nestlé und die Nachhaltigkeit – Eine Übersicht.
The Nestlé Management and Leadership Principles.
Nestlé – reporte sobre desarrollo sostenible.
Les principes de gestion de «leadership» chez Nestlé.
Die grundlegenden Management- und Führungsprinzipien von

Nestlé. 2001
Nestlé Principios de Dirección y Liderazgo. Environnement: rapport de progrès 2000 – points essentiels.
I Principi di Gestione e di Leadership Nestlé. Environment progress report 2000 – highlights.
Environment progress report 2000.
Environnement: rapport de progrès 2000 .
Umwelt: Fortschrittsbericht 2000.
Medio ambiente: reporte de progreso 2000.
* (Neither exhaustive nor representative. The

page numbers quoted may not correspond with the
other language versions!)
340
VIII. Selected Nestlé Publications
1999 2002, 2003, 2004
The Nestlé Policy on the Environment. The Nestlé human resources policy.
La politique environnementale de Nestlé. Politique des ressources humaines Nestlé.
Die Nestlé-Umweltpolitik. Politica de recursos humanos de Nestlé.
La Política Nestlé sobre el Medio Ambiente.
Public Affairs & Miscellaneous

1995
Nestlé and the Environment. 2006
Nestlé et l’environnement. The Nestlé Concept of Corporate Social Responsibility (as

implemented in Latin America).
Nestlé und die Umwelt
Le concept de Nestlé en matière de responsabilité sociale (tel
qu’appliqué en Amérique latine).
1991 Das Nestlé-Konzept der sozialen Verantwortung (und seine

Umsetzung in Lateinamerika.
The Nestlé policy on the environment.
El concepto de responsabilidad social corporative de Nestlé
La politique de Nestlé en matière d’environnement. (según se ha impoementado en Latinoamérica).
Die Nestlé-Umweltpolitik.
2006
Human Resources Nestlé, the Community and the United Nations Millennium
Development Goals.
Nestlé, la communauté et les Objectifs du Millénaire pour le

2003 Développement des Nations Unies.
The Nestlé People Development Review. Nestlé, die Gemeinschaft und die Millenniumsentwicklung-
sziele der Vereinten Nationen.
Nestlé: rapport sur le développement humain.
Nestlé, la comunidad y los Objetivos de Desarrollo del Milenio
Personalentwicklung bei Nestlé – Eine Übersicht. de las Naciones Unidas.
Informe sobre desarrollo humano de Nestlé.
2005
The Nestlé concept of corporate social responsibility.
2002, 2003
Le concept de Nestlé en matière de responsabilité sociale.
Nestlé on the move.
Das Nestlé-Konzept der sozialen Verantwortung.
Nestlé en plein mouvement.
Nestlé in cammino.
Nestlé en movimiento.
341
Appendix
2005 2003
Nestlé Instructions for Implementation of the WHO Interna- Today farmers suffer from depressed coffee prices. What can
tional Code of Marketing of Breast-milk Substitutes. be done?
Instructions Nestlé pour la mise en Œuvre du Code Interna- Les producteurs souffrent du faible niveau des prix actuels du
tional de l’OMS pour la Commercialisation des Substituts du café. Que faire?
Lait Maternel.
Bauern leiden heute unter niedrigen Kaffeepreisen. Was tun?
Instructiones Nestlé para la aplicación del Código Internacional
de la OMS para la Comercialización de sucedáneos de la Leche Hoy en día, los agricultores sufren por los bajos precios del
Materna. café. ¿Qué se puede hacer?
2005 2003
The Nestlé commitment to Africa. Nestlé Response to Global Obesity
L’engagement de Nestlé en Afrique.
Das Engagement von Nestlé für Afrika. 2003
El compromiso de Nestlé con África. International (WHO) Code – Action Report (Edition No 7).
Code International de l’OMS (Rapport sur les actions entre-

prises).
2005
Código Internacional de la OMS (Action Report).
Nestlé in Columbia: 61 Years of Commitment.
Nestlé in Kolumbien. 60 Jahre, die verpflichten.

2001, 2002, 2003
61 años de Nestlé en Colombia.
Infant Feeding in the Developing World.
L’allaitement des nourrissons dans les pays en développement.

2004
Nestlé y la alimentación infantil en países en vaís de desarrollo.
The Fountain of Knowledge. Research for Nutrition, Health and
Wellness.
1998
2004 Nestlé: Complying with the WHO Code.
The Nestlé Coffee Report: Faces of Coffee. Nestlé: en accords avec le code de l’OMS.
Rapport Nestlé sur le café: Les multiples visages du café.
Der Nestlé-Kaffeebericht: Facetten und Alternativen.
Reporte de Nestlé sobre el café: Las caras del café.
342
VIII. Selected Nestlé Publications
343
Appendix
IX. Footnotes Senauer, Benjamin & Venturini, Luciano: “The Globalization of

Food Systems: A Conceptual Framework and Empirical Pat-
terns”, 2005, p. 11–14.
13. Cf. OECD (ed.): “Measuring Globalisation. OECD Economic
Part I Background and Environment Globalisation Indicators 2005”, Paris 2005, p. 168–169.
14. Cf. UNCTAD (ed.): “World Investment Report 2005”, Annex
table A.I.9. “The world’s top 100 non-financial TNCs, ranked by
foreign assets, 2003”.
Introduction 15. Cf. Jones, Geoffrey: “The Evolution of International Business.
An Introduction”, London 1996; Exenberger, Andreas & Nuss-
1. Fukuyama, Francis: “The End of History and the Last Man”, baumer, Josef: “Chiffren zur Globalisierung in der zweiten
New York 1992 Hälfte des 19. Jahrhunderts (ca. 1850–1914)”, Innsbruck 2003;
Berghoff, Hartmut: “Moderne Unternehmensgeschichte”,
Paderborn 2004, p. 127–145.
16. For further information on the history of Nestlé, cf. Heer, Jean:
1. Background “Nestlé – Hundertfünfundzwanzig Jahre von 1866 bis 1991”,
Vevey 1991; Pfiffner, Albert: “Henri Nestlé (1814–1890). Vom
1. Cf. Nestlé S.A., “Annual report 1990”, p. 3; “Management Frankfurter Apothekergehilfen zum Schweizer Pionierunterneh-
Report 2005”, p. 72. mer”, Zurich 1993; Fritz, Christiane: “Nestlé 1913–1920. La
2. “Rapport interne sur la concurrence”, Highlights 1990, BIC, concentration de l’industrie mondiale des laits”, manuscript
21.5.1991. University of Lausanne, 2001; Lüpold, Martin: “Globalisierung
3. Nestlé’s major competitors in 1997, BIC, 28.5.1998. als Krisenreaktionsstrategie. Dezentralisierung und Renationa-
4. Food & beverage sales in USD billion; Nestlé’s 20 major com- lisierung bei Nestlé, 1920–1950”, in: Gilomen, Hans-Jörg;
petitors in fiscal 2005; sources: the companies, except for Müller, Margrit; Veyrassat, Béatrice (Ed.), “Globalisierung –
Mars, where the sales figures are based on a “Forbes” maga- Chancen und Risiken. Die Schweiz in der Weltwirtschaft
zine estimate. 18.–20. Jahrhundert”, Zurich 2003, p. 211–234; Maucher, Hel-
5. Cf. Gloor, Max: “Ein Leben mit Nestlé. Auch Multis sind mut: “Les stratégies de développement du groupe Nestlé au
menschlich”, Stäfa 1990, p. 273–274. cours des dernières décennies”, in: “Diversification, Intégration
6. Brabeck, Peter: “Globalization and its implications for Nestlé. et Concentration. Mélanges en l’honneur du Prof. Edwin Bor-
Presentation to staff and families at Montreux”, Montreux, schberg”, Fribourg 1986, p. 309–335. For information on the
24.09.2003. history of Anglo-Swiss, cf. Orsouw, Michael van; Stadlin,
7. Analysis of the 50 biggest corporate collapses in Europe and Judith; Imboden, Monika: “George Page. Der Milchpionier. Die
the USA and the 50 most serious cases of a crash in the value Anglo-Swiss Condensed Milk Company bis zur Fusion mit
of a company of 40% or more, wiping a total of around Nestlé”, Zurich 2005; Bolomey, Alain: “L’Anglo-Swiss Con-
USD 2,500 billion off the value of the companies in question. densed Milk Company (1866–1905)”, manuscript University of
Cf. Probst, Gilbert & Raisch, Sebastian: “Unternehmenskrisen. Lausanne 2001; Fischer, Manuel: “Milchmädchen. Wachstum,
Die Logik des Niedergangs”, Harvard Business Manager No. 3 Orientierungskrise und Innovationsfähigkeit der Anglo-Swiss
(2004), p. 37–47; ibid: “Das Unternehmen im Gleichgewicht”, Condensed Milk Co. (1866–1899)”, manuscript University of
in: Krieg, Walter; Galler, Klaus; Stadelmann, Peter (Ed.): “Rich- Zurich 2000; Steiner, Hermann: “100 Jahre Nestlé. Zur Ges-
tiges und gutes Management: vom System zur Praxis.” Com- chichte der ersten europäischen Kondensmilchfabrik in Cham”,
memorative publication for Fredmund Malik, Berne 2004, Zug 1966; Steiner, Hermann: “Vom Städtli zur Stadt Cham”,
p. 237–254. Cham 1995.
8. Bolling, Chris & Gehlhar, Mark: “Global Food Manufacturing 17. New subsidiaries were set up or the names of existing subsidi-
Reorients to Meet New Demands”, in: Regmi, Anita & Gehlhar, aries changed in Italy in 1913; Germany, Austria and Constanti-
Mark (ed.), “New Directions in Global Food Markets”, AIB-794, nople in 1914; Norway and South Africa in 1915; France in
2005, p. 62–73. http://www.ers.usda.gov/publications/aib794/ 1916. Cf. Nestlé S.A., Minutes of the Board of Directors,
aib794.pdf. 1905–1940.
9. Cf. Rogers, T. Richard: “Structural Change in U.S. Food Manu- 18. Information courtesy of Mario Corti; cf. conversation of
facturing, 1958–1997”, in “Agribusiness, An International Jour- 10.2.2006 and 1.10.2006.
nal”, Vol.17, No. 1, 2001, p. 3–32.
10. The first figure includes the market for agricultural produce,
while the second relates strictly to packaged foods. Cf. Eklund,
Henrik & Francis, Inna: “The Food and Beverage Industry”, 2. The Political, Economic and Social Environment
IMD (ed.), Lausanne 2005, Appendix 1 (Market Size) and 2 and its impact on Nestlé
(Nestlé). Bolling/Gelhar, 2005, p. 67–68.
11. The UNCTAD World Investment Report calculates the Index 1. Cf. Mario A. Corti: “Nestlé 1990–2005. 15 massgebende Ent-
based on the average of three ratios: foreign to total assets, wicklungen”, 7.3.2006. Looks, in particular, at those develop-
foreign to total sales, foreign to total headcount. For informa- ments that played a role in the strategy papers of the Nestlé
tion on the value of the TNI, cf. Fischer, Laura D.: “Internationa- Group in one form or another.
lität der Unternehmung. Aktueller Forschungsstand, Analyse 2. Cf. Pfiffner, Albert: “Henri Nestlé (1814–1890). Vom Frank-
und Konzeptualisierung”, manuscript University of Bamberg, furter Apothekergehilfen zum Schweizer Pionierunternehmer”,
2006, p. 149–50. Zurich 1993, p. 212, 242; Orsouw, Michael van; Stadlin, Judith;
12. Cf. “UNCTAD World Investment Report 2001”, p. 68, 101–102; Imboden, Monika: “George Page. Der Milchpionier. Die Anglo-
344
VI. Footnotes
Swiss Condensed Milk Company bis zur Fusion mit Nestlé”, 16. Extract from an interview with H. Maucher by Gabriele Fischer,
Zurich 2005. in : brand eins, 1/2006, p. 57–62.
3. Cf. Nestlé S.A.: “Stratégie du Groupe”, 20.3.1989, p. 11. 17. Cf. Lüpold, Martin: “Schutz vor wirtschaftlicher Überfremdung
4. For Kraft, see: http://www1.zhaopin.com/Publish/Company/ oder Abwehr unfreundlicher Übernahmen? Die Vinkulierung
Kraft/profile.htm; Danone: http://www.apmforum.com/col- von Namenaktien in der Praxis der Unternehmen und die
umns/china20.htm; Unilever: http://www.unilever.com.cn/our- Veränderungen des rechtlichen Rahmens 1929–1961”; Doc-
company/aboutunilever/UnileverChina/UnileverChinaEnglish. toral Thesis, University of Zurich 2004, p. 160–176. Heer, Jean:
asp (7.6.2006). “Nestlé – Hundertfünfundzwanzig Jahre von 1866 bis 1991”,
5. Green-Cowles, Maria L.: “Setting the Agenda for a New Vevey 1991, p. 491–495. While foreign takeovers (US, France,
Europe: The ERT and EC 1992”, in: Journal of Common Market UK, etc.) were governnd by national legislation, companies in
Studies, 33 (4), 1995, p. 501–526. Ziltener, Patrick: “Hat der Switzerland had to protect themselves.
EU-Binnenmarkt Wachstum und Beschäftigung gebracht?”, in: 18. Cf. Nestlé S.A., Minutes of the Board of Directors, 13.9.1989.
WSI Mitteilungen 4/2003, p. 221–227. Homepage of the Euro- In November 2000, Nestlé announced that its shares were to
pean Round Table of Industrialists (ERT): www.ert.be; cf. Chap- be withdrawn from the stock exchanges in Amsterdam
ter 11. (December 2000), Tokyo (March 2001), Brussels and Vienna
6. ASEAN member states: Brunei, Cambodia, Indonesia, Laos, (June 2001) because the volume of the company’s shares
Malaysia, Myanmar, the Philippines, Singapore, Thailand and traded on each of these exchanges was too low. This was fol-
Vietnam. lowed by the withdrawal from Frankfurt (March 2004), London
7. Further reading on regional economic co-operation: Griswold, (June 2005) and Paris (July 2005). Nestlé shares were never
Daniel T.: “Free Trade Agreements. Stepping Stones to a More listed on the New York Stock Exchange but traded in the US in
Open World”, Cato Institute, Trade Briefing Paper No. 18, the form of ADRs (Cf. Nestlé S.A. Issue Paper: “Concentration
10.7.2003; Koopman, Georg: “Growing Regionalism. A Major of Nestlé S.A. Listings”, 30.5.2005).
Challenge to the Multilateral Trading System”, in: Interneco- 19. Cf. Nestlé S.A., Minutes of the Board of Directors, No. 494,
nomics, Oct. 2003, p. 237–241; Bhagwati, Jagdish: “Regional- 13.9.1989; No. 510, 19.11.1992.
ism and Multilateralism: An Overview”, in: Jaime de Melo and 20. Cf. Nestlé S.A.: “Stratégie du Groupe Nestlé”, June 1993 and
Arvind Panagariya (ed.), “New Dimensions in Regional Integra- November 1994, Chapter IV.
tion”, Cambridge 1993, p. 22–51. 21. The number of registered shareholders fell from 91.8%
8. Thus, between 1997 and 1999, the following Nestlé regions were (31.10.1988) to 67.1% (15.9.1989); cf. Nestlé S.A., Minutes of
created: Morocco/Tunisia/Mauretania, Indochina (Thailand, Viet- the Board of Directors, No. 494, 13.9.1989 and statistics from
nam, Myanmar, Cambodia, Laos), Malaysia/Singapore, South Nestlé Investor Relations: “Namenaktionäre nach Nationa-
Asia (India, Bangladesh, Sri Lanka), Southern Africa (South litäten”, 31.10.1988 and 15.9.1989.
Africa, Kenya, Uganda, Rwanda, Burundi, Comoros, the Sey- 22. Cf. Presentation by Peter Brabeck to the Spring Press Confer-
chelles, Madagascar), West Africa (Senegal, Ghana, Guinea, the ence, Vevey 23.2.2006, Slide 26.
Ivory Coast) and Oceania (Australia, the Pacific Isles, New Zea- 23. “Nestlé 2005 Full-Year Results News Conference Address”,
land); cf. Nestlé S.A. circulars from the years 1997 to 1999. 23.2.2006, Slide 25
9. Nestlé S.A., “Nestlé Group Strategy 2001”, 2001, p. 8–9. 24. Zänker, Alfred: “Nestlés Bäume wachsen nicht in den Him-
10. The key measure of financial performance is the return on mel”, in: Die Welt, 3.5.1990.
invested capital (ROIC) compared with the weighted average 25. Cf. footnote No. 16.
cost of capital (WACC). The difference, applied to the capital 26. Helmut Maucher in conversation, 24.2.2006; “Nestlé Says No
invested, is expressed in absolute amounts as economic profit. to Listing in New York”, in: The Times, 27.5.1994.
This measure indicates whether a particular business is truly 27. Maucher, Helmut: Address to the General Meeting of Share-
profitable or not, i.e. whether value has been created or holders of Nestlé S.A., Lausanne 30.5.1996, p. 7–9.
destroyed for the shareholders. 28. Brabeck, Peter in interview with Wetlaufer, Suzy: “The Busi-
11. Cf. Rappaport, Alfred: “Creating Shareholder Value. The New ness Case Against Revolution”, in: Harvard Business Review,
Standard for Business Performance”, New York, London 1986; February 2001, p. 117.
Bea, Franz Xaver: “Shareholder Value”, in: WiSt, No. 10, 1997, 29. Brabeck, Peter: “Blueprint for the Future – The Implementa-
p. 541–543; Blair, Margaret M.; “Shareholder Value, Corporate tion”, Speech at the Key Markets’ Conference and Market
Governance and Corporate Performance: A Post-Enron Reas- Managers’ Conference, 25–28.10.1998, p. 5–6.
sessment of the Conventional Wisdom”, in: Cornelius, Peter K.; 30. Cf. General Management Meeting, 25.10.1996.
Kogut, Bruce (ed.): “Corporate Governance and Capital Flows 31. Cf. Brabeck, Peter: “Blueprint 2003”, p. 19.
in a Global Economy”, Oxford 2003, p. 53–82; Malik, Fred- 32. Cf. Section on “Financial Reporting” in Chapter 11, “Communi-
mund: “Wertebewusstsein heute”, in: Student Business cation”, p. 287.
Review, Spring 2005, p. 29–30. 33. Cf. Brabeck, Peter: Press Conference Speech in Vevey,
12. Cf. Berghoff, Hartmut: “Moderne Unternehmensgeschichte”, 23.2.2001.
Paderborn 2004, p. 108–112, 140–145. 34. Cf. Brabeck, Peter: “Blueprint 2000”, p. 15; “Blueprint 2001”,
13. Cf. Brabeck, Peter: “Nestlé 2005 Full-Year Results News Con- p. 5; “Blueprint 2003”, p. 5.
ference Address”, 23.2.2006. 35. Peter Brabeck in interview with Wetlaufer, Suzy:”The Business
14. Carroll, Archie B.: “Corporate Social Responsibility – Evolution Case Against Revolution”, in: Harvard Business Review, Febru-
of a Definitional Construct”, in: Business & Society, Vol. 38, ary 2001, p. 115–116.
No. 3, 1999, p. 268–295. 36. Brabeck, Peter: “Nestlé 2005 Full-Year Results News Confer-
15. Commission of the European Communities (Ed.): Green Paper ence Address”, Vevey, 23.2.2006.
“Promoting a European Framework for Corporate Social 37. Cf. Krugman, Paul R. & Venables, Anthony J.: “Globalization
Responsibility”, Brussels 2001. and the Inequality of Nations”, in: The Quarterly Journal of
345
Appendix
Economics, Vol. CX, Issue 4, November 1995, p. 857–880; Ger- cereals for children; China and Malaysia); Cerelac (infant cere-
man Bundestag (ed.): “Schlussbericht der Enquete-Kommis- als with sweetcorn instead of imported wheat; Ghana); Soyex
sion Globalisierung der Weltwirtschaft – Herausforderungen (soya-based meat substitute very rich in protein; Malaysia and
und Antworten”, Berlin 2002, Chapter 3.2.1. Globalisierung the Philippines); Nutrend (infant cereal based on locally grown
und die Rolle der Transportkosten, p. 138–140 (Bundestag Pub- soya and maize; Nigeria), Filled Milks (powdered milk with local
lication 14/2350). vegetable oils added; Malaysia, Mexico, the Philippines and
38. Ibid, p. 139. Thailand).
39. Brabeck, Peter: “Globalisation and its Implications for Nestlé, 57. Maucher, Helmut: “Address to the General Meeting of Share-
Presentation to Staff and Families at Montreux”, 24.9.2003; holders of Nestlé S.A.”, Lausanne, 21.5.1992.
Computer Industry Almanac Inc. (ed.): “Worldwide Internet 58. Cf. Chapter 8 “Research & Development”; Nestlé S.A.: “Nestlé
Users Top 1 Billion in 2005”, Press Release, 4.1.2006 > http:// Group Strategy 2002”, p. 5; Presentation by Peter Brabeck to
www.c-i-a.com/pr0106.htm [17.7.2006]. the Annual Press Conference in February 2006.
40. Cf. Nestlé Gazette No. 45, April 1991, p. 8; No. 51, March 59. Brabeck, Peter: “The Challenge of Managing a Global Con-
1992, p. 10. sumer Goods Corporation on the Eve of the 21st Century”,
41. Castañer, Francisco, quoted in: “Nestlé Gazette”, No. 83, Octo- North Western University, Kellogg Marketing Conference 2001,
ber 1999, p. 5. p. 2.
42. “Multi Nestlé setzt auf Infonet”, in: Computerworld Schweiz, 60. Brabeck, Peter: “Blueprint for the Future”, June 1997, p. 5.
25.5.1992. 61. Brabeck, Peter: “Nestlé 2005 Full-Year Results News Confer-
43. Nestlé S.A., “Nestlé Group Strategy 2001”; Brabeck, Peter: ence Address”, 23.2.2006, Vevey, Slides on “Food Market
“The Challenge of Managing a Global Consumer Goods Corpo- Growth and Nestlé Sales” and “World Population by Income
ration on the Eve of the 21st Century”, 31.1.2001 (Presenta- Groups”.
tion). 62. Cf. Jones, Geoffrey: “Renewing Unilever”, 2005, Fig. 4, p. 370;
44. Wheatley, Malcolm: “Nestlé’s Worldwide Squeeze”, in: CIO Unilever Annual Report and Accounts, 2005, p. 2, 10;
Magazine, 1.6.2001; Echikson, William: “Nestle: An Elephant Clevstrom, Jenny: “Danone Goes on Buying Binge After Years
Dances”, in: Businessweek online, 11.12.2000. of Slimming Down”, in: Wall Street Journal, 17.8.2006.
45. Cf. Brabeck, Peter: “The Challenge of Managing a Global Con- 63. Nestlé S.A., Corporate Presentation 2006, Slide 26.
sumer Goods Corporation on the Eve of the 21st Century”, 64. Nestlé S.A. Management Report 2002.
31.1.2001. 65. Nestlé S.A.: “Strategie du Groupe Nestlé”, May 1996, p. 7,
46. See table; Cf. also: United Nations (ed.): “World Population Table 4.
Prospects. The 2004 Revision. Highlights”, New York 2005; 66. Nestlé S.A.: “Groupe Nestlé, Ventes, Resultats au 31 déc.
Brabeck, Peter: “The Challenge of Managing a Global Con- 1990”, p. 5.
sumer Goods Corporation on the Eve of the 21st Century”, 67. Cf. Conversation with Helmut Maucher on 24.2.2006. Thus, for
North Western University, Kellogg Marketing Conference 2001, example, Nestlé generated 25 per cent higher sales in Chile
p. 2. than in Argentina despite a lower population (16 million in
47. Wood, Andrew: “European Food: Category Growth Leverage Chile compared with 39 million in Argentina).
Remains the Best Indicator of Long Term Growth Potential”, 68. Cf. Gehlhar/Regmi: “Factors Shaping Global Food Markets”,
Sanford C. Bernstein & Co. (ed.), New York, 11.8.2006, p. 1, 9. 2005, p.14.
48. Gehlhar/Regmi: “Factors Shaping Global Food Markets”, 2005, 69. Nestlé S.A.: “Stratégie du Groupe 1996”, p. 23–26 and 1997,
p.17. p. 24–25; Sigrist, Stephan: “Food Fictions. Radikale Food
49. Cf. Clevstrom, Jenny: “Danone Goes On Buying Binge After Trends”, GDI Study No. 22, Rüschlikon 2005.
Years of Slimming Down”, in: Wall Street Journal, 17.8.2006; 70. Cf. Brabeck, Peter: “Nestlé 2005 Full-Year Results News Con-
Jones, Geoffrey: “Renewing Unilever”, 2005, Fig. 4, p. 370. ference Address”, February 2006, p. 3.
50. Population Division of the Department of Economic and Social 71. Examples of the limited range of low-carb products produced
Affairs of the United Nations Secretariat, World Population by Nestlé include the Pria Carb Select PowerBar, ready meals
Prospects: The 2004 Revision and World Urbanization Pros- under the Lean Cuisine® brand and low-carb versions of Rolo
pects: The 2003 Revision, http://esa.un.org/unpp (3. Aug. and KitKat; cf. Issue Paper “Nestlé and the Atkins Diet”,
2006). 11.3.2005.
51. Purchasing power parity per capita in USD. 72. Cf. Kuls, Norbert: “Amerikas jüngste Diät-Welle verebbt”, in:
52. Cf. Nestlé S.A., Spring Press Conference, 23.2.2006, Table 8. F.A.Z., No. 177, 2.8.2005, p. 18; Brabeck, Peter: “Nestlé 2005
53. Oberhänsli, Herbert: “Changes and Challenges in the Global Full-Year Results News Conference Address”, 23.2.2006, p. 3.
Food Market”, Rive Reine Executive Seminar, 15.11.2004 73. Cf. Nestlé S.A.: “Stratégie du Groupe Nestlé”, May 1996; for
(Intranet EIR, Slide 7: “Three Thresholds for Income Groups”). details of concrete measures, see also Chapter 11.
54. Brabeck, Peter: “The Challenge of Managing a Global Con- 74. Cf. Nestlé S.A., Minutes of the Board of Directors, No. 491,
sumer Goods Corporation on the Eve of the 21st Century”, 22.3.1989.
North Western University, Kellogg Marketing Conference 2001, 75. Cf. Nestlé S.A., Minutes of the Board of Directors, No. 497,
p. 2–3; Oberhänsli, Herbert: “Changes and Challenges in the 31.5.1990; No. 502, 20.5.1991.
Global Food Market”, Presentation, La Tour-de-Peilz 2004. 76. Cf. Nestlé S.A.: “Stratégie du Groupe Nestlé”, 1993, p. 21–22.
55. Nestlé S.A.: “Stratégie du Groupe”, March 1989, p. 11–12. 77. ISO 14001 (ISO: International Organisation for Standardisation)
56. Cf. Nestlé S.A.: “Stratégie du Groupe Nestlé”, 1993; Nestec came into effect in 1996. It sets out the globally applicable cri-
Ltd. (ed.): “Nestlé Policy on Popularly Positioned Products teria for environmental management systems, which were
(PPPs)”, Vevey 1993. Examples of specifically created PPPs: updated for the first time in 2004.
Bonus drink (a blend of cow’s milk and soya extract; sold in 78. For the Nestlé Dairy Box and Black Magic products in the UK;
Brazil, Malaysia, Mexico, and Thailand); Ceresoy (soya-based cf. Nestlé S.A.: Corporate Communication, Issues/Environ-
346
VI. Footnotes
ment, “Nestlé and Packaging Made From Renewable Part II Strategies and Their Implementation
Resources”, 22.5.2006.
79. Captures the leading 10% in terms of sustainability out of the
biggest 2,500 companies in the Dow Jones Global Index. The
components are selected according to a systematic corporate 3. Key Managers and Strategies
sustainability assessment that identifies the leading sustaina-
bility-driven companies in each industry group. 1. Maucher in an interview with Joachim A. Kappel and Horst
80. Nestec (ed.): “Nestlé Policy on the Environment”, 1991, 2/1999 F. Bröcker, in: Egon Zehnder International GmbH (publisher),
(update); Nestec (ed.): “Nestlé and the Environment”, 1995; “Gespräche IV”, 1999, p. 22–24; The official announcement of
Nestec (ed.): “Environment Progress Report 2000”, April 2001, Brabeck’s appointment as CEO and of Maucher’s retirement as
“2005 Consolidated Nestlé Environmental Performance Indica- Chairman in 2000 was made on 22 November 1995; cf. Keller,
tors”; Nestlé UK Ltd. (ed.): “Nestlé and the Environment”, Sep- Peter: “Grosses Sesselrücken bei Nestlé”, in: Tages-Anzeiger,
tember 2005; see also the Nestlé Global Environment Website 23.11.1995; “Dauphin autrichien”, in: La Presse, 23.11.1995.
at: http://www.nestle.com (> Our Responsibility > Environ- 2. Cf. Ziegler, Hans: “Helmut Maucher. Vom Allgäu nach Vevey”,
ment); Nestlé S.A.: Corporate Communication, Issues/Environ- in: Maucher, Helmut, “Marketing ist Chefsache. Von der Kunst,
ment, “Nestlé’s Environmental Performance”, 15.3.2006. ein Weltunternehmen zu führen”, Dusseldorf/Vienna, New
81. Cf. Nestlé S.A.: Corporate Communication, Issue Paper: York/Moscow 3/1993, p. 227–232; Egon Zehnder International,
“Nestlé and Agricultural Sustainability”, 12.8.2005; www. “Gespräche IV”, 1999, p. 10-31; “Helmut Maucher – ein Berufs-
saiplatform.org leben für Nestlé”, in: NZZ, No. 122, 26.5.2000.
82. Cf. Nestlé S.A., Corporate Communication, Issues/Environ- 3. Cf. Brabeck and Maucher in an interview with Joachim A. Kap-
ment, “Recycling of Nespresso Capsules”, 21.3.2006. pel and Horst F. Bröcker, in: Egon Zehnder International GmbH
83. Nestec (ed.): “Nestlé Policy on Popularly Positioned Products (publisher), “Gespräche IV”, Hamburg 1999, p. 22, 24;
(PPPs)”, Vevey 1993. Maucher in an interview with the authors on 24.2.2006.
84. Schirach-Szmigiel von, Christopher: “Power in the Food Indus- 4. See Chapter 6, “Organisational change”.
try, Contribution to the Conference ‘Policy and Competitive- 5. Maucher in an interview with Joachim A. Kappel and Horst F.
ness in a Changing Global Food Industry’”, Washington DC, Bröcker, in: Egon Zehnder International GmbH (publisher),
28.4.2005; see also “The Catalyst”, Farm Foundation (ed.), “Gespräche IV”, Hamburg 1999, p. 17.
May 2005, p. 1. 6. See Chapter 2, p. 57–59.
85. See Chapter 6, “Organisational Change”. 7. Cf. Brabeck in an interview with Joachim A. Kappel and Horst
86. Jones, Geoffrey: “Renewing Unilever”, 2005, p. 7–16, 21–37, F. Bröcker, in: Egon Zehnder International GmbH (publisher),
372–73; Company Website: www.unilever.com (28.8.2006). “Gespräche IV”, Hamburg 1999, p. 27–28.
87. www.altria.com 8. Jung, Joseph: “Von der Schweizerischen Kreditanstalt zur Credit
88. Borgeat, Yvan; Paez, Philippe (Nestec-BIC): “A Synopsis of Merg- Suisse Group”, Zurich 2000. Material in the Nestlé Archives.
ers and Acquisitions in the Food Industry Since 2000”, 2005. 9. Cf. Nestlé Board of Directors, Board Regulations, 2006,
89. Fortune, 24.7.2006. para. 2.2. i).
90. For information on the retail industry and own-label items, cf. 10. Stephan Hostettler in an interview with Schöchli, Hansueli:
Reardon, Thomas; Timmer, Peter C.; Berdegué, Julio A.: “Faktisch sind die Boni vielfach fix”, in: Der Bund, 3.2.2006,
“Supermarket Expansion in Latin America and Asia. Implica- p. 29.
tions for Food Marketing Systems”, in: Regmi, Anita; Gehlhar, 11. Maucher in an interview with Gerd Löhrer and Medard Meier,
Mark (ed.), New Directions in Global Food Markets, 2005, “Herr Nestlé persönlich”, in: Bilanz, December 1990, p. 127.
p. 47–61. Codron, Jean-Marie et al.: “Retail Sector Responses 12. Cf. Parsons, Andrew J.: “Nestlé: The visions of local managers.
to Changing Consumer Preferences. The European Experi- An interview with Peter Brabeck-Letmathe, CEO elect”, in:
ence”, in: Regmi, Anita; Gehlhar, Mark (ed.), New Directions in The McKinsey Quarterly, No. 2, 1992, p. 5–29; conversation
Global Food Markets, 2005, p. 32–46; “Facts and Thoughts on with H. Maucher on 24.2.2006.
Retailing”, Nestlé Working Paper for Glion Meeting, November 13. Cf. Nestlé S.A., Minutes of the Board of Directors, No. 492,
1995; Prepared Foods, 23.8.2006, p. 4; Fritschi, Harald: “In 25.5.1989.
Aufruhr”, in: Bilanz, No. 6, 2006, p. 42–50; Pierce, Andrew: 14. Maucher in conversation on 24.2.2006.
“Food Giants Suffer Setback in War on Supermarkets’ Own- 15. Brabeck in an interview with Wetlaufer, Suzy: “The Business
Brand Goods”, in: The Times, 19.4.1994; Henderson, James; Case Against Revolution”, Harvard Business Review, February
Gilbert, Xavier: “Competitors in the Food Retail Sector in 2001, p. 116.
Europe 1990”, IMD International (ed.), Lausanne 1990. 16. 1. “Blueprint for the future”, Market Heads Conference, June
91. Cf. Cathelin, Hervé: “European Discount Initiative”, Presenta- 1997; 2. The Implementation, KMC & MMC, October 1998;
tion at the Nestlé Investor Seminar, Vevey 8/9.6.2005. 3. Innovation and Renovation, KMC & MMC, May 2000;
92. Cf. Nestlé S.A., Minutes of the Board of Directors, No. 512, 4. Consumer Communication, KMC & MMC, October 2001;
26.5.1993. 5. Reshaping of Nestlé, KMC & MMC, May 2003; 6. A transfor-
93. Cf. Schüssler, Louis: “Nestlé ist nicht Philip Morris”, in: Tages- mational challenge, KMC & MMC, April 2005; 7. From “Differ-
Anzeiger, 17.6.1993. entiating Strategy” to “Flawless Execution”, KMC & MMC,
94. “US Food and Beverages Companies and US Retailers”, For- October 2006.
tune, 15.5.1995; “European Food Manufacturers and Retail- 17. Brabeck in an interview with Rauber, Urs: “Es ist wie der Ritt
ers”, Food Europe, September 1994 > Glion 1995; Nestlé S.A., auf einem Pferd”, interview with David Zinman and Peter
BIC, “Rapport sur la Concurrence”, 1994. Brabeck, in: NZZ am Sonntag, 25.9.2005, p. 91.
95. Fortune Global 500 (2006); cf. http://money.cnn.com 18. Maucher quoted in Scharz, Friedhelm: “Nestlé: Macht durch
96. http://www.mars.com (August 2006) Nahrung”, Stuttgart, Munich 2000, p. 159.
347
Appendix
19. Cf. Maucher, Helmut: “Marketing ist Chefsache. Von der 45. Brabeck, Peter: “Blueprint for the future”, 2000, p. 4.
Kunst, ein Weltunternehmen zu führen”, Dusseldorf, Vienna, 46. Brabeck, Peter: “Essay. The Wellness Company”, Group
New York 3/1993, p. 9-38; Maucher, Helmut: “Les stratégies Strategy 2000, 27.7.2000.
de développement du groupe Nestlé au cours des dernières 47. Conversation with Peter Brabeck, 19.1.2006.
décennies”, in: “Diversification, Intégration et Concentration. 48. Cf. Brabeck, Peter: “Blueprint for the future”, 2006, p. 11–12.
Mélanges en l’honneur du Prof. Edwin Borschberg”, Fribourg 49. Cf. Nestlé S.A., “Stratégie du Groupe”, 1989, p. 8.
1986, p. 309–335. 50. Cf. Gindraux, Y.; Perez, V.: “Competition: Health, Wellness and
20. Nestlé S.A., “Stratégie du Groupe”, March 1989, Slides 4 & 5. Nutrition”, Nestlé-BIC, 2005; Food Industry Report: “Food
21. Nestlé S.A., “Stratégie du Groupe”, March 1989, Slide 6. Company Strategies & Plans for Future”, Vol. 18, No. 4,
Growth via acquisitions minus divestments was an average 17.4.2006.
+4.6 per cent during the same period. 51. Conversation with Peter Brabeck, 19.1.2006.
22. Cf. Masip, Ramon in an interview with Novello, Pierre: “La 52. Cf. Wood, Andrew: “European Food: Category Growth Lever-
priorité numéro un de Nestlé, la croissance interne”, Journal age Remains the Best Indicator of Long Term Growth Poten-
de Genève, 25.11.1993. tial”, Bernstein Research, 11.8.2006.
23. Studer, Margaret; Federman, Diana: “Food Industry Mergers 53. Rauber, Urs: “Es ist wie der Ritt auf einem Pferd”, Interview
Spur Nestlé to Spice Up Its Conservative Style”, The Wall mit David Zinman und Peter Brabeck, in: NZZ am Sonntag,
Street Journal, 9.11.1988. 25.9.2005, p. 91.
24. Cf. Heer, Jean: “Nestlé: Hundertfünfundzwanzig Jahre von
1866–1991”, Vevey 1991, p. 459–491.
25. Studer, Margaret; Federman, Diana: “Food Industry Mergers
Spur Nestlé to Spice up its Conservative Style”, The Wall 4. Business Mix and Brand Policy
Street Journal, 9.11.1988.
26. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 11 and slide 1. Cf. Wood, Andrew: “European Food: Category Growth Lever-
12; Ramon Masip in an interview with Novello, Pierre: “La pri- age Remains the Best Indicator of Long Term Growth Poten-
orité numéro un de Nestlé, la croissance interne”, Journal de tial”, Bernstein Research, 11.8.2006.
Genève, 25.11.1993. 2. Cf. Maucher, Helmut: “Marketing ist Chefsache. Von der Kunst
27. Cf. Maucher, Helmut: “Strategische Allianzen – ja aber. ein Weltunternehmen zu führen”, 1992, p. 30–31.
Plädoyer für ein pragmatisches Vorgehen”, NZZ, 16.6.1992. 3. Cf. Nestlé S.A., “Nestlé Group Strategy 2004”, 18.10.2004,
28. Cf. Nestlé S.A., “Acquisitions and disinvestments (Jan. 1981– p. 10; Gehlhar, Mark; Regmi, Anita: “Factors Shaping Global
May 2000)”, compiled by Investor Relations, 2001. Food Markets”, in: Regmi, Anita; Gehlhar, Mark (ed.), New
29. Cf. Maucher, Helmut: Address to the Ordinary Meeting of Directions in Global Food Markets, 2005, p. 11.
Shareholders of Nestlé S.A., 30.5.1991. 4. Cf. Nestlé S.A., “Management Report 1992”, Vevey 1993,
30. Nestlé S.A., “Stratégie du Groupe”, 9.9.1997, Table 11. p. 20.
31. Cf. Ashcroft, Elizabeth; Goldberg, Ray A.: “Nestlé and the 5. Cf. www.nestlenutrition.com > Healthcare Services; www.
Twenty-First Century”, Harvard Business School, Boston 1995, nutrinews.de.
rev. 1996, p. 1. 6. Cf. Brabeck, Peter: “Blueprint for the future”, 2006, Annex;
32. Brabeck, Peter: “Blueprint for the future”, 1997, p. 1–2. “Nestlé Group Strategy 2004”, 18.10. 2004.
33. Brabeck, Peter: “Blueprint for the future”, 1997, p. 3. 7. On 14 December 2006 Nestlé and Novartis announced that
34. This included programmes to promote nutritional research, to Nestlé was to acquire the Medical Nutrition division of Novartis
investigate the relationship between nutrition and health and for 2.5 billion US dollars. This transaction, which is subject to
disease prevention, to educate children and encourage the approval by the authorities, will make Nestlé a strong no. 2 in
exchange of information between specialists and laypeople, the area of medical nutrition, where it has played only a minor
and a research programme launched in 1988 concerning the role in the past. It represents a further step in the Group’s
relationship between nutrition and osteoporosis; cf. Nestlé transformation into a nutrition, health and wellness company.
S.A., “Nestlé Info”, 5/87, December 1987, p. 8–9; 3/89, July Cf. Nestlé S.A. press release, “Nestlé to Acquire Novartis Med-
1989, p. 8–10. ical Nutrition, Moving Toward Nutrition, Health and Wellness”,
35. Cf. Brabeck, Peter: “Blueprint for the future”, 2006, p. 12. 14.12. 2006.
36. Cf. Brabeck, Peter: “Blueprint for the future”, 1998, p. 18. 8. Cf. Nestlé S.A., “Annual Report 1990”, p. 9; “Management
37. Cf. Brabeck, Peter: “Blueprint for the future”, 2000, p. 15. Report 2005”, p. 70–71. Nestlé S.A., “Nestlé Group Strategy
38. Nestlé S.A.: “Rapport sur la concurrence”, BIC, 1990–1999; 2001”, 10.10.2001, p. 24.
Nestlé S.A.: “Danone, Unilever. Chronological Evolution 1998– 9. Cf. Nestlé S.A., “Consolidated Sales, Results and Financial
2005”, BIC, 2006; “Food Company Strategies & Plans for the Situation at 31st of December 2005”, p. 32.
Future”, in: Food Industry Report, Vol. 18, No. 4, 17.04.2006; 10. As early as 1843, the company’s founder Henri Nestlé (1814–
Feitz, Anne: “Tout le monde se lève pour Danone”, in: Enjeux 1890) was selling still and sparkling mineral water as well as
Les Echos, 1.11.2006. soft drinks that he produced himself. Cf. Pfiffner, Albert: “Henri
39. Conversation with Peter Brabeck on 22.11.2006 as well as box Nestlé (1814–1890)”, Zurich 1993, p. 54–59, 220–221.
text, p. 126–127. 11. Cf. “Survey identifies Mineral Water and Ice Cream as two of
40. Cf. Brabeck, Peter: “Blueprint for the future”, 2005, p. 1–2. Europe’s fastest growing markets”, in: Wall Street Journal,
41. Cf. Citigroup: EBITDA, EBITDA-Margins, Sales and Sales Growth 3.3.1993.
of F&B Companies, 1989–2005, Mai 2006 (Nestlé Hist. Archives). 12. Cf. “Nestlé Waters 1993–2003”, published by Nestlé Waters,
42. Brabeck, Peter: “Blueprint for the future”, 1998, p. 1. Paris 2003, p. 26–50.
43. Brabeck, Peter: “Blueprint for the future”, 2000, p. 3. 13. Cf. Heer, Jean: “Nestlé Hunderfünfundzwanzig Jahre von
44. Brabeck, Peter: “Blueprint for the future”, 2000, p. 2. 1866–1991”, Vevey 1991, p. 544–546.
348
VI. Footnotes
14. Mrusek, Konrad: “Der Kauf von Perrier schmälert nicht den 46. This system is limited to Switzerland for the time being, where
Nestlé-Gewinn”, FAZ, 30.4.1992. there were over 1,000 collection points in 2005. It will, how-
15. Mrusek, Konrad: “Der Kauf von Perrier schmälert nicht den ever, be expanded to Germany and France (Nestlé S.A., Posi-
Nestlé-Gewinn”, FAZ, 30.4.1992. tion Paper, 21.3.2006).
16. “Les surprises de Nestlé après le rachat de Perrier”, Agence 47. Minutes of the Board, 1.6.1995
télégraphique Suisse, 12.8.1992. 48. “Innovation and Renovation: The Nespresso Story”, IMD case
17. The US health authority warned against drinking Perrier in study, 18.3.2003.
1990, because some bottles contained traces of the carcino- 49. Nestlé S.A., “Nestlé Group Strategy 2001”, 10.10.2001, p. 125.
gen benzene. These findings were soon also confirmed by the 50. Nestlé S.A., “Nestlé Group Strategy 2001”, 10.10.2001, p. 124.
authorities in Europe, and Perrier was obliged to withdraw 280 51. Nestlé S.A., “Nestlé Group Strategy 2004”, 18.10.2004.
million bottles from the market worldwide. The contamination 52. “Nespresso Magazine”, 2/2005, p. 60. Cf. also Chap. 11, para-
had been caused by a filter at the source. graph “Communication”, p. 282 ff.
18. Nestlé S.A., Minutes of the Board, 19.11.1992. 53. Statements by Peter Brabeck at the 20th anniversary celebra-
19. St. Galler Tagblatt, 6.1.1993. tions in Lausanne, 21.11.2006. For further information about
20. Cf. Nestlé S.A., Minutes of the Board, 20.03.1992. Nespresso, go to www.nespresso.com.
21. Conversation with H. Maucher, 24.2.2006. 54. Agreement L’Oréal and Nestlé of 3.2.2004: http://www.loreal-
22. Cf. “Nestlé Waters 1993–2003”, p. 101–116. finance.com.
23. Cf. the official website: www.nestle-waters.com. Nestlé S.A., Internal circulaires 25.6.2002, 4.2.2004.
24. Cf. presentation by Y. Borgeat, 3.10.2006. Nestlé S.A., Press release Gesparal 16.4.1994.
25. Superior Brands/USA in 1990, Allflex (New Zealand) and Serti Interview with M. Claude Rossier 2.11.2006.
(Finland) in 1992, Parrarina (Venezuela) in 1997, Jupiter (Hungary) L’Oréal, Historical summary, Press Office L’Oréal, April 2000,
in 1998 and the relevant part of Cargill (Argentina) in 2000. 2006.
26. 2002: Cronorard (UK); Hetton (UK), Southall (UK), Northwich Innéov, Press dossier Innéov.
(UK); 2003: Veghel (Netherlands), Guingamp (France, sold), Leuth Innéov, Historical summary Innéov.
(Germany, sold); 2004: Berrhead (UK); 2005: Worksop (UK). Dalle, François: “L’aventure l’Oréal”. Paris 2001.
27. Cf. Nestlé S.A., consolidated figures as at 31.12.1990, Heer, Jean: Nestlé 125 Years. 1866–1991. Vevey 1992.
28.5.1991, p. 27. Nestlé S.A., Insight Nestlé (internal intranet publication)
28. Cf. Jones, Geoffrey: “Renewing Unilever. Transformation and 09.2001: Spotlight Galderma.
Tradition”, Oxford 2005, p. 111. Nestlé S.A., Gazette Nestlé No. 3 1985, p. 4, No. 5 1987,
29. Cf. Maucher, Helmut: Comments on article by H.O. Lenel, in: p. 1–3, No. 42 1990, p. 11, No. 52 1992, p.10, No. 62, 1994,
“Orientierung zur Wirtschafts- und Gesellschaftspolitik”, p. 12, No. 95 2002, p. 27, No. 101 2004, p. 7.
No. 93, 2002. “L’Oréal die Kunst der Verführung”. Bilanz Oct. 2003 p. 91–98.
30. Cf. Nestlé S.A., Minutes of the Board 1991–1997; presentation Les Echos 15.5.2006.
by Jorge Sadurni, “Ice Cream … The Nestlé Way”, 19.5.2004. http://fr.wikipedia.org/wiki/L’Oréal ; Sanofi-Synthélabo.
31. Cf. Nestlé S.A., “Nestlé Group Strategy 2001”, 2001, p. 48. http://www.loreal.com/_en/_ww/index.aspx.
32. Cf. “Ice cream: A strategic business for Nestlé”, in: Insight http://www.galderma.com.
Nestlé, July-October 2003. 55. Nestlé S.A., Dossier du SG 100’000-H.
33. Cf. details of acquisitions and divestments in the annual and Nestlé S.A., Internal circulars Nestlé 24.6.1997, 19.9.2001,
management reports of Nestlé S.A., 1990–2005. 26.2.2002, 21.3.2002.
34. Cf. Parsons, Andrew J.: “Nestlé: The visions of local managers. Heer, Jean: “Nestlé 125 Years”. 1866–1991. Vevey, 1992.
An interview with Peter Brabeck-Letmathe, CEO elect, Nestlé”, Alcon Inc., Alcon World News (Company Journal).
in: The McKinsey Quarterly, No. 2, 1996, p. 6. Nestlé S.A., Nestlé Gazette No. 2 1987, p. 1 and 12, No. 5
35. Cf. Reichenberger, Wolfgang: “Focusing on the drivers of 1987, p. 1–3, No. 36 1989, p. 10, No. 37 1989, p. 16, No. 39
value”, Sanford C. Bernstein Conference, 27.9.2005, p. 25; 1990, p. 12, No. 48 1991, p. 12, No. 55 1992, p. 11, No. 57
Nestlé S.A., circular “Nestlé Concentration of the Group’s Stra- 1993, p. 2, 4–5, No. 66 1995, p. 14–15, No. 74 1997, p. 9,
tegic Businesses”, 2.8.2000; Nestlé S.A., “Nestlé Group Strat- No. 83 1999, p. 14, No. 88 2000, p. 18, No. 91 2001, p. 2–7,
egy 2000”; “Nestlé Group Strategy 2002”. No. 96 2002, p. 5, No. 105 2005, p. 27.
36. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 2 and http://www.alconlabs.com.
Table 3. 56. Nestlé S.A., Internal circulars Nestlé PowerBar 23.2.2000,
37. Maucher, Helmut: “Marketing ist Chefsache”, p. 22–25. Sporting Sportlernahrung GmbH 7.5.2002.
38. Conversation with Helmut Maucher, 20.3.2006. Nestlé S.A., Gazette Nestlé: No. 86 2000, p. 18–19; No. 88
39. “Innovation and Renovation: The Nespresso Story”, IMD Case 2000, p. 18; No. 92 2001, p. 6; No. 95 2002, p. 8; No. 96 2002,
Study, Lausanne 2000. p. 4–5; No. 100 2003, p. 5; No. 108 2005, p. 5.
40. Conversation with Brian Suter, 21.3.2006. Nestlé S.A., Neal Gordon: Powerbar, in Insight Nestlé, Feb.–
41. Conversation with Helmut Maucher, 20.3.2006. March 2001.
42. Statement by Peter Brabeck at the “20 Years of Nespresso” Gertner, Jon: “Brian Maxwell. ‘The Power of the PowerBar. He
anniversary event, 21.11.2006. invented a superfood for elite athletes. The rest of us wanted a
43. Conversation with Rupert Gasser, 27.4.2006. In 2002, Nes- taste, too’”,in New York Times Magazine 26.12.2004, p. 16.
presso began reporting to the Executive Vice President in Mitchell, Eve: “PowerBar to depart Berkeley”, in Inside Bay
charge of the SBUs and Marketing. Area.com 1.8.2006.
44. Tauxe, Chantal: “L’ère de l’espresso haute technologie”, 24 http://www.powerbar-europe.com > history.
Heures, 12.10.1989. http://www.berkeley.edu/news/media/releases/2004/03/22_
45. Nestlé S.A., Minutes of the Board 30.5.1991 maxwell.shtml.
349
Appendix
57. Nestlé S.A., Information Brian Young, General Manager HHFG. 69. Nestlé France, for example, was renamed Société des Produits
http://www.hotpockets.com. Alimentaires et Diététiques (Sopad) in 1947. From 1983
58. De Bure, Gilles: Perrier by Perrier, Vergèze 2001. onwards it was known as Sopad Nestlé, and did not revert to
Marty, Nicolas: “Perrier c’est nous! Histoire de la source Perrier its original name until 1994. See Nestlé S.A., “Management
et de son personnel”. Paris 2005. Report 1994”, Vevey 1995, p. 70; Provisional Company Direc-
Nestlé S.A., Nestlé Waters 1993–2003, Paris 2003. tory, Nestlé Archives, Vevey.
“Perrier and now the book”, New-York 1984. 70. Société des Produits Nestlé S.A. (ed.): “The Nestlé Universal
Nestlé S.A., Gazette Nestlé No. 53 1992 p. 3. Logotype, Manual governing the use of the Nestlé Universal
http://www.nestle-waters.com/fr/Menu/MeetUs/default.htm. Logotype and the Combined Mark”, Vevey 1973.
http://www.perrier.com/FR/entrebulle/rubrique141.asp. 71. “Nestlé Info”, July 1990. Maucher commissioned a biography
http://www.museedelapub.org/virt/mp/perrier/index.html. of Henri Nestlé in memory of the company’s founder.
59. Nestlé S.A., Internal circular Ph. Verron of 7.11.1997. 72. Cf. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 6, 9.
SanPellegrino S.A., Press dossier SanPellegrino 1999 et s.d. 73. Douglas, Susan P.; Craig, Samuel C.: “International Brand
Nestlé S.A., Nestlé Waters 1993–2003, Paris 2003. Architecture: Development, Drivers and Design”, Stern School
Nestlé S.A., Gazette Nestlé No. 59 1993, No. 77 1998, p. 11. of Business, New York University, August 1999, p. 3.; Brabeck,
60. Alpo Inc., Article entitled “Alpo Petfoods, Inc. – A History: Alpo Peter: “Nutzung von Marktpotentialen”, IO Management
50 Years 1936–1986”, Allentown, Pennsylvania, 1986. Zeitschrift, February 1992, p. 49.
Nestlé S.A., Flash Produits article about Alpo, Nestlé Gazette, 74. In an initial phase, Crosse & Blackwell, Chambourcy, Findus
No. 70, July 1996, p. 13. and Herta were also considered corporate strategic brands; cf.
61. Nestlé S.A., Article in Enterprise Nestlé Gazette, No. 79, Octo- Brabeck, ibid, p. 48.
ber 1998, pp. 10–11. 75. Jonquières, Guy de: “Pasta and promotional sources”, in:
http://www.purina.co.uk (20.09.2006). Financial Times, 16.7.1992.
The Competition Commission: Cat and Dog Foods. “A Report 76. Douglas, Susan P. and Craig, Samuel C.: “International Brand
on the Supply in the United Kingdom of Cat and Dog Foods”, Architecture: Development, Drivers and Design”, Stern School
19 July 1977. http://www.competition-commission.org.uk/rep_ of Business, New York University, August 1999, p. 5.
pub/reports/1976_1979/106cat.htm (20.09.2006). 77. Parsons, Andrew J.: “Nestlé: The visions of local managers, an
62. http://www.purina.com/ interview with Peter Brabeck-Letmathe, CEO elect, Nestlé”, in:
http://www.purina.co.uk/ McKinsey Quarterly, Number 2, May 1996.
Ralston-Purina Inc., “The Ralston Chronicle: 1894–1994”. 78. See chapter 6, “Organisational Change”, p. 151 ff..
Company brochure produced to mark the company’s 100th 79. Brabeck, Peter: “Nutzung von Marktpotentialen”, p. 49. A later
anniversary. attempt to offer KitKat as ice cream failed for technical rea-
Nestlé S.A., Nestlé Gazette, special edition on Nestlé Purina, sons.
February 2002. 80. See chapter 8, “Research and Development”, p. 191 ff.
Nestlé S.A., Insight Nestlé, special edition on Nestlé Purina, 81. Parsons, ibid, p. 16 quotes Brabeck: “But it did nothing to
Jan.–Feb. 2002. build the overall Nestlé identity”.
63. Schöller Lebensmittel GmbH & Co. KG (Hg.): “50 Jahre 82. Brabeck, Peter: “Blueprint for the future”; 25–28.10.1998, p. 7.
Schöller zu Nürnberg – Firmengeschichte 1937–1987”, Nurem- 83. Quoted in: De Jonquières, Guy: “Pasta and promotional
berg 1987. sources”, Financial Times, 16.7.1992.
Schöller Lebensmittel GmbH & Co. KG (Hg.): “Vom Gipfel- 84. Brabeck, Peter: “Blueprint for the future”, 2001, p. 17.
schnee … zur fröhlichen Eiszeit. Siegeszug der faszinierenden 85. Brabeck, Peter: “Blueprint for the future”, 1997, p. 16.
Köstlichkeit Speiseeis – Vom Genuss- zum Nahrungsmittel”, 86. Brabeck, Peter: “Blueprint for the future”, 2005, p. 42.
Nürenberg 1987. 87. Parsons, Andrew J.: “Nestlé: The visions of local managers”,
http://www.schoeller.de. McKinsey Quarterly 2/1996.
http://www.nestle.de. 88. Brabeck, Peter: “Blueprint for the future”, 2001, p. 16.
64. Dreyer’s Inc., Dreyer’s: “History in the Making”. Corporate bro- 89. Nestlé S.A.: “Nestlé Corporate Principles”, November 2004,
chure, Oakland, USA, 1997. p. 8–9.
http://www.dreyersinc.com.
http://www.dreyers.com.
Thompson, Roger: “The Little Ice-Cream Company That
Could”, in: Harvard Business School (ed.), online bulletin, 5. Geographic Expansion: Zones and Markets
March 2006.
http://66.249.93.104/search?q=cache:wMQCnUEiufIJ:www. 1. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf,
alumni.hbs.edu/bulletin/2006/march/profile.html. Vienna, New York, Moscow 1992, p. 31–32.
65. Interbrand’s Best Gobal Brands 2006, p. 11; (www.interbrand. 2. Brabeck, Peter: “Nutrition, Health and Wellness: Creating
com); Nestlé S.A., “Management Report 2005”, Vevey 2006, Value”, talk given at the Nestlé S.A. press conference,
p. 70. Sales of soluble coffee were CHF 8.7 billion in 2005, 23.10.2003. Exchange rates produced the opposite picture in
generated primarily by Nescafé, cf. Kowalsky, Marc: “Die 50 2005: whilst sales in Brazil increased by only 6.9 per cent
wertvollsten Marken der Schweiz”, in: Bilanz, No. 1/2006, p. 4. expressed in local currency, they rose by almost 30 per cent
66. Brabeck, Peter: “Blueprint for the future”, Market Heads Con- expressed in Swiss francs (Nestlé S.A., Management Report
ference 9–13.6.1997, p. 16. 2005, page 72).
67. Brabeck, Peter: “Nutzung von Marktpotentialen”, IO Manage- 3. Nestlé S.A., “Principal Markets 2005”, Corporate Presentation,
ment Zeitschrift, February 1992, p. 47. Vevey 2005.
68. Nestlé S.A.: “Management Report 2005”, Vevey 2006, p. 49. 4. Nestlé S.A., Minutes of the Board, No. 195, 4.9.1936.
350
VI. Footnotes
5. Montavon, Remy: “Nestlés erste industrielle Niederlassung in 50. Nestlé S.A., “Nestlé Management News International”,
China”, Nestlé S.A., Vevey 1992. December 1993, p. 9.
6. Garrett, Michael W.O.: “The Rise and Rise of China and India”, 51. Nestlé S.A., Minutes of the Board, No. 515, 18.11.1993.
Speech at the IPA World Forum, Brussels, 13.5.2004. 52. Nestlé S.A., Minutes of the Board, No. 521, 28.3.1995.
7. Montavon, Rémy: “Nestlé in China, Nestlé’s landwirtschafts- 53. Nestlé S.A., Minutes of the Board, No. 529, 12.9.1996.
technische Beratung und die Entwicklung des Kaffeeanbaus”, 54. Berger, Roman: “Nestlé will Russland erobern”, Tages-
Nestlé S.A., Vevey 1997. Anzeiger, 8.6.1999.
8. Nestlé S.A., “Management Report 2005”, p. 72, Vevey 2006. 55. Nestlé S.A., “Nestlé Group Strategy 1999–2001”, 6.11.1998,
9. Nestlé Greater China Region: Presentation to Investors, p. 45.
Morgan Stanley Consumer Field Trip to China, Harbin, 56. “Nestlé en Russie, un marché en plein essor”, Nestlé Gazette,
24.5.2004. April 2006, p. 2–6.
10. Garrett, Michael W.O.: Presentation at the Nestlé Press Confer- 57. Nestlé S.A., “Management Report 2005”, p. 72.
ence of 24.2.2005.
11. Cf. “Research and Development”, “Food Safety”, p. 191 ff.
12. Nestlé S.A., press release of 23.2.2006.
13. Melloan, George: “Nestlé Courts the LDC Middle Class”, Wall 6. Organisational Change
Street Journal Europe, 5.6.1990.
14. Schaffhauser AZ, SDA report 8.6.1990. 1. Nestlé S.A., “Management Report 1990”, Vevey 1991, p. 3.
15. Nestlé S.A., Minutes of the Board, No. 499, 14.9.1990. 2. Estimated to have accounted for less than 10 per cent of the
16. Nestlé S.A., Minutes of the Board, No. 502, 30.5.1991. volume produced (Information from Herbert Oberhänsli,
17. Nestlé S.A., Nestlé Management News International, April 23.10.2006).
1992, p. 36. 3. Cf. chapter 9, “Corporate Governance”.
18. Cf. Chap. 6, “Organisational Change”, p. 151 ff. 4. The remaining 4 per cent were made up by pharmaceuticals
19. Nestlé S.A., Minutes of the Board, No. 492, 25.5.1989. and other activities not managed by the Zones; cf. Nestlé S.A.,
20. Nestlé S.A., Minutes of the Board, No. 499, 14.9.1990. “Management Report 1990”, Vevey 1991, p. 9.
21. Maucher, Helmut: Interview with Mélanie Rietmann, Schweiz. 5. Cf. Nestlé S.A., “Stratégie du Groupe”, 9.9.1997.
Handelszeitung, 3.5.1990. 6. Cf. Nestlé S.A., Minutes of the Board of Directors, 22.3.1989.
22. Maucher, Helmut: Conversation with Hanna Gieskes, Die Welt, 7. Nestlé S.A., “Management Report 1988”, Vevey 1989, p. 10.
19.12.1990. 8. The size of these 26 factories varied greatly. The smallest pro-
23. Maucher, Helmut, SKA Bulletin, June 1990. duced just 2,000 tonnes of chocolate a year and the largest
24. Maucher, Helmut, speech given to the Banque Populaire 96,000 tonnes, with annual volume totalling 380,000 tonnes.
Suisse, Entreprise Romande, 14.12.1990. In comparison, Mars produced 300,000 tonnes in just five fac-
25. Nestlé S.A., Minutes of the Board, No. 501, 22.3.1991. tories, Cadbury 140,000 tonnes in four factories and Jacobs
26. Nestlé S.A., “Nestlé Management News International”, June Suchard 154,000 tonnes in six; cf. Nestlé S.A., “Stratégie du
1991, p.10. Groupe”, 22.3.1989.
27. Nestlé S.A., Minutes of the Board, No. 504, 11.9.1991. 9. Cf. Nestlé S.A., Minutes of the Board of Directors, 13.9.1989.
28. Nestlé S.A., Minutes of the Board, No. 502, 30.5.1991. 10. Löhrer, Gerd; Meier, Medard: “Herr Nestlé persönlich”, Inter-
29. Villeneuve, Sylvaine: “Pour réussir, nous avons is beaucoup de view with Helmut Maucher, in: Bilanz, December 1990.
passion”, interview with Antoine Riboud (head of BSN), Le 11. Cf. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989.
Nouveau Quotidien, 10.1.1992. 12. Nestlé Gazette, September 1991.
30. Nestlé S.A., Minutes of the Board, No. 504, 11.9.1991. 13. Conversation with H. Maucher, 24.2.2006.
31. Nestlé S.A., Minutes of the Board, No. 516, 24.3.1994 . 14. McKinsey & Co., “Enhancing the Center’s Value Added, Memo
32. Nestlé S.A., Minutes of the Board, No. 525, 15.11.1995. to General Management Committee Nestlé S.A.”, 28.2.1990.
33. Nestlé S.A., Circular of 21.12.1998. 15. McKinsey & Co.: “Defining the Organizational Vision for Nestlé
34. Nestlé S.A., Minutes of the Board, No. 504, 11.9.1991. Wedel 2000”, Discussion Document, 8.8.1990.
was later acquired by Pepsi. 16. McKinsey & Co.: “Defining the Organizational Vision for Nestlé
35. Nestlé S.A., Minutes of the Board, No. 514, 9.9.1993. 2000”, 8.8.1990.
36. Nestlé S.A., Nestlé Management News International, July 17. Nestlé S.A., Minutes of the Executive Board, 9.10.1990.
1993, p. 10. 18. Conversation with P. Brabeck, 5.9.2006.
37. Nestlé S.A., Minutes of the Board, No. 515, 18.11.1993. 19. Notes from conversations with H. Maucher, 24.2.2006, and
38. Nestlé S.A., Minutes of the Board, No. 522, 1.6.1995. R. Gasser, 27.4.2006.
39. Nestlé S.A., Minutes of the Board, No. 524, 8.9.1995 20. Nestlé S.A., circular, 24.1.1991.
40. Nestlé S.A., Minutes of the Board, No. 516, 24.3.1995. 21. Conversation with P. Brabeck, 5.9.2006.
41. Nestlé S.A., Minutes of the Board, No. 516, 24.3.1994. 22. See chapter 4 “Brand Policy”, p. 131 ff.
42. Nestlé S.A., Minutes of the Board, No. 515, 18.11.1993. 23. See also Jones, Geoffrey: “Renewing Unilever”, Oxford 2005.
43. Nestlé S.A., Nestlé Group Strategy 1999–2001, 6.11.1998, 24. Cf. Kramer, Robert J.: “Five New Directions in International
p. 45. Corporate Organisation Design”, in: M&A Europe, July/August
44. Nestlé S.A., Minutes of the Board, No. 522, 1.6.1995. 1990, p. 36–47.
45. Nestlé S.A., Minutes of the Board, No. 526, 28.3.1996. 25. Conversation with R. Gasser, 27.4.2006.
46. Nestlé S.A., Minutes of the Board, No. 485, 26.11.1987. 26. Nestlé S.A., Minutes of the Board of Directors,14.11.1991.
47. Nestlé S.A., Minutes of the Board, No. 499, 14.9.1990. 27. Nestlé S.A., “Stratégie du Groupe Nestlé”, June 1993.
48. Nestlé S.A., Minutes of the Board, No. 500, 15.11.1990. 28. Cf. Presentation by P. Brabeck, HEC Lausanne, 20.3.2006,
49. Nestlé S.A., Minutes of the Board, No. 516, 24.3.1994. Slide 58.
351
Appendix
29. Conversation with R. Gasser, 27.4.2006. 7. Globe

30. Cf. Nestlé S.A. (Publisher): “The Nestlé Concept of Social
Responsibility and its Implementation in Latin America”, 1. The information on GLOBE in the main section of this chapter
Appendix to the Nestlé Management Report 2005, Vevey 2006, is courtesy of Jean-Michel Jaquet, whose report “GLOBE –
p. 51. Global Business Excellence at Nestlé”, Vevey 2006, we have
31. McKinsey & Co.: “Defining The Organizational Vision for Nestlé been permitted to use here in abridged form. For further infor-
2000”, Discussion Document, 8.8.1990. mation on GLOBE, see also: “Insight Nestlé”, October 2001
32. Cf. figures in the Nestlé S.A. Management Report 1991, Vevey and 2/2005; Killing, J.: “Nestlé’s GLOBE Program (A): The Early
1992. Months”, IMD 2003; ibid: “Nestlé’s GLOBE Program (B): July
33. Cf. written comment by Mario A. Corti, 14.3.2006. Executive Board Meeting”, IMD 2003; ibid: “Nestlé’s GLOBE
34. Conversation with H. Maucher, 20.3.2006. Program (C): ‘Globe Day’”, IMD 2003; Nestlé S.A., “Nestlé
35. Conversation with H. Maucher, 20.3.2006. Group Strategy 2001–2003”, 2000, p. 68–70; Nestlé S.A.,
36. Cf. Article “Auf und ab”, in: Cash, 17.5.1991. “Nestlé Group Strategy 2005 update of the 2004 Strategy Doc-
37. H. Maucher in interview with Löhrer, Gerd: “Team mit Spitze”, ument”, 2005, p. 47–49.
in: Bilanz, February 1992. For general information on the development of IT at Nestlé in
38. The term was used by Helmut Maucher many years later in an the 1980s and 1990s, cf. Huycke, Cathy B.: “Nestlé S.A. – Fit-
interview (E. Zehnder International, Gespräche IV, Hamburg ting Information Management Strategy with Competitive
1999, p. 16). Restructuring”, IMD (Publisher) 1991; articles in the Nestlé
39. Conversation with R. Gasser, 27.4.2006. Gazette on the “PILT” five-year IT plan and office automation
40. Nestlé S.A., “Stratégie du Groupe”, 9.9.1997. (“bureautique”): No. 4, October 1984, p. 2; No. 1, February
41. International Institute for Management Development (IMD) 1985, p. 12; No. 5, October 1985, p. 12; No. 5, October 1986,
Lausanne, “Nestlé in ASEAN”, Case Study, 1996. p. 1, 2, 4; No. 1, February 1987, p. 1, 3; No. 6, December
42. Cf. Letter to Shareholders, in: Nestlé S.A., “Management 1987, p. 2–3; Emonet, M.B.: “1985–1989: cinq ans de planifi-
Report 2004”, Vevey 2005, p. 2 and presentation by P. Brabeck cation informatique au centre administratif de Nestlé (Vevey)”,
at HEC Lausanne, 20.3.2006, slides 18 to 21, see diagram in: Journal des Associations Patronales, 22.3.1990.
p. 170 and chapter 7, “Globe”, p. 188. 2. Cf. Conversation with Michael W.O. Garret, 7.9.2006 and
43. See chapter 7, “Globe”, p. 183 ff. J.C. Dispaux, 31.10.2006.
44. Nestlé S.A. , Management Reports 1997–2005. 3. Interview with Chris Johnson in “Insight Nestlé”, Issue 2,
45. Nestlé Historical Archives, 23.10.2006. 2005.
46. Cf. chapter 10, “Human Resources” / “Trade Unions”, 4. Brabeck, Peter: “Blueprint for the Future”, 25.10.2006.
p. 253 ff. 5. Ibid.
47. Nestlé Archives, 23.10.2006.
48. See chapter 4, “Perrier”, p. 102, 120 ff.
49. Cf. Nestlé S.A., internal circular, 3.10.2002.
50. Cf. presentation by R. Laube: “Nestlé Nutrition”, Investor’s 8. Research and Development
Day, Vevey, 22.5.2006.
51. Cf. Circular “Message from P. Brabeck, Chairman and CEO”, 1. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989.
23.2.2006. 2. Nestlé S.A., “Finanzielle Berichterstattung 2005”, Vevey 2006,
52. Nestlé S.A., “Management Report 2005”, Vevey 2006, p. 23. p. 3. R&D costs totalled CHF 1,499 million in 2005. This sum
53. See chapter 8, “Research & Development”, p. 191. includes expenditure on ophthalmology research by Alcon.
54. See chapter 8, “Research & Development”, p. 191. 3. Danone’s R&D costs totalled 1 per cent of sales revenues in
55. Cf. Nestlé S.A., circular, 17.12.2004. 2005. The same source (“Enjeux les Echos”, 1.11.2006, p. 82)
56. Cf. Nestlé S.A., circular, 17.1.2003. quotes Unilever as spending 2.4 per cent of sales revenues on
57. Cf. Nestlé S.A., circular, 9.7.2001. R&D in the same year; it is likely, however, that this percentage
58. Cf. Nestlé S.A., circular, 2.10.2001. also includes non-food R&D expenditure (detergents, cosmet-
59. Cf. Nestlé S.A., circular, 20.7.2004. ics, etc.).
60. Cf. Nestlé S.A., circular, 14.9.2005. 4. Nestlé S.A., “Annual Report 1989”, Vevey 1990, p. 36 and:
61. Cf. Nestlé S.A., circulars 30.8.2001, 26.3.2002, 11.10.2002 and Egloff, Ivana: “Die Internationalisierung von Forschung und
19.4.2004. Entwicklung bei Nestlé S.A.”, Institut für Empirische Wirt-
62. Cf. chapter 8, “Research & Development”, p. 191. schaftsforschung, Ms., p. 4, Zurich 2004.
63. Cf. Nestlé S.A., circular, 15.12.2005. 5. See below, p. 192.
64. Cf. chapter 9, “Corporate Governance”, p. 225 ff. 6. This figure includes the application groups at the various
65. Cf. chapter 9, “Corporate Governance”, p. 225 ff. Nestlé factories (cf. p. 211).
66. Cf. chapter 9, “Corporate Governance”, p. 225 ff. 7. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 20.
67. Cf. chapter 8, “Research & Development”, p. 191 ff. 8. Pfiffner, Albert: Henri Nestlé (1814–1890). “Vom Frankfurter
68. Cf. presentation by P. Brabeck, HEC Lausanne, 20.3.2006, Apothekergehilfen zum Schweizer Pionierunternehmer”, Zurich
Slide 57. 1993, p.112 ff.; Pfiffner, Albert: “A Real Winner One Day. Die
69. Cf. Conversation with P. Brabeck, 19.1.2006, and his Share- Entwicklung des Nescafés in den 1930er-Jahren”, in: Rossfeld,
holders’ Letter in: Nestlé S.A. (Publisher), “Management Roman (Ed.), “Genuss und Nüchternheit”, Baden 2002.
Report 2005”, Vevey 2006, p. 2. 9. Since the 1960s, Nestlé basic research had focused strongly
70. See also talk by P. Brabeck at the Procter & Gamble Interna- on delivering proteins, which were then held to be the most
tional Business Center, Geneva, 18 February 2004. important factor in improving global nutrition. This led, in the
1970s, to a concentration on soya, the goal being to replace
352
VI. Footnotes
animal proteins with plant proteins and cow’s milk with soya 38. Conversation with B. Suter, 21.3.2006.
milk. In practice, however, it became apparent that there were 39. “Implementing the New Organisation Structure”, Presentation
some disadvantages to soya-based products in terms of taste, to General Management, 9.4.1991 and “The Nestlé R&D Net-
at least for Western consumers. The situation was better in work, Guidelines for Operating Companies”, 1.7.1994.
Asia, where soya is eaten regularly, and soya milk is appreci- 40. “Major Changes in the Nestlé 2000 Organization”, Summary
ated due to a widespread intolerance to lactose. Soya research for Technical Managers and Reco Heads Meeting, Vevey,
was therefore transferred to Singapore in 1982. “Research and 11/12.11.1991.
Technological Development”, Nestlé brochure, ca.1975; Jean 41. McKinsey Discussion Document, 27.9.1990, p. 12/13, and con-
Mauron: “Etapes et Résultats Scientifiques de la Recherche versation with B. Suter, 21.3.2006.
Nestlé”, internal paper of 11.7.1985, Nestlé historical archives 42. Cf. Chap. 4, “Brand Policy”, p. 131 ff.
and conversation with B. Suter, 21.3.2006. 43. Presentation to General Management: “Nestlé R&D, Structure
10. Cf. Nestlé S.A., “Scientific Research and Technological Devel- and Management”, 25.6.1997.
opment 1990” and index, p. 137. 44. “Research & Development – General Issues – Core Competen-
11. Conversation with B. Suter, 21.3.2006. cies, Mandates”, Glion, November 1997.
12. The development centre in Kemptthal, which emerged from 45. Nestlé S.A., “Nestlé Group Strategy”, 24.8.1998.
the Maggi labs, was dubbed “Vitoreco”, for example, after the 46. Conversation with W. Bauer, 20.3.2006.
Roman name (Vitodurum) for the nearby town of Winterthur. 47. Conversation with H. Hottinger, 20.3.2006.
The centres in France and the US were named “Francereco” 48. Nestlé S.A., Circular of 1.4.2004.
and “Westreco” respectively, each followed by the exact loca- 49. Nestlé S.A., Circular of 29.4.2003.
tion, e.g. “Westreco Marysville”. Only the Linor in Orbe was 50. “Research & Development, General Issues – Core Competen-
permitted to keep its original name. cies – Mandates”, Glion, November 1997.
13. Conversation with B. Suter, 21.3.2006. For details of the infant 51. “Major Changes in the Nestlé 2000 Organization”, Summary
food controversy cf. Chap. 11,“Communication”, p. 277 ff. for Technical Managers and Reco Heads Meeting, Vevey,
14. Cf. Chap. 3. 11/12.11.1991.
15. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 19. 52. Bauer, Werner: “Innovation/Renovation Effectiveness in
16. Conversation with B. Suter, 21.3.2006. Nestlé”, 20.5.2005.
17. Conversation with P. van Bladeren, 9.3.2006. 53. Conversation with Clive Barnes, 9.3.2006.
18. Conversation with B. Suter, 12.3.2006. The first meeting of all 54. Nestlé Research Center, Brochure, 1987.
the Reco Heads did not take place until 1975. 55. “Research for Consumer Health Benefits”, NRC Brochure,
19. Cf. Jones, Geoffrey: “Renewing Unilever”, Oxford 2005, 2005; “The Fountain of Knowledge”, NRC Brochure, 2004.
p. 267 ff. 56. Cf. “L’Oréal”, p. 114 ff.
20. Conversation with B. Suter, 21.3.2006. 57. Information from Ms S. Happe, NRC Communication Group,
21. McKinsey: Presentation to General Management, 9.4.1991. 18.10.2006.
22. Conversation with H. Hottinger, 20.3.2006. 58. Trans fatty acids (TFAs) occur naturally in many foods, but can
23. Horman, Ian: “Nestlé Research and Development in the Year have undesirable effects on the level of cholesterol in the
2000”; Nestec S.A. (Ed).: “Nestlé: Forschung und Entwicklung blood. Nestlé has therefore undertaken to reduce the TFA con-
an der Schwelle des 21. Jahrhunderts”, Vevey 2000 and content of its products so that it does not exceed 3 per cent of the
versation with H. Hottinger, 20.3.2006. total intake of fat through food or 1 per cent of the daily
24. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 8, 17. energy intake recommended by the WHO. By the end of 2005,
25. SKA Bulletin, June 1990. 90 per cent of all Nestlé products met this policy requirement.
26. Conversations with W. Bauer and H. Hottinger, 20.3.2006. Cf. “Nestlé and Trans Fatty Acids”, Position Statement,
27. Pfiffner, Albert: “A Real Winner One Day: Die Entwicklung des 17.5.2006.
‘Nescafés’ in den 1930er Jahren.” in: Rossfeld, Roman: 59. “Innovation/Renovation Effectiveness in Nestlé, The R&D Chal-
“Genuss und Nüchternheit. Die Geschichte des Kaffees in der lenge, Progress Today and the Way Forward”, 20.5.2005 and
Schweiz vom 18. Jahrhundert bis zur Gegenwart”, Baden conversation with W. Bauer, 20.3.2006.
2002, p. 130. 60. Conversation with Peter van Bladeren, 9.3.2006.
28. “The LC 1 Story”, IMD Case Study, Lausanne 2000. It has also 61. Peter van Bladeren: Press Conference at the Nestlé Research
been suggested that the “C” in LC 1 is a reference to Cham- Center, 21.11.2006.
bourcy. Cf. Chap. 4, “Brand Policy”, p. 131 ff. 62. Nestlé S.A. Press Release, 13.4.2006.
29. Conversation with R. Gasser, 27.4.2006. 63. Conversation with B. Suter, 21.3.2006.
30. Nestlé S.A., Minutes of the Executive Board, 6 June 1997 and 64. Conversation with P. van Bladeren, 9.3.2006.
conversation with R. Gasser, 27.4.2006. 65. Conversations with W. Bauer, 20.3.2006, and R. Stalder,
31. See Chap. 6,“Organisational Change”, p. 151 ff. 21.3.2006.
32. Nestlé S.A., “Nestlé and Nutrition and Health Claims”, Nestlé 66. Conversation with W. Bauer, 20.3.2006.
Contingency Statement, 11.11.2005. 67. Conversation with R. Stalder, 21.3.2006; Nestlé S.A. “Nestlé
33. Conversation with E. Fern, 21.3.06. and Excessive Iodine Levels in Milk Powder in China”, Nestlé
34. Conversations with W. Bauer, 20.3.06 and B. Suter, 21.3.2006. Contingency Statement, 29.3.2006.
35. In 2005, Dreyer’s Slow Churned generated organic growth of 68. Conversation with R. Stalder; Nestlé S.A., “Nestlé and ITX”,
66 per cent in the US (real internal growth and price Nestlé Contingency Statement, 22.2.2006.
increases), cf. Nestlé S.A., “Management Report 2005”, Vevey 69. Conversation with R. Stalder, 21.3.2006.
2006, p. 50. 70. Nestlé S.A., “Stratégie du Groupe”, 22.3.1989, p. 8.
36. Harty, Kevin: “Booster Technology”, NRC Manuscript 2006. 71. Circular of 4.8.1995.
37. Cf. also p. 104. 72. Investor Presentation by Peter Brabeck, 9.6.2006.
353
Appendix
73. Nestlé S.A., “Management Report 2004”, Vevey 2006, Part III Nestlé and its Stakeholders
p. 58/59.
74. Brabeck, Peter: “Blueprint for the Future”, Key Markets Confer-
ence and Market Managers’ Conference, 23–25.10.2006, p.12.
1. This term was first used by Adolph A. Berle and Gardiner C.
Means in their book entitled “The Modern Corporation and Pri-
vate Property”, New York 1932 (quoted in: Lüpold, Martin:
“Schutz vor wirtschaftlicher Überfremdung oder Abwehr
unfreundlicher Übernahmen?”, Masters dissertation, University
of Zurich 2004).
2. “Swiss Code of Best Practice for Corporate Governance” and
“SWX-Richtlinie betreffend Informationen zur Corporate Gov-
ernance” (appendix), published by Economiesuisse, Zurich,
April 2002.
3. Nestle S.A., Nestlé Corporate Principles, November 2004,
p. 27–31. The “Nestlé Principles of Corporate Governance”
have been produced since 2002 as an appendix to the annual
Corporate Governance Report, together with the Articles of
Association.
4. In 2002, this salary amounted to CHF 6.4 million in cash, 6,500
shares and 50,000 option rights. Nestlé S.A., “2002 Corporate
Governance Report”, Vevey 2003, p. 17.
5. Nestlé S.A., “Financial Reporting 2001”, Vevey 2002, p. 44.
6. The total amount for 2005 was CHF 13.7 million. Nestlé S.A.,
“Corporate Governance Report 2005”, Vevey 2006, p. 20.
7. Of 100 listed Swiss companies, only 14 were run with a dual
mandate at the beginning of 2005 (NZZ online, 14.4.2005).
8. See p. 246 ff.
9. See p. 277 ff.
10. Veya, Pierre: “Un nain contre Nestlé”, L’Hebdo, 1.6.1989.
11. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Article
14/3.
12. Nestlé S.A., “Articles of Association of Nestlé S.A.”
13. Nestlé S.A. “Management Report 1998”, Vevey 1989, p. 4.
16. Maucher, Helmut: “Aktienpolitik. 3 Fragen an: Helmut
Maucher”, interview in Lebensmittel-Zeitung, 25.11.1988
17. Cf. “Weichere Vinkulierung von Nestlé-Aktien”, Neue Zürcher
Zeitung, 18.11.1988; Forman, Craig: “Nestlé’s Move Brews
Turmoil in Swiss Stocks”, Wall Street Journal, 21.1.1988; Dull-
force, William: “Nestlé row changes rules of the game”, Finan-
cial Times, 26.11.1988.
18. Conversation with Rainer E. Gut, 19.12.2006.
19. Conversation with Rainer E. Gut, 19.12.2006.
20. Passer, Christophe: “Canes und Nestlé vor Gericht”, Basler Zei-
tung, 9.6.1989.
21. Courvoisier, Jean-Marc: “Jugement de Salomon”, La Suisse,
21.7.1989.
22. Büchi, Christophe: “Seilziehen zwischen Nestlé und Canes
geht weiter”, Tages-Anzeiger, 26.8.1989 and Nestlé S.A., Min-
utes of the Board, 31.5.1990.
23. Abt, Hansjörg: “David gegen Goliath”, Neue Zürcher Zeitung,
7.10.1989.
24. Nestlé S.A., Minutes of the Board, 31.5. 1990.
25. Decision by the Swiss Federal Supreme Court in the case of
Canes vs. Nestlé, 25.6.1991 in: “Die Praxis, wichtige Entschei-
dungen des Schweizerischen Bundesgerichts”, 81st year,
Basel 1992, p. 479 ff.
26. On 14 January 1992, the bearer share stood at CHF 9,000 and
the registered share at CHF 8,930 (NZZ, 15.1.1992), and by the
354
VI. Footnotes
end of February the bearer share had increased to CHF 9,300 59. Conversation with Rainer E. Gut, 30.6.2006.
(Financial Times, 28.2.1992). 60. Koopmann, Andreas: “Verhalten in Krisenszenarien detailliert
27. Nestlé S.A. “Management Report 1992”, Vevey 1993, p. 14. geregelt,” interview (TH), Finanz und Wirtschaft, 12.11.2005.
28. Nestlé S.A. “Management Report 1993”, Vevey 1994, p. 17. 61. Press release by Nestlé S.A., 18.1.2005.
29. Wartenweiler, Roland: “Generalversammlung-Marathon der 62. Cf. Chapter “Organisational Change”, The Executive Board,
Nestlé”, NZZ, 28.5.1993. p. 174 ff.
30. At the 1989 General Meeting, a Geneva financier who also rep- 63. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Article
resented institutional investors and had worked for Nestlé for 25/2.
many years expressed similar criticism but without disclosing 64. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Article 20.
whose interests he was representing. 65. Conversation with Rainer E. Gut, 30.6.2006.
31. Wayne, Leslie: “Exporting Shareholder Activism”, New York 66. Bitterli, Heinz; Schwarz, Gerhard: “Amerika ist nicht das Mass
Times, 16.7.1993; Star, Marlene Givant: “Fund Confronts aller Dinge. Ein Gespräch mit Rainer Gut über Corporate Gov-
Nestlé”, Pensions & Investments, 14.6.1993. ernance”, in: Neue Zürcher Zeitung, 19.3.2005.
32. “Changing Poison Pills to Candy” in Global Investor, June 67. Rutishauser, Arthur: “Nestlé-Chef droht mit dem Rücktritt”,
1990, p. 23. Sonntags-Zeitung, 10.4.2005.
33. Swiss Code of Obligations, Art. 716, 716 a, 716 b. 68. Gut, Rainer E.: Address to the Ordinary General Meeting of
34. Nestlé S.A., “Règlement d’organisation du Conseil du Shareholders of Nestlé S.A., Lausanne, 14.4.2005.
24.3.1993”, Minutes of the Board, 18.11.1993. 69. Biedermann, Dominique: “Les menaces de démission de
35. Based on the new contract between Nestlé and L’Oréal signed Nestlé ont porté”, interview, Le Temps, 15.4.2005.
on 3.2.2004, Nestlé has three seats on L’Oréal's Board of 70. Brabeck, Peter: Address to the Ordinary General Meeting of
Directors (“Protocole d’accord entre la famille Bettencourt et Shareholders of Nestlé S.A., Lausanne, 14.4.2005.
Nestlé signé le 3 février 2004”, Article 5.1). Those three seats 71. Press release by Nestlé S.A., 14.4.2005.
are currently held by Peter Brabeck, Franciso Castañer and 72. Conversation with Rainer E. Gut, 19.12.2006. The programme
Werner Bauer. was “Arena” on SF DRS on 15.4.2005.
36. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Art. 22.; 73. Bitterli, Heinz: “Schlappe und unnötiger Schaden für Nestlé”,
Nestlé S.A, “Corporate Governance Report 2005”, Vevey 2006, Neue Zürcher Zeitung, 15.4.2005.
p. 28. 74. ibid.
37. Schmocker, Arno: “Wir wollen Eigentümer, keine Speku- 75. “World’s most respected companies”, Financial Times,
lanten”, Interview with Helmut Maucher in Finanz und Wirt- 18.11.2005.
schaft, 3.6.1995. 76. Conversation with Rainer E. Gut, 19.12.2006.
38. Conversation with Rainer E. Gut, 30.6.2006. 77. “Peter Brabeck quittera son poste en 2008”, L’Agefi, 24.2.2006.
39. Swiss Code of Obligations, Article 708. This provision is due to 78. As the Board of Directors appoints its own officers in accord-
be abolished in the framework of the 2007 revision of the ance with the Articles of Association, the formal election did
Swiss Code of Obligations. not take place until the meeting of the Board of Directors held
40. Conversation with Rainer E. Gut, 30.6.2006. directly after the General Meeting.
41. Nestlé S.A., “Organisational Regulations of the Board”. 79. In accordance with the Federal Act on Stock Exchanges and
42. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Article 23. Securities Trading (SESTA) of 24.3.1995, shareholders must
43. See table of Board of Directors, p. 238. disclose holdings that exceed 5, 10 or 20 per cent of voting
44. Nestlé S.A., “Corporate Governance Report 2005”, Vevey rights, and submit a public tender offer for the company as a
2006, p. 11. whole as soon as their holding exceeds 33.33 per cent (Nestlé
45. Conversations with Rainer E. Gut, 30.6.2006 and 19.12.2006. S.A., “Management Report 2005”, Vevey 2006, p. 10).
46. Nestlé S.A., “Corporate Governance Report 2002”, Vevey 80. Article14, Para. 3 adds: “Legal entities connected via capital,
2003, p. 9. voting power, leadership or in any other way, as well as indi-
47. Nestlé S.A., “Corporate Governance Report 2005”, Vevey viduals and legal entities that join together with the aim of cir-
2006, p. 10. cumventing the restriction, are considered a single entity.”
48. Nestlé S.A., Minutes of the Board, 26.5.1994. 81. As Nestlé promised shareholders it would not publish any
49. Nestlé S.A., Minutes of the Board, 23.3.1995. detailed results of the survey, only approximate figures were
50. Nestlé S.A., “Management Report 1999”, Vevey 2000, p. 4; given at the 2005 autumn press conference. (Nestlé S.A., doc-
Nestlé S.A., “Management Report 2000”, Vevey 2001, p. 4. umentation on the press conference of 20.10.2005, slides 20–
51. Nestlé S.A., “Corporate Governance Report 2005”, Vevey 24 and Nestlé S.A., Position Paper, “Revision of Nestlé’s Arti-
2006, p. 10, note 2. cles of Association”, 27.6.2006).
52. Ibid p. 11, note 4. 82. Nestlé S.A. “Management Report 2005”, Vevey 2006, p. 11.
53. Hall, William: “Nazi gold affair reveals how Swiss hate to be 83. Nestlé S.A. “Management Report 2005”, Vevey 2006, p. 10.
led”, Financial Times, 26.2.1997. The article alluded to the role 84. Nestlé S.A., Letter to Shareholders, 6.3.2006.
played in particular by Rainer E. Gut and Paul Volcker at the 85. Convening of the 2006 General Meeting, 6.3.2006. The
time in the search for a solution to the problem of dormant required agreement of two-thirds of represented votes is pre-
assets from the time of the Second World War. scribed by Art. 704 of the Swiss Code of Obligations.
54. Swiss Code of Obligations, Art. 716 a/4. 86. Press release by Nestlé S.A., 6.4.2006.
55. Conversation with Rainer E. Gut, 19.12.2006. 87. Brabeck, Peter: Address to the Ordinary General Meeting of
56. Conversation with Rainer E. Gut, 30.6.2006. Shareholders of Nestlé S.A., Lausanne, 6.4.2006.
57. Nestlé S.A., “Articles of Association of Nestlé S.A.”, Article 88. Press release by Nestlé S.A., 8.6.2006.
25/4. 89. Brabeck, Peter: Statement at the Press Conference of Nestlé
58. Conversation with Rainer E. Gut, 19.12.2006. S.A. on 19.10.2006.
355
Appendix
10. Human Resources Management/Trade Unions 35. Nestlé S.A., “Stratégie du Groupe”, 15.4.1996, p. 52.
36. Nestlé S.A., “Stratégie du Groupe”, 9.9.1997, p. 59.
1. See chart, p. 254, source: Nestlé S.A., Annual/Management 37. Cf. chap. 8, “Research and Development”, p. 194 ff.
Reports, 1988–2005. 38. Brabeck, Peter: “The Challenging Role of Human Resources in
2. Headquarters and affiliated units, CRN, PTCs Orbe and Konol- a Global Organisation”, presentation at the Swiss Federal Insti-
fingen, Nestlé Suisse. In Switzerland, Nestlé has created 800 tute of Technology Zurich, 27.10.1999, p. 5.
new jobs since 1999, of which around half in Orbe (VD) follow- 39. Conversation with P. Broeckx, 6.9.2006, and data from the
ing the expansion of the Nespresso and Nescafé factories Nestlé HR department, 11.9.2006.
there. “Nestlé job creation in Switzerland”, Position Paper 40. See also Chap. 6, “Organisational Change”, the Executive
27.6.2006. Board p. 174 ff.
3. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf 41. Conversation with P. Broeckx, 6.9.2006. See also: “The Nestlé
1992, p. 154/155. Human Resources Policy”, October 2002.
4. Nestlé S.A., “1991 Management Report”, p. 14. 42. Nestlé S.A., “Nestlé Group Strategy 1999–2001”, 6.11.1998,
5. Nestlé S.A., “Management Commitment/Employee Involve- p. 40/41; “1998 Management Report”, p. 20.
ment”, 1991. 43. Nestlé S.A., “1998 Management Report”, p. 20/21.
6. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf 44. Nestlé S.A., “Nestlé Group Strategy 2000–2002”, 29.10.1999,
1992, p. 171. p. 40/41.
7. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf 45. Nestlé S.A., “Nestlé Group Strategy 2001–2003”, 18.10.2000,
1992, p. 57. p. 51.
8. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf 46. Nestlé S.A., “1999 Management Report”, p. 23.
1992, p. 187/188. 47. Nestlé S.A., “Nestlé Group Strategy 2001”, 10.10.2001, p. 104.
9. Nestlé S.A., “Stratégie du Groupe”, 15.4.1996, p. 53. 48. Nestlé S.A., “Nestlé on the Move to Flat and Flexible Organisa-
10. Nestlé S.A., “The Basic Nestlé Management and Leadership tions”, p. 10.
Principles”, Vevey 1997. 49. Nestlé S.A., “Nestlé Human Resources Policy”, Vevey 2002,
11. Maucher, Helmut, “Marketing ist Chefsache”, Düsseldorf p. 10.
1992, p. 147/148. 50. Nestlé S.A., “Nestlé on the Move to Flat and Flexible Organisa-
12. Nestlé S.A., “Nestlé Group Strategy 2002”, 21.10.2002, p. 25. tions”, November 2002, p. 11.
13. Nestlé S.A., “The Nestlé Management and Leadership Princi- 51. Conversation with Rainer E. Gut, 19.12.2006.
ples”, Revised Edition, Vevey, July 2005. 52. Nestlé S.A., “Die Schulung bei Nestlé”, Vevey 1996.
14. These maxims can be found in: Maucher, Helmut: “Marketing 53. “Personalentwicklung bei Nestlé – eine Übersicht.” Supple-
ist Chefsache”, Düsseldorf 1992, p. 145. ment to the Nestlé “2002 Management Report”, Vevey 2003,
15. Nestlé S.A., “Stratégie du Groupe”, 9.9.1997, p. 58/59. p. 4.
16. Nestlé S.A., “1998 Management Report”, p. 21. 54. Nestlé S.A., “Nestlé Group Strategy 2001”, 10.10.2001, p. 105.
17. Nestlé S.A., “Nestlé Group Strategy 1999–2001”, 6.1.1998, 55. “Die Personalentwicklung bei Nestlé – Eine Übersicht”, Sup-
p. 17 & 40. plement to the Nestlé “2002 Management Report”, Vevey
18. Nestlé S.A., “The Nestlé Human Resources Policy”, Vevey, 2003, p. 22/23.
October 2002, p. 6. Reference was made here not only to the 56. Nestlé S.A., “Nestlé Group Strategy 2002”, 21.10.2002, p. 88.
“Management and Leadership Principles” but also to the “Nes- 57. Nestlé S.A., “Nestlé Human Resources Policy”, p. 11.
tle Corporate Principles”, see p. 290 ff. 58. Hamel, Ian: “Kamikazes à Vevey,”, L’Hebdo, 3.5.1990 and
19. Nestlé S.A., “The Nestlé Human Resources Policy”, p. 7. “Nestlé refuse à rencontrer des syndicalistes japonais”, article
20. Brabeck, Peter: “Blueprint for the future”, 25.10.1998, p. 19. by the Schweizerische Depeschenagentur SDA/ATS in: La
21. Wetlaufer, Suzy: “The Business Case against Revolution. An Liberté, 22.10.1992.
interview with Nestlé’s Peter Brabeck”, in: Harvard Business 59. Nestlé S.A., “1992 Management Report”, p. 15.
Review, February 2001, p. 119. 60. Nestlé S.A., Minutes of the Board, 17.11.1994.
22. Nestlé S.A., “Nestlé Group Strategy 1999–2001”, 6.11.1998, 61. Bouguereau, Jean-Marcel: “En France, les ouvriers de Nestlé
p. 39/40. font la grève pour défendre leur emploi”, Le Nouveau Quoti-
23. l.c., p. 39 dien, 3.2.1994.
24. Nestlé S.A., “Nestlé Group Strategy 2001–2003”, 18.10.2000, 62. Willemain, Nicolas: “Avec le soutien de toute une région, ‘les
p. 51. Perrier’ font reculer Nestlé”, 24 Heures, 5.2.1994.
25. Nestlé S.A., “Nestlé Group Strategy 2002”, 21.10.2002, p. 88. 63. Nestlé S.A., Minutes of the Board, 18.11.1993, p. 2.
26. Nestlé S.A., Nestlé Group Strategy, 18.10.2004, p. 98; Gaem- 64. Nestlé S.A., Minutes of the Board, 23.3.1995, p. 8.
perle, Chantal: “Le Corporate Management Development 65. Véron, Philippe: Presentation at the Glion Conference,
Cycle”, Nestlé Gazette No. 111, October 2006, p. 8/9. 12.11.1997.
27. Brabeck, Peter: “Blueprint for the Future”, 22.10.2001, p. 10. 66. Nestlé S.A., “Nestlé and Perrier”, Position Paper by Nestlé Cor-
28. Data from the Nestlé HR department, 11.9.2006. porate Communications, 31.7.2006.
29. Nestlé S.A., “2003 Management Report”, p. 29. 67. Press releases from Nestlé Waters France: “Point sur le Projet
30. Nestlé S.A., “Nestlé on the Move to Flat and Flexible Organisa- de Réorganisation de Nestlé Waters France”, 30.6.2004 and
tions”, Vevey, November 2002. 16.7.2004; “Signature des Accords par las Syndicats CFDT et
31. Nestlé S.A., “Nestlé Human Resources Policy”, Vevey, October CFE/CGC”, 23.7.2004; “Projet GPEC/CATS Nestlé Waters
2002, p. 4. France: La CGT va à l’encontre du dialogue social”, 29.7.2004
32. Finanz und Wirtschaft, 14.12.1991. 68. “Nestlé Waters France: Nouvelles Orientations”, Press Release
33. Lebensmittel-Zeitung, 8.5.1992. of 15.9.2004.
34. Cf. chap. 9, “Corporate Governance”, the Board of Directors. 69. Press Release from Nestlé Waters France, 21.9.2004.
356
VI. Footnotes
70. “GPEC/CATS: La GCT lève officiellement ce jour son droit sity of Basel, Switzerland, October 23–25, 2003 and also in:
d’opposition sans le moindre engagement de participer à la Dobbing, John (publisher): “Infant Feeding, Anatomy of a Con-
mise en place des accords.” Press Release from Nestlé Waters troversy 1973–1984”, London, Berlin, Heidelberg, New York,
France, 28.09.2004. Paris, Tokyo, 1988.
71. “Nestlé and Perrier”, Position Paper by Nestlé Corporate Com- 2. World Health Organization (publisher): “International Code of
munications, 31.7.2006. Marketing of Breast-milk substitutes”, Geneva 1981.
72. “Nestlé and the divestiture of the Vergèze bottle factory”, Posi- 3. Freedman, Alix M.: “Nestlé to restrict Low-Cost Supplies of
tion Paper by Nestlé Corp. Comm., 26.7.2006. Baby Formula to Developing Nations”, Wall Street Journal,
73. The UNICE is the Confederation of European Business. 30.1.1991.
Cf. “European Union”, p. 299 ff. 4. WHO Code, Art. 6.6.
74. Krimm, Roland: “Les employés seront mieux informés”, Jour- 5. Gledhill, Ruth: “Synod urges Nescafé Boycott in Third World
nal de Genève, 13.4.1994; Brunet, Geneviève and Dumoulin, Milk Dispute”, The Times, 16.7.1991.
Michel: “Nestlé, ABB ou Ciba devront créer des comités 6. Gledhill, Ruth: “Church boycott of Nescafé ends”, The Times,
d’entreprise européens”, Le Nouveau Quotidien, 21.7.1994; 12.7.1994.
“Plusieurs sociétés suisses sont touchées par un accord 7. “Allaitement maternel et sida: débat relancé à l’OMS”, Agence
européen”, article by the SDA/ATS in: La Liberté, 24.6.1994. Télégraphique Suisse, 4.5.1994.
75. Nestlé S.A., “2004 Management Report”, p. 19. 8. Perroud, François-Xavier, press spokesperson of Nestlé S.A., in
76. Nestlé S.A., “Nestlé Human Resources Policy”, October 2002, a reader’s letter to the Guardian, 14.4.1994.
p. 14. 9. “Patti Rundall’s Diary”, The Food Magazine, January-March
77. Nestlé S.A., “2004 Management Report”, p. 19. 1990.
78. Nestlé S.A., “Nestlé Corporate Principles”, 3rd edition, Novem- 10. Nestlé S.A., Nestlé Position Statement, 17.1.2006.
ber 2004, p. 14. 11. Drotz, Christina (Public Affairs, Nestlé S.A.): “Infant Nutrition –
79. Nestlé S.A., “Nestlé Human Resources Policy”, October 2002, Questions and Answers”, 19.5.2003
p. 8. 12. Nestlé S.A., Minutes of the Board, No. 519, 15.9.1994.
80. “Group Strategy”, 10.10.2001, p. 15–16. 13. Brabeck, Peter: “Beyond Corporate Image: The Search for
81. Cf. Chap. 6, “Organisational Change”, “New joint ventures”, Trust”, presentation at the University of Oxford, 30.11.1999.
p. 174 14. Conversation with Niels Christiansen, 25.7.2006.
82. Miranda, Mario, Public Affairs, Nestlé S.A.: Position Paper 15. WHO Code, Art. 3.
Valldupar, 25.10.2004; “Das Nestlé-Konzept der sozialen Ver- 16. Brabeck, Peter: “Beyond Corporate Image: The Search for
antwortung und seine Umsetzung in Lateinamerika”, Supple- Trust”, presentation at the University of Oxford, 30.11.1999.
ment to the Nestlé “2005 Management Report”, p. 34–35; 17. Nestlé S.A., “The Nestlé instructions for Implementation of the
“61 años de Nestlé en Columbia”, Nestlé de Columbia, Bogotá, WHO Code of Marketing of Breast-milk Substitutes”, July 2004.
October 2005. 18. WHO Code, Articles 11.2–11.4.
83. Nestlé S.A., “Nestlé Corporate Principles”, p. 16. 19. WHO Code, Preamble.
84. Nestlé S.A., “Nestlé Human Resources Policy”, p. 8. 20. Garcia-Gill, Isabel: “Le biberon fait encore la loi”, Tribune de
85. Nestlé S.A., “Nestlé Corporate Principles”, p. 12. Genève, 14.5.1991.
86. Baumgartner, Peter: “Die Kinder waren keine Sklaven”, Tages- 21. Brabeck, Peter, “Beyond Corporate Image: The search for
Anzeiger, 8.5.2003. Trust”, presentation at the University of Oxford, 30.11.1999.
87. Nestlé S.A., “Nestlé Corporate Principles”, p. 15. 22. Conversation with Peter Brabeck, 22.11.2006.
88. Nestlé S.A., “Nestlé Pledges Cooperation against Child Traf- 23. Nestlé S.A., “The Nestlé Instructions for the Implementation of
ficking in West Africa”, Position Paper, 24.7.2001. the WHO Code of Marketing of Breast-milk Substitutes”, July
89. Conversation with Niels Christiansen, 25.7.2006. 2004.
90. See also: www.responsiblecocoa.org. 24. Conversation with Niels Christiansen, 25.7.2006.
91. Rukmawati, Debora, Public Affairs, Nestlé SA: “Cocoa Working 25. ibid.
Practices”, Background Paper, 24.6.2005 and Questions & 26. Audit report by Bureau Veritas, in: Nestlé S.A., “Das Engage-
Answers, 5.7.2005; see also: www.cocoainitiative.org, ment von Nestlé für Afrika”, Vevey 2004, p. 44–45.
92. Conversation with Niels Christiansen, 25.7.2006. 27. Conversation with Niels Christiansen, 25.7.2006.
93. Nestlé S.A., “Nestlé Corporate Principles”, p. 15. 28. Nestlé S.A., Background Paper, Christina Drotz, Public Affairs,
94. Nestlé S.A., “2005 Management Report”, p. 14. 30.6.2003.
95. Brabeck, Peter: “Creating Shareholder Value and Corporate 29. Nestlé S.A., Position Paper, Christina Drotz, Public Affairs,
Responsibility: Competing Goals?” Presentation to the London 21.10.2004.
Business School, 13.7.2006, p. 7. 30. Conversation with François-Xaver Perroud, 7.12.2006.
96. Brabeck, Peter, “Blueprint for the Future”, 18.4.2005, p. 13–14. 31. Maucher, Helmut: “Verstecken nützt nichts”, article in Man-
ager Magazine, June 1988.
32. Nestlé S.A., List of interviews and contributions (excluding
talks and presentations) by Helmut O. Maucher since April
11. Nestlé and the Public 1981, Corporate Communications, 29.9.2005.
33. Conversation with François Perroud and Marcel Rubin,
1. For a detailed presentation of the controversy see Heer, Jean: 26.7.2006.
“Nestlé 125 Jahre von 1866 bis 1991” published by Nestlé S. 34. Cf. Chap. 4, “Brand Policy”, p. 131 ff.
A., Vevey, p. 441–458 and in: Kalt, Monica: “Tötet Nestlé 35. Nestlé S.A., Minutes of the Board, No. 492, 25.5.1989.
Babies?”, paper delivered at the Conference “Imperial Culture 36. Maucher, Helmut, “Marketing ist Chefsache”, Düsseldorf,
in Countries without Colonies: Africa and Switzerland”, Univer- 1992, p. 123.
357
Appendix
37. Maucher, op. cit, p. 152. 69. Cf. section entitled “A potential crisis as the point of departure
38. “Gentechnologie – dazu stehen wir”, interview with Helmut for new initiatives” further on in this chapter, p. 301 ff.
Maucher in Der Stern, 14.11.1996. 70. Statement by Peter Brabeck at the WEF 2003, WEF Homepage
39. “Gentechnisch veränderte Produkte liegen in der Schublade” www.weforum.org, 13.2.2003.
in Süddeutsche Zeitung, 22.11.1993. 71. See p. 172 ff.
40. Maucher, Helmut, “Marketing ist Chefsache”, Düsseldorf, 72. “Global strategy on diet, physical activity and health”, Resolu-
1992, p. 162. tion of the World Health Assembly, 22.5.2004.
41. Nestlé S.A., “Die grundlegenden Management- und Führungs- 73. In June 2002, Nestlé became the first big corporation to enter
prinzipien von Nestlé”, Vevey 1997, p.4. into a partnership with the IFRC to combat AIDS by providing
42. Nestlé S.A., Minutes of the Executive Board, 12.9.1997. financial support – an annual contribution of CHF 1 million –
43. Nestlé S.A., “Nestlé Information Policy”, April 1998. for a broad-based information campaign in Nigeria.
44. Nestlé S.A., Management Reports 1999–2001. Until the year 74. “Nestlé, the community and the United Nations Millennium
2000, the General Meeting had always taken place at the end Development Goals”, January 2006.
of May; from 2001 onwards it was brought forward to early or 75. www.nestle.com, Economic and International Relations (EIR),
mid-April, depending on Easter dates. 2006.
45. Vappereau, Thierry: “Pourquoi, comment et jusqu’à quel point 76. ibid.
améliorer concrètement l’information financière d’une société: 77. ibid.
le cas pratique de Nestlé”, manuscript 7.7.1986. 78. Brabeck, Peter: “Opinion” in The Guardian, 8.9.2003.
46. Nestlé S.A., Minutes of the Board, No. 520, 17.11.1994. 79. Oberhänsli, Herbert: “No Fair Trade Without Free Trade”, in
47. Maucher, Helmut: “Wir wollen Eigentümer, keine Speku- Wall Street Journal, 22.11.2004.
lanten”, interview with Arno Schmocker, Finanz und Wirt- 80. See Chap. 8, “Research and Development”, p. 191 ff.
schaft, 3.5.1995. 81. The issue at stake was whether to allow chocolate producers to
48. Kappel, Joachim A. and Bröcker, Friedrich: Interview with Hel- use non-vegetable fats in addition to cocoa butter. Harmonisa-
mut Maucher and Peter Brabeck in: “Gespräche IV”, Egon tion became necessary when the UK and Denmark, countries
Zehnder International, Hamburg 1999. which had always allowed this, joined the then EC in 1973.
49. Nestlé S.A., Minutes of the Board, no. 494, 13.9.1989. France and Belgium, which were traditional chocolate countries,
50. Nestlé S.A., “Management Report 1992”, Vevey 1993, p. 53. objected to any concession at all; it was only after years of wran-
51. Nestlé S.A., “Stratégie du Groupe”, 6.11.1998, p.17. gling that a compromise was found to allow 5 percent non-veg-
52. Nestlé S.A., “Nestlé und die Biotechnologie”, Vevey 1997. etable fats as an option, but not a mandatory requirement. Nestlé
53. Exhibition “Gene Worlds – Focus on Food”, Alimentarium and CAOBISCO had campaigned in favour of this compromise.
Vevey, 27.3.1998–10.1.1999. 82. Brabeck, Peter: “The New Balance of Power Between Busi-
54. The products in question were a chocolate bar called Butterfin- ness, Politics and NGOs”, ISC Symposium, University of
ger, imported from the USA to Germany, and locally produced St. Gallen, 18.5.2001.
Leisi toast bread in Switzerland. Both products contained 83. Nestlé S.A., “Position Paper Debora Rukmawati”, Public
genetically modified maize and were withdrawn from the mar- Affairs, Nestlé, 3.10.2005.
ket shortly after launch, due to unsatisfactory sales. 84. “Rigged rules and double standards, trade, globalisation and
55. Brabeck, Peter: “Beyond Corporate Image: The Search for the fight against poverty”, Oxfam, March 2002.
Trust”, Oxford University, 30.11.1999. 85. “Mugged, Poverty in your coffee cup”, Oxfam, 18.9.2002.
56. Nestlé S.A., “Position Paper Nestlé and GMO coffee”, 3 July 86. Rukmawati, Debora, loc. cit. See also the Nestlé brochure enti-
2006. tled “What can be done?”, December 2003 and Nestlé S.A.,
57. Nestlé S.A., “Position Paper Nestlé and gene technology”, July “Nestlé Kaffeebericht 2003”, Vevey 2004.
2006. 87. “Milking the CAP, How Europe’s dairy regime is devastating
58. Conversation with Niels Christiansen, 25.7.2006. livelihoods in the developing world”, Oxfam Briefing Paper No.
59. Nestlé S.A., “Nestlé Corporate Business Principles”, 2nd issue, 34, December 2002. Nestlé countered with the argument that
November 2004. it purchased only 10% of its global milk requirement in the EU,
60. See Chap. 10, “Human Resources”, p. 253 ff. as against 60% from developing countries (Nestlé Statement
61. Nestlé’s Corporate Governance Principles were included in the 13.2.2003).
Nestlé Corporate Business Principles in 2002. Cf. also Chap. 9, 88. Nestlé and Ethiopia, Statement by Peter Brabeck, Nestlé CEO,
“Corporate Governance”, p. 225 ff. 23.12.2002.
62. Cf. Box: “Donations Policy”, page 293. 89. Nestlé S.A., press release, 24.1.2003.
63. Cf. “WHO Code”, p. 278. 90. Nestlé S.A., “Position Paper Common Code for the Coffee
64. Nestlé S.A., “Nestlé Corporate Business Principles”, 2004, Community”, 2.3.2006.
p. 13, 19. 91. Nestlé S.A., “Der Nestlé-Kaffeebericht 2003”, Vevey 2004.
65. Noé, Martin and Rockens, Christian: “Drei von vier auf der 92. Nestlé S.A., “Die Rohkaffee-Käufe von Nestlé”, Vevey 1994.
Achse des Bösen”, interview with Peter Brabeck, Facts, 93. Maucher, Helmut: “Marketing ist Chefsache”, Düsseldorf
22.6.2006. 1992, p. 99.
66. Brabeck, Peter: “Blueprint for the future”, 5–7.5.2003, p. 16. 94. “Nestlé to launch Fairtrade Coffee”, Nestlé UK press release,
67. Nestlé S.A., “Nestlé Corporate Business Principles”, 2004, 7.10.2005.
p. 32. 95. Cf. Chap. 4, section entitled “Nespresso”, p. 109.
68. Cf. the brochures “Nestlé in der Gemeinschaft” (2001) “Nestlé, 96. Brabeck, Peter: “Blueprint for the future”, Vevey, 18.–
The Community and the United Nations Millennium Develop- 20.4.2005, p. 6–7.
ment Goals”(January 2006) and “Contributions à la commun- 97. Noé, Martin; Rickens, Christian: “Drei von vier auf der Achse
auté”, 2005. des Bösen”, interview with Peter Brabeck, in Facts, 22.6.2006.
358
VI. Footnotes
98. Nestlé S.A., “Umwelt-Fortschrittsbericht 2000”, Vevey 2001;

Nestlé S.A., “Nestlé und die Nachhaltigkeit 2001”, Vevey 2002;
Nestlé S.A., “Personalentwicklung bei Nestlé 2002”, Vevey
2003; Nestlé S. A., “Der Nestlé-Kaffeebericht 2004”, Vevey
2005; Nestlé S.A., “Das Engagement von Nestlé für Afrika
2005”, Vevey 2006; Nestlé S.A., “Das Nestlé-Konzept der
sozialen Verantwortung und seine Umsetzung in Lateinamerika
2005”, Vevey 2006.
99. Brabeck Peter, address to the Nestlé Public Affairs Global Con-
ference, Lausanne, 14.7.2005.
100. Brabeck, Peter: “Corporate social responsibility in a globalizing
market”, presentation to the Industrial Association of Vienna,
31.10.2001.
101. Brabeck, Peter, in conversation with investors, Socially
Responsible Investment, New York, 7.3.2006.
102. Brabeck, Peter: “Sustainability as part of a company’s respon-
sibility”, presentation at the University of Zurich, 3.5.2005.
103. Brabeck, Peter: “Creating Shareholder Value and Corporate
Responsibility: Competing Goals?”, presentation at the London
Business School, 13.7.2006.
104. Brabeck Peter, Socially Responsible Investment, New York,
7.3.2006.
105. GlobeScan 2005, quoted in the presentation by P. Brabeck at
the London Business School, 7.3.2006; cf. also Mortished,
Carl: “A plain-speaking defender on the battlefield of big-com-
pany ethics”, interview with P. Brabeck in: The Times,
29.7.2006.
106. See Chap. 10, “Human Resources”, section on “Child labour”,
p. 273 ff.
107. Cf. Chap. 2, table “Breakdown of global Nestlé Sales”, p. 62.
108. Brabeck, Peter: Statement at the World Water Forum, The
Hague, 20.3.2000. The latest figure in 2006 is 0.0009%.
109. Since the year 2000, Nestlé has reduced its water consump-
tion by 40 percent per tonne of production (Brabeck, Peter:
Interview with the WEF, internal publication, 11.1.2006).
110. Nestlé water policy, in: Nestlé S.A., “Nestlé Corporate Busi-
ness Principles”, 3rd edition, Vevey November 2004.
111. Brabeck, Peter, address to the Public Affairs Global Confer-
ence, Lausanne, 14.7.2005.
112. Nestlé S.A., “Das Nestlé-Konzept der sozialen Verantwortung
und seine Umsetzung in Lateinamerika 2005”, Vevey 2006,
p. 44/45.
113. Brabeck, Peter, Presentation at the “Socially Responsible
Investment” symposium, New York, 7.3.2006.
114. Brabeck, Peter, Interview with the World Economic Forum,
30.1.2006, www.weforum.org/homepublic.nsf/Content.
115. Voss, Oliver: “We feed the world”, in Der Spiegel, 28.4.2006
and Platthaus, Andreas in “Spiel mir das Lied vom Brot”,
Frankfurter Allgemeine Zeitung, 29.4.2006. Both articles relate
to the film “We feed the World” by Erwin Wagenhofer, in
which Brabeck made this statement.
116. Brabeck, Peter, addressing the Nestlé Public Affairs Global
Conference Lausanne, 14.7.2005.
359
Appendix
X. Index (Individuals and Companies) Brabeck-Letmathe, Peter (selection)

28, 39 (ERT), 50/52/305 (shareholder value, corporate objec-
tive), 53/304–306 (CSR), 55, 59/85 (two-pronged strategy,
PPP), 62/92–94 (nutrition, health & wellness), 78–89 (person-
Individuals ality, strategies), 89/91 (Nestlé model), 95 (strategic transfor-
mation), 98 (product portfolio), 105 (Purina), 108 (divestments),
111–113 (Nespresso), 133/135 (brand policy), 140 (geogr.
expansion), 162–164 (organisation, SBGs), 171 (NSBD), 172 f.
Abegg, Carl J. (60/40+), 175/178–181 (Executive Board), 180/183–184/189
34 (GLOBE), 204–205/220 (R&D), 225–226 (Corp. Governance),
241 (Compensation Committee), 241 (personnel decisions),
Agnelli, Giovanni 244–248 (dual mandate), 248/250 (new articles of association),
102, 120, 121 255–258 (principles), 259–260 (personnel policy), 264
(advancement of women), 270 (Perrier), 273 (Columbia), 280
Alexander, Robert D. (infant formula), 281 (WHO Code), 286 (communication), 288
116 (financial reporting), 290 (genetic engineering), 291 (Corporate
Business Principles), 293 (donation policy), 293 (UN), 297
Angst, Carl (WTO), 299 (NGOs), 303–304 (Fair Trade), 307–308 (water), 316
153, 238
Braun, Felix R.
Annan, Kofi 168, 316
294
Brown, Michael
Baltensweiler, Armin 236
238
Browne, Samuel
Bauer, Werner 125
11, 178, 180, 194, 198, 209, 236, 264, 317
Brundtland, Gro Harlem
Bellamy, Carol 280
280
Bulcke, Paul
Bettencourt, André 179, 180, 317
114, 238
Cantarell, Luis
Bettencourt, Liliane 178, 179, 180, 317
114
Castañer, Francisco
Biddulph, Jennifer 54, 175, 178–180, 259, 316
118
Cella, Frank
Biedermann, Dominique 178, 179, 316
245, 247
Conner, William C.
Blackburn, Peter H. 116
154, 166, 317
Corti, Mario A.
Blobel, Günter 11, 51, 175, 178, 242, 316
236, 239
Cronck, W. F.
Blum, Georges 130
238
Crull, Timm F.
Böckli, Peter 166, 316
239, 240, 244
d’Epinay, Pierre Lalive
Borel, Daniel 239
239
Dalle, François
81, 114, 238
Danforth, William H. / Donald

126
360
X. Index
Daniel, José Giorgis, Eric

152, 153, 175, 259, 316 238
Dapples, Louis Goldstein, Joseph

33 236
de Kalbermatten, Bruno Granelli, Exio

238 122
de Pury, David Gut, Rainer E.

238 11, 77, 79–81, 83, 92, 115, 226, 232, 234, 235, 237, 238,
240–242, 244, 246, 247, 264, 286
de Weck, Philippe
81, 232, 238 Hänggi, Rolf
81, 235, 239, 244, 245
Dijk, Frits van
178, 179, 180, 317 Harmsworth, Saint John
120
Dixon, Kenneth
154 Hunsicker, Robert
124
Domeniconi, Reto F.
152, 153, 162, 175, 178, 229, 232, 238, 316 Idei, Nobuyuki
239
Domizlaff, Hans
131 Johnson, Chris
175, 180, 184, 188, 317
Donati, Carlo M.
179, 180, 317 Jolles, Paul R.
81, 236, 239
Dreyer, William
129 Koopmann, Andreas
81, 239, 243–245
Duchemin, Antoine
232 Kudelski, André
239, 243
Dunkel, Arthur
239 Laube, Richard T.
179, 180
Edy, Joe
129, 130 Leutwiler, Fritz
81, 239, 240, 244
Favre, Eric
109, 110 Leven, Gustave
120
Frehner, Walter G.
238, 240 Liotard-Vogt, Pierre
81, 114
Fürer, Arthur
81, 109, 116, 238 Lord Simpson, George
239
Garrett, Michael W. O.
12, 167, 168, 178, 179, 316 Mahler, Alexander E.
152, 153, 168, 316
Gasser, Rupert
11, 110, 111, 162–164, 169, 175, 178, 204, 205, 208, 209, 316 Marra, Ed
179, 180, 317
George, Edward (Lord George)
239 Masip, Ramón
123, 152, 153, 167, 168, 171, 316
Gerber, Fritz
81, 238, 240, 244
361
Appendix
Maucher, Helmut O. (selection) Perrier, Louis Eugène Dr.

11, 34, 38 (new markets), 39 (ERT), 46ff. (shareholder value), 120
58ff. (two-pronged strategy, PPP), 64 (environmental protec-
tion), 77–87 (personality, strategies), 98 (product portfolio), Raeber, Robert
102–104/121 (water, Perrier), 105 (pet food), 106 (ice cream), 175, 178
109–110 (Nespresso), 132 (brand policy), 140ff (geogr. expan-
sion), 152ff. (organisational change), 191–192/194/198/212 Ralston, Everett Dr.
(R&D), 225ff. (Corp. Governance), 229 (opening up of the 126
shareholder base), 232 (CANES), 235ff (Board of Directors),
244 (dual mandate), 254ff. (Human Resources, principles), 261 Rappaport, Alfred
(advancement of women), 267ff. (IMEDE), 278ff (infant for- 42, 51
mula, WHO Code), 282ff. (communication), 285/290 (genetic
engineering), 288 (financial reporting), 291 (Corporate Busi- Reichenberger, Wolfgang H.
ness Principles), 293 (donation policy), 294 (int. organisations), 178, 179, 180, 242, 317
298 (ERT, ICC), 303 (social marketing), 316
Represas, Carlos E.
Maxwell, Brian 167, 168, 178, 179, 273, 316
118
Riboud, Antoine
McGinnis, Pat 120, 121
92, 105, 106
Rogers, T. Gary
Mentasti, Giuseppe Kerry 107, 129, 130
122, 123
Santa Cruz Sutil, Lucia
Merage, David / Paul 237, 239, 264
119
Sarkozy, Nicolas
Meyers, Jean-Pierre 121, 270
238, 244
Schmidheiny, Stephan
Milhaud, Serge 66, 238
171
Schöller, Karl / Theo
Morf, Rudolf 128
152, 153, 316
Schueller, Eugène
Morgenthaler, Max 114
192
Spiller, Joel
Mortes, Alfonso V. 125
238
Spoerry, Vreni
Muller, Edouard 237, 239, 264
34
Stiritz, William P.
Müller-Möhl, Carolina 92
237, 239
Strasser, Hans
Nestlé, Henri 238
31, 32, 102, 192, 216, 256
Studer, Robert
Olofsson, Lars 238
178, 179, 180, 317
Suter, Brian
Pagano, Camillo 11, 152, 153, 175, 196, 316
102, 109, 110, 152, 153, 163, 166, 168, 316
Tannenbaum, Sid
Pankofer, Josef 124
128
Tschan, Rudolf
Paternot, Maurice 109, 152, 153, 167, 316
34
362
X. Index
Tschumi, Jean Ceral Partners Worldwide (CPW)

158 151, 174, 175, 180, 195
Véron, Philippe Chef America

167, 174, 178, 316 99, 119, 141
Villiger, Kaspar Clintec

239 151, 195
Vincent, Jacques Coca-Cola

120, 121 28, 64, 70, 73, 91, 93, 132
Volcker, Paul Coca-Cola-Nestlé refreshments CCNR

239 151, 174, 180, 195
Weller, Joe Čokoládovny

167 145, 146
Xiaoping, Deng Credit Suisse (CS), SKA

17, 142 80, 179, 235, 238, 244
Yeltsin, Boris Danone (BSN)

148 28, 29, 38 57, 62, 67, 70–71, 73, 90, 91, 93, 94, 102, 120, 146,
147, 198, 200, 201, 233, 270
Young, Vernon R.
239 Disney
132
Dreyer’s Grand Ice Cream

62, 107, 129–130, 203
Companies
Findus
34, 84, 108, 119, 135, 170, 178, 194, 253
Ahold Food Ingredients Specialities S.A. (FIS)

72, 73 108, 165, 171
Alcon Laboratories Galderma

34, 69, 98, 108, 115, 116–117, 143, 153, 175, 179, 180, 233, 34, 115, 116, 117, 153, 174, 180
234
General Mills
Alpo 64, 71, 90, 91, 93, 132, 195
21, 62, 105, 124, 127
Givaudan S.A.
Anglo-Swiss Condensed Milk Co. 108
30–32, 38, 80, 142, 226, 229, 232
Häagen-Dazs
Beringer 94, 107, 129, 130
34, 50, 108
Herta
Buitoni 108, 156, 174
35, 84, 110, 119, 132, 151, 153, 154, 156, 157, 162, 163, 194,
210, 228, 259 Hoffmann-La Roche
32, 34, 179, 218, 226, 238, 244
Campbell’s Soup
70, 126 Innéov
99, 114, 115, 174, 175, 180, 213
Carnation
35, 71, 84, 86, 105, 124, 127, 133, 135, 151, 153, 166, 171, Jacobs Suchard
194, 287 29, 70, 71, 84
Carrefour Jenny Craig

72, 73, 187 93, 99
363
Appendix
Jopa Royal Ahold

34, 128 72, 73
Kraft Foods Sanpellegrino

28–30, 38, 69–71, 73, 84, 90, 91, 93, 94, 130 62, 103, 120, 121, 122–123, 268
Kroger Schöller
72, 73 62, 107, 128–129, 174
Libby’s Spillers
34, 83, 108, 133 62, 105, 125, 127
Lindt & Sprüngli Stouffer

71 34, 108, 119, 133, 166
L’Oréal Tesco
34, 69, 93, 94, 98, 99, 114–115, 116, 117, 137, 153, 175, 179, 72, 73
180, 213, 233, 234, 235, 238, 259
UBS, Schweiz. Bankgesellschaft
Maggi 80, 235
32, 34, 58, 98, 108, 171, 194, 209, 211
Unilac
Mars 34
28, 70, 73, 94, 105, 106, 108, 132, 133, 148
Unilever
Metro 27–30, 35, 38, 57, 62, 67, 69, 71, 73, 84, 86, 90, 91, 93, 94,
72, 73, 124 106, 107, 134, 147
Mövenpick Ursina-Franck
128, 129 27, 34, 194, 202, 205, 209
Nespresso Vittel
44, 56, 62, 67, 68, 85, 90, 99, 108–113, 175, 180, 304 34, 82, 86, 100, 102, 104, 121, 123, 208, 209, 270
Nestlé & Anglo-Swiss Holding Co. Ltd Wal-Mart

34 72, 73, 118
PepsiCo Wine World Estates (Beringer)

28, 29, 64, 70, 71, 73, 91, 94, 120, 131 34, 52, 111
Perrier Winiary
62, 71, 102–104, 120–121, 122, 123, 133, 135, 171, 172, 253, 136, 146, 147
269–270
Philip Morris (Altria Group, Inc.) [Kraft]

29, 70, 71, 73, 84, 90, 148, 229
PowerBar
93, 99, 118
Procter & Gamble (P&G)

28, 70, 71, 106, 179
Ralston Purina
29, 62, 69, 71, 90, 92, 105, 106, 126–127, 135, 164, 171, 173,
253
RJR Nabisco
28, 29, 70, 71, 73, 84
Rowntree
35, 84, 85, 131, 132, 151, 154–156, 166, 171, 194, 228
364
X. Index
365
Appendix
Publication data
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Nestle Transformational Challenge 1990 2005 en

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Nestle Transformational Challenge 1990 2005 en

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I wanted to stimulate your creative thinking and give Our goal is to earn consumers’ trust as their preferred

Nestlé will be celebrating its 140th anniversary this year. De-

It is rare for a corporate historian to be entrusted with the task

Tables and statistics are intended to provide a rapid over-

dividuals who would also have had interesting contributions

Michael W.O. Garrett (Asia, Oceania, Africa). We would also

those mentioned for their valuable contributions to this book,

mocracy would have been just as impossible under the con-

free Kuwait, albeit without bringing down Saddam Hussein.

situation. Contrary to the intentions of the intervening pow-

Nestlé reacted to the opening up of markets and the new

reorientation of the company towards the areas of nutrition,

and product-based distribution, to offset the negative effects

the US and then in Western Europe. Nestlé was well-prepared

discounters’ that had already been around in the 1990s in-

tween the shareholders, Board of Directors and Executive

2. The Political, Economic and Social Environment

With the acquisition of the Ursina-Franck Group in 1971, for

Whenever anyone talks about Nestlé – whether in internal or external re-

Food & Beverage Sales of Major Food Companies 1990/1997/2005

A 140-year history of international growth

As a multinational enterprise, Nestlé has to adapt to the changing environment,

Nestlé & Anglo-Swiss Factories and Subsidiaries, 1905

1 Henri Nestlé, entrepre-

2 The Anglo-Swiss Con-

1 It was in 1905 that Nestlé

First Nestlé Factory on Each Continent

Europe Switzerland 1866 Cham (Anglo-Swiss Condensed Milk Co.)

N. America USA 1882 Middletown (Anglo-Swiss Cond. Milk Co.)

Australia 1908 Toogoolawah & Wilson Plains

S. America Brazil 1920 Araras

Africa S. Africa 1927 Estcourt & Donnybrook

Asia Japan 1933 Hirota

* 1843: first commercial 2 Nestrovit is the result of a

Nescafé soluble coffee

Elements of the Nestlé Culture

2. The Political, Economic and Social Environment

The interrelationships between a company and the environ-

The emergence of new markets and growth regions

thus opening up new opportunities for international companies such as

Increasing integration of previously loosely connected markets 4

4–6 Construction of the dairy

Number of Nestlé Regions and Countries by Zones, 1990/2000

EUR AMS AOA

1–2 Construction and view

3 Expansion of the factory

4 Safety measures for main-

Shareholder value, pressure for disclosure and Corporate Social Responsibility

In 1986, Alfred Rappaport published his book “Creating Shareholder Value.

Evolution of Dividends, 1990–2005 (in CHF)

1–6 Coffee research carried

pany; for instance, its employees, proprietors, suppliers, customers, competi-

Helmut Maucher on Shareholder Value

The impact on Nestlé

Distribution of Share Capital by Nationality, 1992–2005 (in %)

Share Capital by Investor Type, 1994–2005 (in %) 23

Peter Brabeck on the Corporate Objective

Effects of the four key factors inﬂuencing Nestlé’s sales, 1996–2005

Real internal growth (RIG)

best prospect of continuing to generate added value for the shareholders of

The fall of the Berlin Wall

2. ensuring that Nestlé remains an attractive proposition for long-term in-

Peter Brabeck on Corporate Social Responsibility