Nestlé this week reported sales of SF64.6 million for the first nine months of the year, unchanged compared to the same period a year earlier on a reported basis but some 2.9 per cent ahead on a like-for-like basis.
Within this, the milk products, nutrition and ice cream division remained the largest single unit, with sales of SF18 million, up from SF17.6 million a year earlier, and with growth of 1.7 per cent on a like-for-like basis. Organic growth was 4.9 per cent.
"Chilled dairy products remain so important for us because of the health benefits which are widely associated with them," said Nestlé spokesman François-Xavier Perroud. "Focusing on nutrition is a key part of our strategy, and dairy products clearly have an important part to play," he added.
Nestlé is already active in the nutritional dairy sector through LC1, its branded probiotic ingredient which is used in a number of products, but clearly believes there are more opportunities for growth in this particular sector.
"Nestlé invests more than SF1.2 billion in R&D each year, and we are clearly spending proportion of that on dairy products, not only with the aim of expanding our position in nutritional products but also with a view to reducing our exposure to some products which have become commoditised," Perroud said.
He cited the example of the recent agreement with compatriot Emmi, which saw the cheese maker take over the production of Nestlé dairy products (butter, fromage frais and yoghurt sold under the Nestlé Hirz brand) in Switzerland, allowing the larger company to concentrate its efforts on marketing and new product development, including more functional products.
"When you don't have the critical mass to build a chilled dairy business in one particular market single-handedly, common sense dictates that you look into other means of achieving this," Perroud told DairyReporter.com. "In Switzerland, it made sense to transfer production to Emmi so that we could concentrate on other areas, but in Germany, for example, we took a different approach, licensing production to Mueller."
He added: "We are continually looking at the best way of managing the dairy business to maximise the opportunities and focus on the most important areas, such as nutrition, so other agreements could be reached in the future, especially in Europe."
Chilled dairy will not be the only area where nutritional products are likely to feature: "We have a whole range of products which could benefit from a new focus on health and nutrition. There is no reason why we should not have nutritional Nescafé coffee, or healthy chocolate [indeed, Nestlé already has a low-carb version of several countline brands] or even nutritional ready meals," said Perroud.
Another reason for focusing increasingly on premium, nutritional products in the chilled dairy market is cost control. "With global dairy prices rising dramatically over the last year, we have been forced to raise our prices, and that has clearly had an impact on growth," said Perroud. "For commodities such as cocoa and sugar, vital for our confectionery business, we can hedge against price increases, but we cannot do that for dairy."
Functional dairy products tend to sell at a premium to their traditional counterparts, and the additional profits generated by them can help offset higher input costs linked to raw materials, said Perroud.