Nestle streamlines R&D to speed up product innovation

The Swiss company said it would merge its Nestle Research Center and Nestle Institute of Health Sciences into one organization called Nestle Research. (Reuters)
Updated 24 May 2018
0

Nestle streamlines R&D to speed up product innovation

LONDON: Food giant Nestle plans to combine its scientific research operations into a single unit in an attempt to speed up development of new products at a time when competition from smaller rivals is intensifying.
The world’s biggest packaged food maker, with brands including Nescafe coffee and Perrier water, has been struggling with slowing sales growth for years. Now it is also under pressure from activist shareholder Daniel Loeb to increase investor returns.
To better compete, the Swiss company told Reuters it would merge its Nestle Research Center and Nestle Institute of Health Sciences (NIHS) into one organization called Nestle Research.
The new entity, to be announced later on Thursday, will continue to be based in Lausanne, Switzerland and will employ around 800 people.
The reorganization, effective July 1, will not involve job cuts or the closure of facilities, a spokesman said.
By linking the “blue-sky” research done at NIHS with the more commercially focused Research Center, it hopes to accelerate the translation of scientific discoveries into marketable products.
It also hopes this will help it compete with smaller, nimbler rivals who have been eating away at the market share of Nestle and other big firms like Danone, Unilever, Kraft Heinz and Kellogg.
Nestle Chief Technology Officer Stefan Palzer acknowledged earlier this month that his company had to keep pace with rising demand for goods that are organic, gluten-free or vegan.
“Big trends are embraced by smaller companies a bit more actively than the big companies,” Palzer told Reuters before Nestle’s streamlining plans had been finalized.
“We are adjusting our portfolio, doing many innovations and renovations to make the portfolio more relevant and to address those trends, but smaller companies are more agile.”
In the US — the world’s biggest packaged food market — small challenger brands could account for 15 percent of a $464 billion sector in a decade’s time, up from about 5 percent last year, Bernstein Research predicted last year.
The combination of research units is the latest move by Palzer aimed at speeding up development and ensuring research efforts are commercially viable.
Palzer, who took over Nestle’s innovation and research and development operations in January, is also supplementing long-term research projects with incremental product launches made faster by experimenting with new ideas more quickly.
Last month, for example, Palzer and colleagues got the idea for a vegetarian or vegan food product while on a business trip.
“Thursday we had an idea, Friday we returned to Switzerland and Monday evening I was able to taste the first prototype,” Palzer said. “Wednesday, this prototype was shown to the executive board, and Friday it was in the global pipeline.”
He declined to give more details of the product, except to say it is currently being assessed by the operations team to see how long it will take to produce and on what machinery.
Other steps include efforts to apply specific developments to more products, such as Nestle’s recent designer sugar crystals launched in low-sugar Milkybars in March, which will go into other products in the future.
The importance of agility was underlined by Nestle’s recent struggle to capitalize on resurgent demand for frozen foods.
The company says it reformulates one third of its product portfolio every year.
Nestle spent 1.72 billion Swiss francs ($1.73 billion) on R&D last year, down slightly from 2016 but up 22 percent from 2012. The company’s sales fell 2.6 percent over the same period.
As a percentage of sales, its expenditure has fluctuated only a little, but demands on the unit have increased.
Wells Fargo analyst John Baumgartner said that across 10 large publicly traded US food companies, median expenses for R&D and advertising have declined 20 percent over the past five years.
“As voids of ideas and marketing have emerged, start-ups have been more responsive to consumer needs, won the culture and created the emotional connections that drive sales,” he said in a recent note.
Palzer said some industry peers had been outsourcing innovation to cut costs, relying on acquisitions of small brands or partnerships with suppliers.
But he said it was critical for Nestle to maintain scientific expertise in-house to keep its own portfolio fresh and to be an attractive partner for collaboration with others. Nestle does R&D around the world, involving around 5,000 people.
Fundamental scientific research will remain key at Nestle, Palzer said, but he also highlighted the value of external partnerships and acquisitions that can bring in new research or capabilities more easily.
Scientific research and innovation itself is not necessarily the reason why big breakthroughs tend to be rare for multinational companies, said Shaun Browne, investment banker at Houlihan Lokey, who advises food companies on deals.
“They often don’t have the patience or passion that is really required,” Browne said. “Often these things are one individual who is just totally determined and passionate about their product and sees it through.”


‘Don’t be too optimistic’: Huawei employees fret at US ban

Updated 26 May 2019
0

‘Don’t be too optimistic’: Huawei employees fret at US ban

  • This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei
  • Another critical partner, ARM Holdings, said it was complying with the US restrictions

BEIJING: While Huawei’s founder brushes aside a US ban against his company, the telecom giant’s employees have been less sanguine, confessing fears for their future in online chat rooms.
Huawei CEO Ren Zhengfei declared this week the company has a hoard of microchips and the ability to make its own in order to withstand a potentially crippling US ban on using American components and software in its products.
“If you really want to know what’s going on with us, you can visit our Xinsheng Community,” Ren told Chinese media, alluding to Huawei’s internal forum partially open to viewers outside the company.
But a peek into Xinsheng shows his words have not reassured everyone within the Shenzhen-based company.
“During difficult times, what should we do as individuals?” posted an employee under the handle Xiao Feng on Thursday.
“At home reduce your debts and maintain enough cash,” Xiao Feng wrote.
“Make a plan for your financial assets and don’t be overly optimistic about your remuneration and income.”
This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei as a result of the ban.
Another critical partner, ARM Holdings — a British designer of semiconductors owned by Japanese group Softbank — said it was complying with the US restrictions.
“On its own Huawei can’t resolve this problem, we need to seek support from government policy,” one unnamed employee wrote last week, in a post that received dozens of likes and replies.
The employee outlined a plan for China to block off its smartphone market from all American components much in the same way Beijing fostered its Internet tech giants behind a “Great Firewall” that keeps out Google, Facebook, Twitter and dozens of other foreign companies.
“Our domestic market is big enough, we can use this opportunity to build up domestic suppliers and our ecosystem,” the employee wrote.
For his part, Ren advocated the opposite response in his interview with Chinese media.
“We should not promote populism; populism is detrimental to the country,” he said, noting that his family uses Apple products.
Other employees strategized ways to circumvent the US ban.
One advocated turning to Alibaba’s e-commerce platform Taobao to buy the needed components. Another dangled the prospect of setting up dozens of new companies to make purchases from US suppliers.
Many denounced the US and proposed China ban McDonald’s, Coca-Cola and all-American movies and TV shows.
“First time posting under my real name: we must do our jobs well, advance and retreat with our company,” said an employee named Xu Jin.
The tech ban caps months of US effort to isolate Huawei, whose equipment Washington fears could be used as a Trojan horse by Chinese intelligence services.
Still, last week Trump indicated he was willing to include a fix for Huawei in a trade deal that the two economic giants have struggled to seal and US officials issued a 90-day reprieve on the ban.
In Xinsheng, an employee with the handle Youxin lamented: “I want to advance and retreat alongside the company, but then my boss told me to pack up and go,” followed by two sad-face emoticons.