Nestle: Crisis follows crisis at Nestle

Chris White's departure from his post as UK managing director of Nestle Rowntree two weeks ago could not have been more different from his arrival. He walked into the company in December 2003 in a blaze of publicity, trumpeting himself as the man who would reverse the fortunes of a business that he claimed was in a state of crisis.

Less than two years later, he has exited amid rumours of a gaping hole in the confectionery company's profits. Staff learned of his departure via a terse statement read out by commercial director Kevin Jones, who said White had 'left the company by mutual agreement' and that Nestle Rowntree needed to 'improve its business performance'.

When White joined Nestle Rowntree he quickly identified problems he believed needed fixing, then laid the blame for them at the door of recently-departed marketing chief Andrew Harrison and his team. But the tactics White employed to remedy those problems appear to have exacerbated them. While sales of flagship brand Kit Kat's two-finger and Chunky variants rose from £94m to £99m last year, the company's overall share of the chocolate confectionery market fell from 21.2% in 2003 to 20.9% in 2004, according to Euromonitor.

This, combined with Nestle's falling share in the sugar confectionery sector, contributed to a continuing decline in total market share, down from 17.2% last year to 17%, and predicted to fall further. Euromonitor expects Kit Kat sales to decline in 2005.

These figures may not seem catastrophic, but they mask the heavy investment in brand proliferation that has been a hallmark of White's strategy, according to Ian Bell, senior research analyst at Euromonitor. White's stated intention at the start of his tenure was to get 'more people to buy more products more often at higher prices to make more money for ourselves and our retail customers'. He may have convinced consumers to buy more, but his methods in achieving this appear to have damaged sales, staff morale and the brands' long-term health.

The colourful and outspoken New Zealander - nicknamed 'The Bulldozer' - had earned a reputation as a troubleshooter as general manager of the ice-cream division of Nestle Oceania and in various roles at Coca-Cola.

Peter Brabeck, chairman and chief executive of the Nestle Group, identified White as just the man to inject some much-needed vim into the lacklustre performance of the UK confectionery division.

Once in place, White soon demonstrated his uncompromising style. The consensus is that he was openly contemptuous of the previous marketing management and proceeded to make dramatic changes to some of the nation's favourite brands and the organisation that had carefully nurtured them.

One of the first casualties was Liam Newton, the highly respected head of brand marketing who had been tipped to succeed Harrison as marketing director. In his place, White drafted in, on an interim basis, Sam Hunter, a former Coca-Cola colleague from Australia, whom he described as having 'a diverse skill base in marketing' and 'someone who can realise our strategy'. The pair then proceeded to radically restructure the brand team - just two of the 23 people in place in December 2003 are still there - and set in train a proliferation of product variants, including myriad flavours of Kit Kat.

White subsequently committed what many considered an act of brand vandalism when he axed the long-standing 'Have a break, have a Kit Kat' strapline.

As one industry observer put it: 'Strong advertising propositions are very hard to come by and you don't walk away from 60 years of heritage lightly.'

Some sources suggest that the changing of the strapline to 'Make the most of your break' was intended to generate press coverage. It certainly achieved that: consumers were outraged. More damaging was the licence it gave to other brand owners to move into the space it had left.

Analysts point out that while all the 'new' news around Kit Kat generated short-term sales, the variants cannibalised sales of the core brand. 'What does Kit Kat stand for now?' asks one. 'There is nothing memorable or distinctive about it, and no apparent vision for the brand or its advertising.'

By the end of 2004 'White was under huge pressure from head office to get results very quickly,' says one agency insider. 'He set himself up to do that and made a lot of noise about it.'

A key plank of the recovery strategy White outlined to Marketing on his arrival in February last year was to strengthen partnerships with retailers 'by introducing strategies to increase sales and efficiencies and make us more joint profit'. He claimed the company had been spending too much on trade marketing and that supermarket discounting was far too high.

Almost two years on, little seems to have changed. 'We don't think much of Nestle,' claims one retail source. 'All year it says it will put more value into the market and then, come Christmas, it does silly deals. It panics and chases volume.'

What's more, the source adds, the company is guilty of a lack of customer focus, it does not listen to retailers and it adopts a one-size-fits-all strategy. Even worse, he believes, the quality of the Kit Kat product itself is poor. 'You can see the wafer through the chocolate and the fillings tend to be down one side. Why should I get my customers to spend 40p on that?'

Such strength of feeling, one observer believes, is the reason Double Cream ends up in supermarket 'three-for-two' offers. He adds that White's withdrawal of advertising support from brands has seriously dented retailers' confidence - particularly in the important impulse sector. The strategy could spell the death-knell for Double Cream, which Nestle Rowntree had hoped would grab share of the premium chocolate sector.

Restoration plan

White's impact would seem to have been the antithesis of what the Nestle bosses were hoping. The signs are that his successor, Paul Grimwood, who will join Nestle Rowntree on 1 December, is a very different proposition.

Currently assistant to Lars Olofsson, head of Nestle Zone Europe, Grimwood was previously managing director of Nestle's petcare business in the UK, where, says the company, he helped deliver consistently strong business performance. Critically, he is also a protege of Nestle UK chairman and chief executive Alastair Sykes.

Staff are encouraged by the fact that Grimwood grew up in the company's home town of York. 'There is a sense that normality will return and he will restore a sense of continuity,' says a source close to the company.

Clearly, much needs to be done to restore morale within the business amid rumours that the York factory may be closed and that the headquarters will co-locate with Nestle UK's head office in Croydon.

The 42-year-old Grimwood has a strong sales and marketing background honed at Pedigree Petfoods, Highland Distillers and premium spirits distributor Maxxium, and has a reputation as a results-oriented change manager. He will need a strong understanding of the relationship British consumers have with chocolate, and will tamper with that at his peril. It is to be hoped that Nestle's hierarchy will give him the support he needs to rebuild the brands.

NESTLE ROWNTREE PRODUCT LAUNCHES 2004-2005 April 04: Lemon Yoghurt Kit Kat (limited edition)
May 04: Low-carb Kit Kat and Rolo editions
May 04: Fruity Smarties June 04: Seville Orange and Caramel Kit Kat editions
September 04: Aero Caramel
October 04: Christmas Pudding two-finger Kit Kat
March 05: Rowntree's 'Get real' campaign removes artificial colours and preservatives
March 05: Caramac four-finger Kit Kat (limited edition)
April 05: Aero Bubbles
May 05: Milky Bar Raisins
May 05: Strawberries and Cream two-finger Kit Kat (limited edition) June 05: Red Berry and Mango and Passionfruit Kit Kat editions
July 05: Wonka Range (tie-in with film release)
August 05: Smarties Hexatube
August 05: Texan bar revived
October 05: After Eight Straws and Quality Street Pizazz

This article was first published on Marketing