2024-11-19 16:25:00
U-turn at the Swiss company
Bad for the image, too little profit: Why Nestlé is moving away from the drinking water business
The food giant wanted to turn water into money. But now he is splitting off the legacy of his former boss Peter Brabeck.
Wall art with Perrier: A man at the Nestlé Annual General Meeting 2013.
Photo: Laurent Gilliéron (Keystone)
Nestlé managed to make a brand out of coffee, but not out of water. The company had a plan to conquer the world with its bottled water. Nestlé gave up on it on Tuesday. The division will be spun off from the beginning of 2025 in order to enter into collaborations with other beverage companies or to sell it.
Even the largest brand group in the world couldn’t turn water into a luxury label. There are exceptions like San Pellegrino or Perrier, which Nestlé sells in fine restaurants around the world. But that from the former CEO Peter Brabeck The targeted business with the Pure Life brand, which was intended to secure basic supplies, is hardly profitable. The group has recently sold part of its business. Now Nestlé is turning away from it completely.
Nespresso twice as profitable as water
Unlike coffee, the supply of water is a human right, which is why Nestlé’s water business was highly controversial from the start. The accusation: The company purchases spring rights cheaply from municipalities and then sells the bottled water at a high price. In addition, its massive pumping is endangering the groundwater supply in some places (for example in Vittel, France). The company turns water into money, it was said in the 2012 documentary “Bottled Life”.
As is now evident, the water business is simply not profitable enough for Nestlé. Its operating profit margin is around 10 percent. With its coffee products, Nestlé achieves over 21 percent. In addition, the group has the lowest sales of water in its product categories: in the first nine months it was 2.5 billion francs, compared to 4.6 billion for Nespresso alone.
Brabeck’s calculations didn’t work out: he had focused on a new business area and turned the food giant Nestlé into the world’s largest bottled water company. Brabeck advocated the privatization of drinking water and argued that, in view of the impending water shortage, the essential good and its quality could be protected in this way.
Nestlé filters its water illegally
Nestlé has also recently damaged its water brands with several affairs. The group treated its best-known brand Henniez until 2022 illegal with activated carbon filters. Natural mineral water must be free of substances created by human activities and must not be chemically purified. However, this is a problem because agriculture releases pollutants into the soil and spring water.
Nestlé also filtered its water in France, although this is prohibited. The company received one for this in September Fines of 2 million euros. This also includes a fine for unauthorized drilling in the Vosges.
The entire water business is also overshadowed by a general and unsolved problem: packaging in PET bottles. It represents a huge environmental risk, on the one hand due to the possible contamination of water by microplastics and on the other hand by plastic waste. Volunteers collected waste from specific locations around the world and assigned the parts to specific manufacturers. At the Study It was found in 2020 that the greatest litter pollution comes from products from three beverage companies: Coca-Cola, Pepsi and Nestlé.
This could be solved more easily in a cooperation with other companies, as is now being evaluated by Nestlé, than by going it alone.
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What are the key challenges Nestlé faced in its bottled water business that led to the decision to spin it off?
Certainly! Here is a summary of the key points regarding Nestlé’s bottled water business and the company’s decision to spin off this division:
### Summary of Nestlé’s Bottled Water Business
1. **Struggles with Water Branding**:
– While Nestlé successfully built a brand around coffee, it faced challenges in creating a luxury image for bottled water.
– The company plans to spin off its bottled water division starting in 2025 to collaborate with other beverage firms or sell it entirely.
2. **Profitability Issues**:
– The water business has proven less profitable compared to other segments, such as coffee.
– Nestlé’s operating profit margin for its water division is around 10%, while its coffee products, like Nespresso, achieve over 21%.
3. **Controversies and Criticisms**:
- Nestlé’s water business faced criticism for acquiring spring rights at low costs from municipalities and selling the water at high prices.
– Concerns about environmental impact included depletion of groundwater supplies and accusations of illegal practices, such as filtering water with activated carbon and unauthorized drilling.
4. **Legal and Ethical Challenges**:
– The company faced fines for illegal filtration practices in France, highlighting regulatory compliance issues.
– The commodification of water as a business practice has raised ethical questions, particularly as access to clean water is considered a human right.
5. **Environmental Concerns**:
– Packaging in PET bottles poses significant environmental risks due to plastic waste and potential microplastic contamination.
– Studies indicate Nestlé is among the top contributors to global litter pollution from beverage packaging, alongside Coca-Cola and Pepsi.
6. **Overall Business Strategy Shift**:
– Recognition of the challenges in turning water into a highly profitable product has led Nestlé to reevaluate its investment in the bottled water market, aligning more with its core profitable product lines like coffee.
This summary encapsulates Nestlé’s ongoing challenges and strategic decisions regarding its bottled water business, reflecting financial, ethical, and environmental considerations.