LONDON  - Now is a good time for Nestlé to start a sugar detox. The $240 billion food group’s new boss wants to spruce up a tired portfolio by buying and selling businesses with sales equivalent to 10 percent of group total, or roughly $9 billion. A recent licensing deal with Starbucks gets him less than halfway there. Offloading low-margin confectionery brands is the next logical step.

Mark Schneider has stuck to the script set out at his inaugural investor day last September. The deal with Starbucks gives Nestlé control of a business with sales of $2 billion a year. It’s part of a big push into coffee – now one of Nestlé’s four strategic priorities along with water, pet care and infant nutrition. Throw in the purchase of Atrium probiotics and sale of U.S. junk food brands to Ferrero, and Schneider has so far bought and sold brands with revenue of $3.6 billion.

To make up some of the balance, offloading Nestlé’s sugar brands makes sense. As well as jarring with the company’s health focus, the confectionery division has recorded weak organic sales growth and the second-lowest operating margin at the group for two consecutive years as consumers opt for more wholesome snacks. Nor is confectionery high on Schneider’s priorities, going unmentioned in his 75-minute maiden speech.

It’s unlikely that Nestlé will go completely cold turkey. Kit Kat alone generated revenue of $2.7 billion last year according to Euromonitor data - roughly a third of the global confectionery business. A smattering of chocolate snacks are still growing. But dumping underperforming brands like Rolo, Aero and Quality Street would remove $3 billion from Nestlé’s top line. The recent disposal of the Swiss group’s U.S. candy brands means there will be fewer competition issues if it does opt to sell to an American company like Hershey’s.

Of course, Schneider may prefer to buy rather than sell. He needs to bulk up considerably in water, a business that requires scale to be lucrative, to have any chance of improving the division’s low 13 percent operating margin. But kicking sluggish sugar brands is a sensible part of any drive for healthier top-line growth.

CONTEXT NEWS

- Nestlé Chief Executive Mark Schneider plans to buy and sell assets worth 10 percent of group sales by 2020 as part of the group’s turnaround plans.

- The Swiss food giant said on May 7 it had agreed to pay $7.15 billion in cash for perpetual rights to market Starbucks products such as branded coffee and drinks outside the U.S. company’s coffee shops.

- The company bought nutritional supplement maker Atrium Innovations from a group of investors led by Permira Funds for $2.3 billion in December.

- It sold its U.S. confectionery business to Italian chocolate manufacturer Ferrero for $2.8 billion in January.

(Editing by Peter Thal Larsen and Katrina Hamlin)

© Reuters News 2018