Nestle – Innovation & Employee engagement

Challenge

In November 2013, Nestlé asked themselves whether innovation can be fuelled by their employees. Inspired by initiatives like Apple’s Intrapreneurs, Nestlé wanted to apply this model internally, the first of its kind in the FMCG sector.

After all, employees are consumers too!

But what Nestlé realised is that the employees behind the ideas were just as important as the ideas themselves. So they aimed to develop their employees as intrapreneurs and not just focus on ideation. This gave their employees skin in the game and gave Nestle the opportunity to embed a value that they wanted to see more of, in Nestle – Agility.

Solution

The InGenius program was created. Employees submit their ideas to innovation challenges that Nestle posted through the program. A shortlist of ideas was then created and employees behind the idea were given the chance pitch their idea to senior management. The InGenius team invests heavily in employees who reach this stage by coaching them, helping them develop their concepts, and validating their idea/product prototype.

As a result these employees learn how to research, ideate, prototype, test, and pitch, with the aim of highlighting the business potential of their ideas. The ideas that are backed by senior management are then accelerated to pilot testing.

InGenius’s goal was to encourage ideas and to ensure there was a process in place to nurture the entrepreneurial employees who emerged from the process. And they succeeded. The program has been around for 6 years now!

They maintained momentum through the stories and videos created as a result of successful idea submissions. Employees and potential employees could see that Nestle not inly encourages employee led innovation, but also developed the employees who came up with these ideas to be better ‘intrapreneurs’. The InGenius microsite created a community of internal entrepreneurial talent.

Results

To date, 4,800 ideas have been shared, and 67 projects have been funded across the world.

Nestle’s real benefit was that of people development. Not only did a whopping 63,000 employees engage with this initiative, those who were involved as ‘intrapreneurs’ now bring a start-up mindset to the business. Others learned that collaboration and support for ideas is just as important as the ideas themselves.

InGenius’ success is evident in the stories and innovations that have evolved from the initiative and the increased employee engagement. Further, it is estimated that some of the problems that were solved and implemented through this initiative saved Nestle millions of dollars.

Today, companies need a way of engaging and retaining their top talent. Not only this, but companies also need to find a way to develop talent in a way that is in keeping with the culture the company wants to embed. Agility in the FMCG sector has long been a topic of discussion. While most other companies are struggling with this, Nestle has found a way to inspire their team to be agile and catalyse them to solving problems that Nestle faces – key for the coming months!

FMCG conglomerate shake up underway?

On 21 June 2022, The Kellogg Company announced that they were planning to separate into 3 different businesses by end of 2023. As soon as this hit the news, I’m sure investors and employees of other companies are wondering which conglomerate might be splitting up next. According to Bank of America analyst, Bryan Spillane, the big food breakup “is already underway”. However we, at Salesbeat, think the FMCG conglomerate break up is what is underway.

Why now?

So what is happening now, that is accelerating M & As and separations? We’ve just come out on the other side of a longer than expected pandemic, which had a larger than expected impact on lifestyles and consumer buying behaviour. While certain trends accelerated during the pandemic, new ones emerged and solidified at an accelerated pace too. Remote working and remote education being two of those. While remote education is unlikely to continue in the short to medium term, remote working is here to stay.

As a result of remote working, a new trend/behaviour came into being – living outside the city. Pre-pandemic, everyone wanted to reduce their commutes and live close to work. Healthy snacking was a trend that accelerated during the pandemic and is one of the reasons why the Kellogg split happened.

Another reason for this is the rapid increase in supply chain costs. In this context, companies need to double down on efficiencies so savings can be realised in other areas. And one of them is the route to market.

What about economies of scale?

While you may think that these companies benefit from economies of scale, you’d be right, but only when it comes to manufacturing. When it comes to sales, marketing and strategy teams, each category is likely to have a different team. Also, transport and logistics costs are likely to be separate from other categories.

So FMCG conglomerate break up helps companies focus on growing sales/distribution of distinct categories that share both the route to consumer and manufacturing technology. For example, holding a portfolio purely in the snacking category or in the breakfast cereals category.

So let’s look at some of the other companies under discussion.

Unilever

Unilever is one of the few FMCG companies that owns brands across very disparate categories. The own and sell brands under the Beauty & Wellbeing, Personal Care, Home care, Ice Cream, Condiments, Soup and Plant based meat categories.

Not only do these categories not share the same route to market, but they also have different teams managing the various brands. Furthermore, these categories most likely have raw materials from very disparate suppliers which are manufactured in very different manufacturing entities.

Nestle

Another large Food & Beverage conglomerate that owns brands across very different categories ranging from Pet food to Coffee & Coffee makers.

While brands in the same category may share similar routes to consumer, manufacturing sites and suppliers, brands across categories do not.

General Mills

General Mills has brands across very different food categories and also in Pet food. Their food portfolio includes brands in categories ranging from tinned vegetables (Green Giant) to Baking (Pillsbury, Betty Crocker etc) and from the snacking occasion (Larabar, Bugles, EPIC, Yoplait etc) to ice cream.

FMCG companies with diverse portfolios that are not likely to split are:

PepsiCo

PepsiCo is another company that has come under scrutiny for the very different categories their brands fall under. However, PepsiCo is one of the few companies whose strategy took this into account to convert into a strength. There was a concerted effort from the PepsiCo team to create one route to market. This is one reason why splitting PepsiCo up does not make strategic sense for the company.

Mars

Mars is an FMCG company with a portfolio that ranges across confectionery, pet food and Food (Uncle Ben’s, Dolmio etc). While the same rationale as Nestle and General Mills applies to Mars too, it is unlikely that they’ll spin categories off into separate companies. This is because they are still a family owned business. As long as the family still believes in the company owning brands across disparate categories to manage their risk/return, they are likely to lean into this.

A case for not splitting some of these companies up

In the last 20 years, we have seen the creation of FMCG behemoths where the driving rationale has been more about portfolio diversification and less about lower costs from scale benefits. As long as these different categories and functions are treated as completely different business units for decision making, investors can still benefit from a portfolio of brands across categories during uncertain times. Similar to how a portfolio of stocks spread across companies across various industries help investors manage their risk, FMCG companies and their shareholders maybe able to benefit from a diverse portfolio if managed right.

Conclusion

5 years from now, it’ll be interesting to look at the mergers, acquisitions and divestments in this space and how these companies fare in the long term. While we could argue many different ways for and against splitting these companies up or investing in/developing new categories to manage risk, we live in times so uncertain that the benefits may go either way.