Eskimo Pie, Ice cream, Dreyer’s, Nestlé

You so it’s great to be right after the break certainly a pleasure to stand here in front of you today and talk about the great things in the great progress. That we’ve made in our ice cream business it’s a way of introduction my name is Robert Kilmer. I have been with Nestle for 27 years my entire career has been spent in the sales and marketing capacity I started out spent. My first 15 years working on beverage brands over the course of my last three assignments i’ve had the distinct pleasure to. Run our baking business our confectionery business and for roughly the last six months i’m now looking after.

Our ice cream business I also spent three years in Vevey at the center really understanding the breadth and depth of the company so as I said i’m here to talk to you about. Ice cream and i’m very excited to do so today obviously we have the ubiquitous disclaimer I won’t go. Into that in any detail and to start talking about ice cream we have to start out by framing the category dynamics okay as you saw earlier today it is a large category just over. Nine billion dollars and it has experienced some degree of moderate growth over the past three years I think the key thing that I’d like to impart to. You early on is that it is a multi-faceted category there are three distinct segments you see here super. Premium frozen snacks and premium and the key underlying message is that each of these segments is deeply rooted and it’s an anchored in its own unique consumer dynamic and our ability.


Eskimo Pie, Ice cream, Dreyer's, NestléTo really laser focus and unlock those insights that drive the purchase behavior behind each of these segments is critical for success a one-size-fits-all approach does not apply to the ice cream category in the. United States and if we look at the three different segments you can see a rather diverse and. Somewhat divergent story the area of super premium clearly on trend with today’s consumers you’re seeing very substantial and.

Eskimo Pie, Ice cream, Dreyer's, Nestlé Business NewsSustained growth of just under eight percent in that segment and the margin structure is highly attractive this is also a fairly dense competitive environment where you. Really have three players today unlike when we get into premium where you’ll see at the bottom. All right this is the price sensitive portion of the category it has experienced some growth that’s primarily through inflation in the early years since we’re looking at a three-year cagar here but this is. Where you see a high penetration of private label regional brands very low barrier to entry to get into the premium which what we. Described in the United States is your packaged ice cream business so your 48 ounce to half gallon sized ice cream business and in the middle you see frozen snacks it has been. Somewhat challenged from a growth standpoint over the course of the last three years but when you think about being on trend particularly as it relates to consumers looking for better for.

Eskimo Pie, Ice cream, Dreyer's, Nestlé NewsYou options this segment is poised for growth in the future so. The key message here it is not a homogeneous category and each segment has distinct and very different drivers to unlock the demand equation and the consumer continues to evolve now this is a highly.

Indulgent variety seeking category so from an innovation renovation standpoint you will see a lot of activity year-over-year in this category. Very similar dynamics to the confectionery category there’s a high amount of churn new products that come in and out that’s basically the table stakes into the equation. Now how you approach that objectively and with a high degree of discipline. Is absolutely critical to to your success ongoing but you will see a.

Tremendous amount of churn there are two macro trends that are emerging where I believe that Nestle is extremely well placed to take. Advantage from a competitive standpoint and first is this notion around better for. You products leaning towards nutrition health and wellness and what we’re seeing is a soaring demand for consumers interest in better-for-you products and it really comes from two aspects.

They’re interested progressively interested more and more interested in what’s in their product okay. So the dependents spending a lot of time looking at labeling focused on clean leg labeling but also importantly. What’s not in their products they’re interested in where they’re probably what’s in.

It where their product came from and how was it produced so. We’ve talked about our journey to nutrition health and wellness from a nusa standpoint and we are very focused on removing all of those things that the consumer does not value from an. N HW standpoint we will be out of artificials and color and artificial colors and flavors by the end of this year as one example in addition to that you saw that the.

Super premium category or segment of the category is extremely healthy we. Think we’re in a very good position to capitalize on this and really what this the epicenter of.

This segment is concerned this is kind of the antithesis of better for you. If you will these consumers are not necessarily as interested in better-for-you products what they are after is a rich indulgent full-bodied if you.

Will eating experience and they’re very focused on the authenticity of the ingredients and the quality of ingredients. And the dynamics in this segment are very much being impacted by our. Teas inul food trends it’s tend to start on the coast and then gravitate towards the center of the country we believe.

With our haagen-dazs brand we are uniquely in a very good position to. Take care take advantage of this opportunity I talked about heightened competition from private label and regional players this is primary primarily a premium ice cream dynamic you’ll see. It when you’re out in the market tomorrow this segment of the category which. Is about forty percent if you recall from the previous slide it’s heavily price traded okay and we’re seeing more and more. Players you’ll see seven eight nine types of vanilla and you have to ask the question how many vanillas does the market really need to carry at this point in time I think they.

Need three but that’s just my opinion and then I think if you take a look at the new channel opportunities we’ve had discussion around that whether that. Be the Dollar General and it’s all around value whether it be the dollar channel which is really all about the out-of-pocket expense so you have to be low out of. Pocket on a per unit basis or the club channel which is a different definition of value which is more about the value per serving. If you take a look at our Brett of portfolio and also.

Our ability with our DSD network our reach and our capability to access these channels and I’ll give you one example with with dollar general okay our volume is up twenty two. Percent year-over-year and that’s because we have the ability with our direct store delivery network to touch. Each individual store and it gives us a very strong competitive advantage in addition to leveraging or overall portfolio so Nestle ice cream obviously we are a very.

Large player in the category one point eight billion dollars in turnover in 2013 and our cagar is roughly point six percent you can. See that we are represented in each of the major segments which you would expect our super premium business is growing. In high double-digit rate our snacks business has slightly declined but that is primarily due to supply issues that we.

Had during the all-important ice cream season which by the way today is day two of the ice cream season hundred days long absolutely critical to our. Success supply issues that were faced on our snacking platforms in 2013 those supply issues are behind us and we’re well positioned for. Growth in this segment going forward and then the premium business as I discussed this is down low single digits and again this is the area. That’s being hit hardest from a private label and regional brand standpoint okay as you would expect we are we have leading.

Market share positions in each segment in fact we are the share leader in the overall category you’ll note that there have been shared declines slight share declines in super premium. And in snacks you know the and then probably more evident declines on the premium business and and we’ve talked about it earlier today this is where it comes down to making.

Choices because as I’ve articulated this is not a one-size-fits-all homogeneous category each segment has very different demand generation dynamics and drivers. And you have to be very focused on that and the consumer dynamic continues to change which means we have to make choices.

We have to make choices in our port óleo through portfolio. Optimization in our portfolio management lens of where we are.

Going to make our investments we do not have a limit. Unlimited pool of resources and those choices that we’ve made our the following we’ve made the decision. That we will manage certain parts of our portfolio for margin improvement and the biggest segment of our portfolio is premium that we will be managing for margin. Improvement and we will do that with eyes wide open understanding that it will have an impact on short-term share evolution but it’s.

The right thing to do to move as Paul’s described earlier this business which is clearly in a fix designation today along that continuum of value creation okay you’ll also see. It as i mentioned we’re out of our supply issues on snacks and we believe that this segment. Has very nice growth potential and I’ll walk you through the commercial strategy that’s how we plan to lean in on that and in the terms of super premium we will. Be leaning in and going extremely hard for it’s driving the super premium segment of our portfolio we have a number of competitive advantages that we.

Will fully leverage going forward and have fully leveraged to this point the first is our portfolio we have iconic brands across. All segments that are in demand from a consumer standpoint and well positioned from market share standpoint to succeed in the segments.

That where we compete we also have leading-edge innovation capabilities our factories are all strategically located around the United States and in fact in Bakersfield California which is the largest. Ice cream factory in the world we’ve also brought our product technology center so our R&D capabilities and put them in situ makers Field California.

And what that allows us to do is really capitalize on two things one it provides us a global reach from. A product development standpoint and you’ll see a good example of that later in my presentation with Wang kapila pop we can scour the earth and we can rapidly.

Commercialize in the United States the second aspect is it brings us leading-edge technologies okay particularly in the area better for you that we can then apply to our business model the third. Is we have an incredibly powerful route to market okay our. Route to market which is direct store delivery we’ve talked about it earlier today allows us to actually touch each individual store multiple occasions okay gives us fantastic in-store execution.

We talked about optimizing the portfolio optimizing the set we can literally design a. Set to the local demographic of Anna given store which is incredibly powerful we made sure we have the right products at the right time for where the consumer wants to interact with them in.

A very promotional driven category it’s all about display space because our individuals for both pizza and ice cream have the relationships at. Store level we can command greater shelf penetration through promotion we talked about our distribution levels ice cream as is the case with pizza we enjoy greater distribution. Than our share of market so our sheriff shelf is greater. Than our cell phone market so we’re really leveraging this not only from. An effectiveness standpoint but we’re constantly looking at how to drive efficiencies and we’ve made tremendous progress in driving costs out of the business.

But also simplifying the business and it’s Paul indicated this is a three-year project on route to market optimization we’re not. Finished yet but what I want to highlight is that we. Have already reduced our total delivered cost of distribution by over a hundred and seventy basis points alright and that has happened over the course.

Of the last 18 months and we’ve done that through taking a very critical view of how we rationalize not only geographies throughout consolidation but also. Through optimization of bringing the pizza business in the ice cream business together and this is not a static situation we’re not finished.

Yet this is highly dynamic and we would expect to continue to see similar levels of performance as we move forward through our route to. Market optimization the other areas in streamlining overheads we’ve brought 80 basis point improvement in our mo geez and John talked earlier we’ve eliminated forty-eight percent of our.

SK use which we their non through non-strategic businesses that we’ve eliminated or ones that you know just needed to be optimized but what. That’s done is that and has unlocked tremendous efficiencies not only in. Our route to market because it’s been discussed earlier we have a limited size in terms of what we can put in the truck so.

It’s very important to optimize that product mix but has also driven tremendous efficiencies in our factories and as you can see one example is that our bad Goods expense year-over-year has declined by. 30 basis points all of these improvements efficiency efforts simplification efforts have had a tremendous positive impact on our. Financials as you can see a profit evolution is at a sixty eight percent improvement cagar over the course of the last three years so the efficiencies are driving through and positively impacting. The bottom line also as I know that’s a very relevant topic in the room our return on invested capital has improved by 290 basis points over the same. Time period now that’s a combination of obviously improved profitability but also a reduction in invested capital now the combination of the improved profitability and. The improvement in the ROI see has created tremendous shareholder value for our ice cream business and these improvements are highly accretive to the overall financial ambition of.

Nestle USA and through our strategic plan going forward we would fully expect. That this level of performance would continue so that’s where we’ve been excuse me I want to talk more about now what the strategic plan is and where we’re. Headed so we’re very solid foundation from an improvement standpoint and as you’ve seen.

Before this is Paul’s chart clearly nestle USA is fully aligned with the group strategies and ice cream is fully aligned with the nestle USA strategy you see here highlighted in bold. Some of the areas will be touched on okay and really what it comes down to is what is ice creams role within the nestle USA portfolio and the simple short answer. That is our role is twofold one is to drive growth moderate growth and I’ll come. Back to that in a second the most importantly is to have a significant positive impact on our overall margin evolution and we. Will do that by taking a very disciplined and highly focused approach to. Portfolio management so you see three bubbles on the chart here okay.

Our objective from a marketing investment standpoint is to focus on the growing on trend margin a creative brands / segments so roughly two-thirds. Of our portfolio you see it here under haagen-dazs where we’re going. To accelerate growth and also under our snacks business where we’re also going to accelerate growth. The key for us we will be placing the vast majority of our marketing expenditures in these area the vast majority of our innovation and renovation activities in these areas and the. Key for us is to change the overall marginal contribution of this business.

Going forward and to move it from the improved performance area which is our premium bulk business and drive growth in the candid. Ly more attractive higher-margin better position market share and clearly areas where that not only the consumer is today. But we see a long runway for growth from a consumer standpoint portion of our portfolio you also see a platform based.

Approach to innovation in order to optimize risk and return so where we can make or we have assets that we can sweat across a platform that a format can. Cut across various segments you will see us increasingly do that and I’ll show you some examples of how to do that end-to-end cost optimization.

You know this is a this is an ongoing process as I indicated this is not static it’s dynamic you’ve seen the progress today. Our commitment is to continue to develop in similar fashion with a with a key focus on the premium segment and the last as you’ve seen is invested capital excuse. Me invested capital optimization okay so I want to skip now to you know a couple of our key brands and I want. To start with haagen-dazs alright haagen-dazs is a crown jewel not only for our ice cream business.

But also for nestle USA it’s a leading brand in its segment it is shown as you’ve seen very strong growth we believe it has very strong growth potential going forward. It has markets scale okay most people don’t realize that this is almost a. Half a billion dollar brand so we have nice scale to build upon and it’s clearly in a segment that’s on Trent as I’ve demonstrated earlier and as I mentioned it. Is nicely accretive to our ice cream portfolio so one of the keys is innovation and we’ve put a major major. Focus on innovation behind this brand and just a couple examples of how that innovation is.

Paying very nice dividends for us we launched gelato as a range extension to häagen Dazs in 2013 it generated 30 million. Dollars in incremental sales okay which was fantastic in addition as a high variety seeking category limited editions play a very unique role in this segment in our limited edition platform in. 2014 q1 versus 2013 has driven 12 percent growth and again this just reinforces the consumer dynamic hi variety seeking category bars so we talked about platforms okay one of the platforms you see down. Below we have in our in our standard lineup we’ve seen a twenty-two percent growth in sales on. Our super premium bars we will also be launching on the same footprint gelato bars later this year so when we talked about platform innovation and.

Maximizing the return on our invested capital this is a good example of us putting our our words into actions and we also talked about the artisanal flair that of the. Trends that are driving this segment and we will be launching artisanal specialty products later in this year’s all behind the haagen-dazs brand also to capitalize on that emerging trend and I think. In addition to innovation and renovation we are doubling down so we talked about portfolio management portfolio optimization making tough choices we have pulled resources away from certain parts of the portfolio so. That we can double down in others and this is a key area for us we are doubling down on haagen-dazs our media support is up fifty.

Five percent year-over-year we talked a lot about social media. Social media and digital platforms represent over twenty percent of our working dollar investment it will continue to drive that and has. Actually added over 300 million social media impressions since 2013 we also have.

Haagen-dazs scoop shops but 250 shops around the United States primarily in the high-density markets we have used these it’s a great. Tool for us again another competitive advantage to leverage our. Imagery and leverage and generate trial with our consumers and we saw through our program on free cone day which was early in march that we saw a ten percent lift and.

Our ability to leverage our franchises from a PR standpoint next round I want to talk to you about. Briefly is outshine all right this is in the frozen snacking. Area and this is all about overt health this is that consumer that’s laser focus she’s laser focused on what she is buying and what she is putting in her body and she.

Cares about what’s in the product and this is all about putting a real better for you benefit. In front of the consumer and we’re fortunate to have a leading brand in this position alright so we have a good solid platform to extend upon this.

Segment has experienced strong growth over the past three years we’ve changed this brand this is a. Relatively new brand of course of the last three years it used to be drier CDs fruit bars we’ve now put it under a unified brand. So that we can leverage it across the United States and one of. The key goals for us is to increase penetration which the brand has done a nice job. And I’ll show you some data on that going forward early this is. On trend if you go back to the macro trends a better for you around ice cream and we have a very strong innovation renovation.

Pipeline and this is all about innovating with superior nutrition health. And wellness better for you benefits and from an ingredient standpoint it’s all about real and it’s all about putting fruit first so when you see our innovations coming. Forward you will see fruit first you will see no high fructose corn syrup you will see no artificial colors no artificial flavors. So very much a pure product play going forward since we’ve.

Changed the brand we’ve seen a 20 to outshine we’ve seen a twenty-two percent increase in penetration and this. Year we launched fruit veg now one of the beauties of outshine. Is that it can be extended whereas fruit bars is pretty narrow so we see this brand we talk about the dynamics of ice cream consumption this is in. The snacking category we see the opportunity to break out of the traditional after dinner. Day part and this opens up new opportunities for us for snacking we. Talked about how Millennials are eating these days it’s no longer three squares.

This brand plays very squarely in that environment in fruit veg the fruit veg to makes up twenty-five percent of every bar we look at pursuing the future expansion opportunities basically what I talked. About more healthy snacking options new forms and categories and importantly for us extended dayparts communication again it’s another area where we’re leaning in for the.

First time we have on air media in 2014 hopefully. You’ve seen the outshine ads if you’ve been watching TV it’s it’s a national first force very heavy flights we’re also again leaning heavily very heavily into the digital media space. We have twenty five percent of our working media focused in the social digital space and again in 2013 you saw. Over 250 million impressions sampling is critical for this particular brand particular when you start introducing things like fruit veg it’s a fantastic product.

You need to get it into consumers mouth okay the last I want to talk about we talked about inr. And our global reach this year we will be launching wall pila pop pila pop is. The first peelable ice cream available in the united states it’s an interactive fun. Ice cream product it’s been very successful in other parts of the world all right this because of our R&D capabilities that are local in a market allowed us to. Bring the concept we don’t need to test it develop the prototypes of the.

United States and rapidly commercialize within a 12-month time period this proposition and what’s exciting about it is that it’s a hundred percent NF for kids. It has a beautiful well a robust pipeline globally that we can just plug in play from a product development. Standpoint and again it’s a great example of how we’ve leveraged our. Global capabilities so again I think as you’ve seen we have a clear strategy it’s predicated on discipline and a. Lens through portfolio optimization to move the performance of this business and to continue with the performance of the business which as you can see the business is it has experienced moderate growth. But importantly it’s the margin evolution and the ROI see evolution.

That we’re after driving this business in summary we believe we have the leading brands we believe we were uniquely. Positioned to capture the growth of super premium ice cream and better for you snacks and we’ve given you some examples of that today we have a. Powerful route to market that we leverage both from an effectiveness standpoint but also from an efficiency standpoint and will continue to drive those efficiencies world-class capabilities from an eye on our standpoint. Waka pila pop being a great example and again discipline portfolio management on a journey to enhance margin and ROI see at the end.

Of the day we have a highly motivated team that’s fit for purpose to continue to deliver the performance so. With that thank you and questions minutes behind so I want. To maybe shrink the Q&A for ice cream we can always come back tomorrow for that so that we can come back on schedule for Rob’s beverage presentation at 11 so.

With that questions and ice cream haagen dazs gelato cappuccino is excellent so okay it’s the usual suspect come on somebody else Oh. Heidi yeah I have one question in the charts you showed that I think the margins improved in the three years that you showed us but I think return on capital dipped again in. 2013 can you explain to us why that happened actually okay Presley who are you yeah when he answered a question because some Robert is is new to the. Business so Steve is our CFO for the US business your thumb like Steve no no no no on your on your desk yeah. So the specifically the numbers presented work for the ice cream business and when you look at the improvements the.

Profitability really goes across the pizza and ice cream business so we saw a much greater profit improvement on pizza just. In the way the DST costs were shared so when you. Look at the ROI see combined across the two businesses it actually did go up in 2013 so I’m just. Confused by the slide in here then because it shows ROIC rice for going down yeah. Because it’s the same structure for both businesses in this yeah but it’s specifically in the way the cost the the benefits for the the cost savings in the DSD system. In terms of how they applied to the two businesses so pizza actually benefited greater and the way the.

Cost moved across the two businesses okay see if you can give a reconciliation offline absolutely I’m glad to okay Jeremy you have a question you’re just. A quick one on frozen yogurt now I believe thats a relatively fast growing part of the category look so you’ve got the brands you’ve got.

The infrastructure you’ve not mentioned it at all could you explain yeah why is it of any interest to you just a little bit more background on a difference as it would seem a potential. Area for you to grow your business that’s a excellent question what I’ve given you is. Is basically a current view 12 month view okay yogurt is in fact of interest to us but what’s important is that we have a real yogurt proposition if you look at many of.

The products that are in the competitive environment today they’re really more of a nod towards. Yogurt when you look at the true benefits ie protein they’re fairly limited so what we really sees a lot of yogurt flavored variants in the marketplace and if you’re going to play.

And a better for you continue them as I’ve indicated before it’s all. About real ingredients and authenticity so we do see opportunities and we will be considering those going forward there’s a very robust pipeline for.

15 and 16 probably one of the best I’ve seen worldwide in ice cream but obviously for competitive reasons we don’t. Want to articulate that just at the present moment in time but rest assured the good stuff that’s been done in 14 will continue and even increase. In pace in 15 and 16 to embrace the consumer. Trends we’ve been talking about I David hey David Hayes one extreme to the other David hazel. No more and just first on the SKU rationalization obviously even more extensive them in the pizza business you’ve held sales flat through. That period means there any way of telling how much leakage you’ve had over that.

Period I guess related to that is their expenditure involved. In that transitioning effective consumers to a narrow portfolio and does that drop out now in terms of that being done and then the second question was. Just on the jurors decision to focus on margin electrum share go being really specific the business plan. For that where does that share get to before you say we’re under investing has gone too far we need some you hold the Corbin wall.

Thanks so from an sku rationalization standpoint what we gave you is aggregate so it has been more extensive in some parts of the portfolio. Than others I think it’s safe to say that we’ve really took a very. Critical look at our premium ice cream portfolio and there has likely been some changes in. Our recapture rate assumptions however at the aggregate level as you can see that businesses is net positive and. Again that’s comes down to where we’re pushing resources and where we’re perhaps straddling back you know it’s all about scale at the end. Of the day what’s coming off of our trucks and it’s a scale combination between.

Both pizza and ice cream and we have to be very vigilant in terms of ensuring that we do not deleverage that system while. We look to optimize it so it’s an and equation and you know premium ice cream in some parts of the country is more challenge than in others and that’s where we have to. Take a much more critical view of the total portfolio that’s coming.

Off of the back of the truck because it’s all about you know our revenue for stun but I think again we’re. Very clear as to what the position is and the plans we know where we deliver it to a point that.

Frankly we’d start hitting our acid effectiveness but just one point I wanted. To do ad because the number of presenters have already talked about this and I know a number of presenters are going to come on to talk about this but in.

This market as we look at our overall skill position and we gone through the rationalization process one of the reasons to this very detailed. Rationalization processes we don’t want to enroll the efficiency of the asset base but at the same time you know we had. In certain areas and by the way not led by us but followed. By us in a number of key areas followed into contracts agreement negotiations so on and so forth ice.

Cream is a great example of that where we not only weren’t covering the overhead but we were quite frankly you can imagine what the bottom line but like and so we’ve made some big. Decisions to actually say we don’t want that business and we’re not going to play that game that’s not that’s not in the for the long-term benefit of the company and I think the other.

Thing that we’ve really also got to focus on as the. Company is just making sure that continually what we talk we’ve talked a lot about skew. Rationalization but you know what the the one thing that I started off talking about skew rationalization and I realize that people were probably taking everything a bit too literally. And I said no it’s not school rationalization it’s fixture optimization because.

If you think about you know you walk into an average store. It’s got three Doors let’s say of our ice cream well we’ve still got more Skills than we can into that three Doors yeah and so actually we made alist some product but the. End of the day it’s making sure that you get the right optimum range and this is where Rob came back and said love wherever you are in the country we can optimize that ice. Cream offering for you if you can actually take out the stuff that’s under selling and put in the stuff that sells better one of the reasons. You haven’t seen the declines I mean you could say it couldn’t you forty three percent of the skus have been taken out we should have lost forty three percent of our business and.

We haven’t and the reason being is because we’ve actually maximize the fixture efficiencies and in some areas we’ve also lost a little business there or we walk to where for some contracts. But overall the profit mixes improved dramatically across all all categories within the. Business.