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Before Shopping, Nestle Is Checking Its Pantry First

As many of its rivals seek growth through consolidation, the food giant instead looks within for ways to boost sales.


Every company has its perks, and for employees of Glendale-based Nestle USA, they include a discount company store loaded with everything from its namesake Nestle Crunch bar to Lean Cuisine, Friskies pet food, Ortega salsa and Perrier mineral water.

Carrying more than 168 brands and a majority of the company's 2,000 products, the store exemplifies how huge Nestle has become. But even with enough brands to stock its own store, some critics say Nestle--and its Swiss parent, Nestle SA--isn't moving quickly enough to expand its empire.

Most of the world's major food companies, including Kellogg Co., Unilever Inc., General Mills Inc. and Philip Morris Cos.' Kraft Foods, have begun swallowing up their rivals to spur growth and gain more space on supermarket shelves. Meanwhile, Nestle has sat on the sidelines.

"They've been the big question mark," said John McMillin, a food industry analyst with Prudential Securities.

Some industry analysts characterize the food giant as sleepy and slow to embrace innovation. And just a few years ago that was probably true, admitted Nestle USA Chief Executive Joe Weller. Not anymore, he said.

While others are looking for corporate marriages to boost growth, Nestle has been reorganizing, shedding its lower-margin commodity businesses such as roasted coffee and potato processing, and adding new products to its top-selling brands. In the process, it has posted sales growth of more than 4%, higher than the industry average of 2.5%.

"We are not in the panic mode that some of these other companies are [in]," Weller said. "We can wait for the game to come to us."

Analysts expect Nestle to make a few major moves in the next year. Pet food giant Ralston Purina Co. is mentioned as a potential target, as well as Quaker Oats Co. and Dreyers Grand Ice Cream Inc.

The company is reportedly in discussions to acquire Haagen-Dazs ice cream from Pillsbury Co., which is being acquired by General Mills Inc.

Weller declined to comment, but said that ice cream is important to Nestle and that it will "continue to be in that business."

He also acknowledged that expanding the company's nutrition line, which includes Power Bar and a dietary supplement called LC1, is a priority.

Still, he says, there's no rush. Things are moving fast enough inside the company.

Food industry and supermarket consolidation--coupled with the advent of Internet marketing in the food business--is reshaping just about every part of Nestle's business from management structure to how it advertises its products.

The changes have started literally at the top, with executive desks and Oriental rugs being removed from the 21st-floor management offices to make way for employee meeting rooms and temporary offices for telecommuters. Top brass is moving down several floors, alongside division personnel, and the organizational chart has been flattened, doubling the number of vice presidents reporting directly to Weller.

Sitting closest to Weller in this new scheme is Nick Riso, Nestle's new head of e-business initiatives--a telling sign that Weller believes the Internet will be one of the biggest catalysts at Nestle and in the food business.

Although food companies have been slow to embrace the Internet, Weller and Riso are trying to fuse the Web with almost every function of the company from human resources to procurement to marketing. A map of the company's organizational structure depicts these departments practically hovering around key online executives. One of the company's vision statements is "Make e-business the way we do business."

"People in e-business come to work every day thinking about how they're going to change things," Weller says. "If we can permeate this organization with that kind of thinking, we're going to be a lot better off."

For Weller, 55, the entrance of the Internet into the old-line packaged-food business is one of the most exciting events in decades. Get him talking about the Web, and Weller's Tennessee-accented voice gains pitch and his eyes gleam.

Pulling his chair over to a laptop, he shows off the company's first attempt at an Internet make-over: a new Web program that allows employees access to a range of online services, from selecting benefits programs to picking a mortgage, arranging adult day care and meals for an ailing parent, or choosing a summer camp.

The company also has invested millions in Transora, the online exchange that will allow Nestle and 50 other companies to purchase everything from packaging to warehousing to ingredients, and eventually enable retailers to stock their shelves and track orders from a single Web site.

Eventually, he says, "it will take a lot of waste out of the system," eliminating paperwork, reducing labor costs and making it easier for firms to contract out for services.

But, Weller added, that system is several years away from having a significant impact on Nestle's bottom line. Nestle initially will use the site for more mundane things such as ordering cardboard boxes.

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