Nestlé has lost its long-standing reputation as a reliable growth engine. A persistent decline in sales volumes, sharply rising costs – especially for key agricultural commodities like coffee and cocoa – exhausted pricing power, a surprisingly steep revenue drop in China in the first half, and mounting challenges in the Health Science division, have combined to push the Swiss blue chip’s stock to its lowest level in eight and a half years.

Even analysts – who once treated Nestlé as a perennial investment darling – have cooled on the stock. Bloomberg’s consensus rating, based on 25 analyst recommendations, stands at 3.76 – translating roughly to a view between „Hold“ and „Buy“. That may still appear decent at first glance, but compared to historical ratings that hovered between „Buy“ and „Strong Buy“ (values of 4 to 5), it represents a significant downgrade. The average price target of 86.80 Swiss francs is also far off previous highs. In this light, consensus expectations for revenue and earnings per share – which forecast a strong recovery next year – should be taken with caution. Where Nestlé once routinely met or exceeded market expectations, disappointments have now become the norm.

For decades, the world’s largest food company rewarded investors with steadily rising dividends, share buybacks, and a long-term upward trend in its share price. That consistency made the Nestlé stock a favorite among insurers, pension funds, savings banks, and asset managers. According to Bloomberg, the company’s largest current shareholders include UBS (5.64%), Vanguard (4.54%), and BlackRock (3.09%).

But institutional investors have now had to face the sobering reality that the slump in sales – one of the factors behind former CEO Mark Schneider’s ousting last summer – has continued under new CEO Laurent Freixe. Even worse, new problems have emerged. And while the recent stock slide may offer some recovery potential, the long-standing confidence in steadily rising share prices has evaporated.

Laurent Freixe, a French national, took over as CEO in September 2024. His predecessor, Mark Schneider, who served from January 2017 to August 2024, had doubled down on high-growth segments like coffee, health products, and pet food, adding trendy or promising startups to the portfolio – often at high multiples and with the risk that their products might quickly fall out of favour or fail to scale.

In hindsight, Nestlé struggled to absorb the wave of acquisitions and structural shifts. IT integration of some acquired Health Science units was botched, leading to delivery issues. Meanwhile, Schneider was seen as neglecting Nestlé’s core brands – a common criticism tied to the company’s loss of market share in key regions.

While Schneider can’t be blamed for the broader shift in consumer buying patterns, his successor Freixe is now feeling the pressure. Positioning himself as a counterpoint to Schneider, Freixe pledged to refocus on Nestlé’s traditional core brands. But apart from a few new product variations from Nescafé or Maggi, little has materialised.

For the first five of his nearly eight years as CEO, Schneider’s growth-focused strategy was welcomed. He revitalised a company that many had viewed as a sluggish behemoth. Investors applauded: between early 2017 and the end of 2021, Nestlé shares surged 76% to a record high of around 130 Swiss francs. Internal tensions over Schneider’s preference for smaller, fast-growing brands and alleged detachment from consumers and employees were largely ignored – until confidence in him began to erode.

When shares dropped 31% in just over two and a half years – a sharp move for a typically stable stock – major investors grew restless. Chairman Paul Bulcke, himself Nestlé’s CEO from 2008 to 2016, had little choice but to act. Having handpicked Schneider – only the second outsider ever to lead Nestlé – Bulcke might have acted sooner under different circumstances. His own position has since come under scrutiny. Consequently, he has announced that he will not seek re-election.

Investors initially reacted with shock rather than relief to Freixe’s appointment. While Schneider had already lost his status as a guarantor of success, the abruptness of his dismissal fueled speculation that the situation was worse than feared. Nestlé’s shares, already down to around 90 Swiss francs by August 22, 2024, fell further, reaching 72.82 Swiss franc in January – the lowest level since February 2017. A sharp rebound followed, with shares gaining 25% in two months to nearly 92 Swiss francs.

Two key factors drove the rebound: first, a sense that the prior sell-off had been overdone. Despite weak growth, Nestlé remained highly profitable and fundamentally sound. Second, investors gave Freixe the benefit of the doubt. A Nestlé veteran since 1986, Freixe had run three major regions – Europe, the Americas, and Latin America – and was known for focusing more than Schneider on consumers and core brands. Backed by internal support, he was seen as capable of steering the company toward balanced growth in both pricing and volume.

Those hopes suffered a serious blow after the presentation of the half-year results: sales volumes declined in Q2, defying expectations for a recovery, and revenues in the key Chinese market fell sharply. Freixe’s favored buzzwords – „Virtuous Circle“ and „Big Bets“ – are increasingly seen as hollow.

Following the announcement, Nestlé shares dropped sharply in price. With a market cap of around 195 billion euros, the company remains a heavyweight but now trails peers like SAP (286 billion euros) by a wide margin.

It is still too early to speak of Freixe’s failure. In a corporate behemoth like Nestlé – with annual revenues of 91.4 billion Swiss francs (97.8 billion euros), some 270,000 employees in 185 countries, and countless operational units – it takes time for changes at the helm to take effect. So far, those changes have mostly amounted to fine-tuning rather than sweeping strategic shifts. Still, two fundamental issues continue to weigh on Nestlé’s sales volumes. First, markets eventually become saturated. At that point, it's less about overall growth and more about fighting for market share – a reality many managers and even some economists are reluctant to acknowledge.

Second, consumer preferences have never been more fragmented. Differences are no longer just regional, but run deep within societies. For a global company now being steered more tightly from the Swiss headquarters – unlike under Schneider, who pushed for decentralisation and gave regional heads greater autonomy – that’s a major challenge. How are managers on Lake Geneva supposed to know what strategies or products will succeed in Chile or Indonesia?

Nestlé is also grappling with another threat: the increasing substitution of its products by cheaper alternatives. Today’s parents – and especially older generations – may still recall the adages of their youth: „If you want quality, don’t buy the cheapest“, or „With [brand name], you know you're getting something decent“, or simply, „Cheap is expensive“. For a long time, these warnings against generic or private-label products, or imports from Asia, were justified. But that’s no longer the case. In nearly every product category where Nestlé operates, the assortment has expanded significantly – and so-called discount products are now, in many cases, barely distinguishable from their far pricier branded counterparts in terms of quality.

Nestlé’s big strength lies in its vast brand portfolio – more than 2,000 names. These include coffee and cocoa beverages such as Nescafé, Nespresso, and Nesquik. Culinary staples like Maggi, Thomy, and Buitoni. Chocolate bars such as Nuts, Lion, and KitKat (outside the US). Bottled waters including Vittel, Perrier, and San Pellegrino. And pet food under the Purina label. More than a dozen of these brands generate over a billion Swiss francs in annual sales. Consumers tend to remain loyal to such brands – even in tough economic times – because the per-unit price is relatively low. But only to a point. If price hikes go too far, that loyalty fades. That risk is now substantial across many of Nestlé’s product lines.

The company’s growth in recent years has been driven almost entirely by price increases, not by rising volumes. Each new round of price hikes for products like KitKat or Nescafé risks pushing consumers toward competitors. And once consumers discover that products from Knorr (Unilever), Jacobs coffee (JDE Peet’s), Kaba (Krüger Group), Toblerone (Mondelēz), or Volvic (Danone) – or even store brands at half the price – taste just as good, they may be lost for good.

With its population of 1.4 billion, China is the largest consumer market in the world – though not Nestlé’s largest, the US remains ahead. Foreign food producers have always found China challenging. But since the Chinese government began actively promoting domestic brands across all sectors, the environment for foreign firms has become far more difficult. Nestlé reported a 4.2% decline in organic sales in Greater China in the first half, which dragged down group-wide organic growth in Q2 by 70 basis points and real internal growth (RIG) by 40 basis points.

Without the Chinese decline, Nestlé’s organic growth would have reached 3.7% rather than 3.0%, and the RIG would have remained flat rather than falling 0.4%. That alone would have led market participants to assess the company’s performance differently.

Freixe has already replaced the company’s local leadership in China and announced that "we are taking decisive action to strengthen our business in Greater China.“ Internally, Nestlé expects it could take up to a year to return to sustainable growth in the region. But even that may be optimistic: more advertising, new products, or expanding a Western-style sales network are unlikely to make much headway in an autocratic system that follows its own industrial policy.

Nestlé’s former strength – offsetting stagnation in mature markets with growth in emerging ones – no longer functions as it once did. Although its products are sold globally, growth dynamics have shifted. In developed economies, growth long ago slowed to levels roughly in line with GDP. For years, emerging markets had continued to deliver high single- or even double-digit growth – but that era, too, appears to be over.

In the first half, Nestlé reported 4.5% organic growth in emerging markets (adjusted for currency and portfolio effects). But this came with a 5.6% price increase and a 1.1% drop in volume. In simple terms: even in these markets, consumers are now price-sensitive and willing to cut back when prices exceed what they consider reasonable. This kind of price elasticity used to be confined largely to mature markets. There, Nestlé’s organic growth in the first half was just 1.8%.

Nestlé’s management is dissatisfied with the performance of its Health Science division. Freixe is reviewing the underperforming business segment focused on lower-cost vitamins, minerals, and dietary supplements – a unit that had been significantly expanded by Mark Schneider through multi-billion franc acquisitions, some of which have since proven to be missteps. The relatively inexpensive products, sold primarily in the US and generating around 1 billion Swiss francs in annual revenue, are now considered candidates for divestment.

The rest of the Health Science business – focused on medical nutrition and higher-end supplements – is expected to remain part of the group. In total, Nestlé Health Science generated 3.2 billion Swiss francs in revenue in the first half of the year. Areas such as healthy aging, weight management, and women’s health offer substantial potential, notes Freixe.

One thing Nestlé cannot be accused of is having missed the trend toward healthier eating – or the rise of vegetarian and vegan diets. As early as the 2000s, then-CEO Peter Brabeck-Letmathe began shifting the company’s focus away from confectionery and toward foods offering health benefits. In 2018, Nestlé sold its US candy business to Italy’s Ferrero Group for 2.8 billion dollars and, under Schneider, launched Garden Gourmet – a brand specializing in plant-based products. However, despite all the talk around meat alternatives, market realities are sobering. In Germany, for example, only 12% of the population follows a meat-free diet (9% vegetarian, 3% vegan), according to a representative Forsa survey. Sales potential remains limited, particularly since this consumer group tends to be skeptical of big corporations and is sensitive to the high prices of meat substitutes. Publicly known revenues from Garden Gourmet products have so far fallen well short of earlier expectations.

Within Nestlé – and among shareholders, analysts, and other observers – a fundamental reassessment is needed. Mid-single-digit organic growth is no longer a realistic benchmark. Growth of up to 2% annually now qualifies as a success; anything beyond that is a bonus. And if costs for raw materials, energy, or labor continue to rise, margins will inevitably come under pressure. Further price hikes are not an option – consumers would simply turn to competing products. From Nestlé’s perspective, the outlook is anything but encouraging.