Good morning. Good afternoon to everyone. I am Luca Bowling, Head of the Nestle Investor Relations department. On behalf of our leadership team, I want to welcome you to the Nestle 2019 Investor Conference. I would like to take a moment to thank the Nestle U.
S. A. Team, particularly Steve Presley, for the outstanding job they have done in providing and organizing the event today. For those who are connected by webcast, you will be able to follow all presentations online as well as the Q and A sessions. The PDF presentation will be available on our website 5 minutes before each presenter starts.
A replay of the event will be also available at the end of the session today. Now over to the agenda. Pursuing our value creation strategy is the title of the 2019 Investor Conference. Marc Schneider, our Chief Executive Officer, will start with a strategic overview. Then Patrice Buhler, our Head of Strategic Business Units and Stefan Palser, our Chief Technology Officer, we talk about innovation at Nestle and how we are trying to make it faster and more relevant for our consumers.
This will be followed by presentation related to the 3 zones, Nestle USA and the 5 high growth categories. Francois Roger, our Chief Financial Officer, will provide a financial overview. And then we will have the usual final Q and A session with Marc and Francois. By the way, you will also be able to ask questions at the end of each presentation. Finally, let me pause a moment to allow you to read our disclaimer.
I take it as read. So now I hand over to Marc, our Chief Executive Officer, for the presentation for the first presentation of the day. So please welcome Marc.
Luca, thank you, and a warm welcome to our guests today, both here in the room and also out in the web. I know some of you joining us today have traveled a long distance, and so we appreciate your interest in our company. Let me also add my thanks to the Nestle USA team led by Steve Bresley in putting together this program for today and tomorrow. We believe it's a real strong program, and I hope that you will come away with 2 main conclusions. 1 is a true appreciation for what team Nestle has accomplished since the last conference in making good and our commitments towards 2020 because I think there's a lot of good progress and we hope we can try that home with you today.
And the other one beyond 2020 is the sheer fascination for the opportunities we're pursuing, the initiatives we're putting in place that will propel us right into that new decade and make it a prosperous and strongly growing decade for this company going forward. Now here's a quick summary, some key messages from my perspective. We believe and we strongly confirm that we have a clear path to achieving our 2020 targets. I think we've made good progress in sharpening our nutrition, health and wellness strategy. And what's very important to us, we pursue this value creation strategy with a balanced model that emphasizes growth, margin and capital efficiency.
In this context and with all the things that have been accomplished, let me express my thanks, my sincere thanks to the more than 300,000 Nestle associates around the world who have put in a lot of effort, a lot of intensity the last few years in basically making progress towards these targets. I think you will have seen that there's significant progress. And again, this took extra commitment and this drive, this positive energy of the company is really taking us forward. When it comes to this day and when it comes to some of the key things we want to convey, this event is going to be a little different in nature from the one in London. For those of you who participated in London or followed on the web or read one of the transcripts, London against the backdrop of its time was much more financial in character.
It was important for us to lay out a financial framework about our midterm targets and basically give credibility to those targets, show you how those are being done. Today, it's much more about the granular detail. So not just the zones, but also the categories and hence there's a broader group of executives presenting and we'll give you the geographic strategies, but also the category strategies that are supposed to make it happen on the journey towards 2020 and also beyond. The next slide focuses on areas of improvement that go back to my presentation in London in 2017. So the bullet points you're seeing on the left hand side are exactly the areas of improvement that I highlighted at the time.
On the right hand side, you see some of the key activities that have happened since. And I think it's very clear that we have started to accelerate our Nutrition, Health and Wellness step in really driving home what we mean by food and beverage and nutritional health products. We've seen significant portfolio management activity, totaling almost CHF 15,000,000,000 for the last 2 years. Then when it comes to organic growth, when we were presenting in London, I mean, we pointed out to you how important that is to us, but the truth was also we were still losing airspeed when it comes to organic growth, and we hit a low point in the Q4 of 2017. But it's important to note that starting from 2018 quarter after quarter, we've seen steady progress and that also that momentum now carried into 2019.
The 3rd item, balancing probe and margin, in particular the efficiency aspect of our strategy. I think we laid out a credible plan to you in London and hope you will see from Francois's presentation this afternoon that we're making very good progress on this path. As you know, this was not a traumatic margin improvement target. This was a well balanced margin improvement target that was supposed not to undermine growth. What I hope is that all of you as investors who may have been underwhelmed at the time that you have seen and you've developed a new appreciation for this balanced approach.
Because what we deliberately did not try to do is what we what would be a carbon bombing type of restructuring program where you spread fear and intimidation in a large organization and undermine the underpinnings of future growth. What we've done is precision engineering. We're going after the fat, not the muscle. We're doing very surgical moves where we see efficiency opportunities. And we do them in a way that hopefully they do not undermine the growth going forward.
And I think the results since have borne that out. So that balanced model, I hope that has found new appreciation among our investors and it's working. It's not undermining growth. Improving capital efficiency, Francois will talk a lot about that. Very steady progress over the past few years going back to 2014, 2015, you're seeing a clear line of improvement and we're proud of that.
And finally, driving speed and simplicity, the 2 keynote activities in that regards were clearly the transition of our Nutrition business from a globally managed business to 1 that's organized by the 3 zones geographically. And then also that faster and leaner innovation model that Stefan is going to be talking about in his presentation. Let me quickly touch upon and reconfirm our strategy. The top part of the slide is unchanged from London, food and beverages as core. And let me also point out, just as it did in London, this whole aspect of convenience of our products for modern time constrained lifestyle.
So it's not only about healthy and nutritious. When you think about Nestle and the place that is made for Nestle, then I think convenience comes in very quickly as one of the key criterion to making food and beverage products accessible for people that live a time constraint modern lifestyle. Most food and beverage products can be made from the ground up, but that's not realistic with the kind of lives most people are leading. And hence this is the kind of extra value that we're adding. The second part when it comes to Nestle Health Science and that focus nutritional and metabolism related health products as opposed to the wide space of consumer OTC Healthcare, I think this is where a lot of the sharpening of our strategy has occurred.
As you know, at the time when Skin Health was a firm part of that, it was pretty much encompassing in the whole consumer OTC healthcare space, going from nutritional products all the way to suntan lotion. Think now what you're seeing is a much more stringent focus organized around the Nestle Health Science business and the Nestle Health Science CEO, Craig Bihar, will present on that this afternoon. And the last but not least, it's important also in this day and age when people look towards business as a force for good to see the importance of our creating shared value approach. I think this whole notion, if you're saying that you are in it for the long term, if you really mean that, then Sustainability Day has to be part of that. And I think that long standing commitment to creating shared value is paying off and is resonating very strongly with consumers around the world, with investors, with regulators, anyone we're dealing with.
This slide captures the essence of our long term value creation model that balance pursuit of growth, margins and the prudent allocation of capital. I will focus in my presentation today on the left hand side, just as I did in London, how to increase growth. Fronspaughn, his presentation will focus very much on our efforts in improving margins and also the prudent allocation of capital. You know this slide from previous presentations, this is about the validity of pursuing high growth categories and high growth regions when it comes to moving up the group average organic growth. So the setup of the slide is not new, but we updated it with the full year 2018 numbers.
And you see in the relevance of pursuing that growth strategy around high growth categories and also high growth regions. So looking at the top row, the high growth categories, you see that based on full year 2018 numbers, the 4 key growth categories of coffee, pet care, nutrition and water with Nestle Health Science, they stand for 57% of our revenue and they generate 61% of underlying trading operating profit. When it comes to geographies, the emerging markets stand for 42% of revenue and they stand for 45% of our underlying trading operating profit. So being strong and growing fast in emerging markets is not dilutive to our margins. And being strong and putting additional emphasis to these high growth categories is not diluting our margin when it comes to the group.
You're also seeing that significant growth differential, 1.9% versus 4.0% for the high twelve categories and 1.6% versus 4.9% percent for developed markets versus emerging markets. Now we laid this out before, but let me also use this opportunity to correct 2 fairly common misperceptions. One is that even in a high growth category and high growth region or market, you can have quarters, you can have years that are not high growth and that's no contradiction. So there's a difference between what a category and what a market long term has to offer and how specifically in a given quarter or given year you're going to be performing. A good example, as you all know from previous conference calls for the quarters is our waters business where we believe in this high growth category is one of the fastest growing categories we are in, but we have work to do to position the business towards these high growth pockets in this category.
And when it comes to geographies, think about Brazil, where I think we patiently did what we had to do over the past 3 or 4 years to position now the business for renewed growth in this very important South American market. The second misperception is that when we started to talk about this, even while we said that it was not going to be a portfolio management guide, while we said it was only geared at internal growth spending, a lot of people took it as a point of where our portfolio management was going to go. And that's a misperception I would want to correct. I believe that our non high growth categories have incredibly important things to offer to the company. Not only some of the value and the fuel to actually support our growth, but you also see as you trail inside these categories, incredibly attractive high growth pockets and this slide lists some of them.
Let me point out 2. One is Patrice and his presentation later will give you more detail on the recent development of KitKat. You see here this very nice high single digit OG performance based on the full year 2018 number. So this is a wonderful premiumization story. And the other one, Stefan Paltzer will talk about that segment at below our left hand corner.
And this is the Sweet Earth and Garden Gourmet plant based offerings. In particular some of our recent efforts when it comes to the plant based burger offerings, which are very successful. And here again, a very interesting development inside the food or culinary category that's really paying off very nicely. So let me talk next about addressing underperformance. And I've listed 4 examples here Skin Health, Gerber, our U.
S. Frozen food business and the Nestle Waters business. So Nestle Skin Health, as you know, we have put this business under strategic review, but it is important to point out what has been accomplished over the past 2.5 years. And this was nothing short of significant. We had a business, if we had pursued options for this business 2.5 years ago, we would have found few takers.
But we did put it on a dramatically different and more competitive cost base with about 1 quarter of the workforce less than before. We gave it very defined articulated strategies in its 3 core business segments. And we also positioned the business for new growth. So as you look at 2018 beginning of 2019, you have a business that is dramatically more profitable and at the same time high growth in a very attractive environment. And that's paying off now.
And hence, this whole notion of doing that disciplined work, I think is a very important sign to the organization. It also should give you confidence that this is a company that can execute if we focus on something and can make it happen. Next on Gerber, we talked about this on previous occasions in the past. I think it is fair to say that while this has always been and always continues to be an iconic brand, we were slow to embrace the organic opportunity over the past decade. I think now we've done this with a vengeance.
We from the inside out have redeveloped this product lineup and we've given it not only a much broader organic offering, but also more interesting, more exciting, more exotic ingredients, new packaging, more appealing visuals. And we are also developing very, very nice international growth opportunities such as, for example, a thriving cross border e commerce business with China. On U. S. Frozen, I will talk more about that at a later point today.
Clearly, also going back to previous opportunities, I know there's a lot of doubts among you, but I think we were right about the category fundamentals and the renewed interest that younger consumers have in this category. And I think we're now applying this faster and leaner and more attuned innovation model to this category to serve the market constantly with exciting, strongly resonating choices that keep the excitement up and will contribute to future growth, some of it already paying off in that Q1 of 2019. And last but not least, in Nestle Waters, we do see competitive pressure at the low end of the pricing scale, especially when it comes to case pack business. But we do also see exciting growth opportunities in the premium range, our international premium brands, which are truly iconic brands and resonate strongly in the U. S.
And elsewhere. We're seeing very strong growth in flavored water offerings, and we also see a strong future opportunity when it comes to functional water offerings and over time those will carry the day. Quick update on portfolio management, and Francois will elaborate on that in the afternoon. I think very busy period in 2017 2018. In total, about 50 transactions or reviews covering about 9% of our group sales.
Some of you remember the statement in London that we were pinpointing about 10% of group sales when it comes to buying and selling. And there was a frequent question whether this would constitute an upper ceiling, yes or no. The good news is no, it doesn't. So this portfolio management will go on. And I think 2019 is already shaping up to be another busy year.
And the purpose of the 10% number in 2017 was to show you how we meant business and we were serious about portfolio change. At the time, if you remember, there were only 2 transactions, recent transactions known. 1 was the review for U. S. Confectionery.
The other one, just a few weeks before the London event, was the acquisition of Blue Bottle Coffee. And hence, it was important to us to show you that we really meant a serious change. I think by now, no one is doubting that anymore. And last but not least, I think this slide is almost a summary to the presentation you're seeing in a few minutes from Patrice and Stefan Paltzer. This is about speeding up science and consumer driven innovation, brought to the market faster and then being continuously updated in versions 2 point 0, 3.04.0 to constantly resonate with consumers and bring excitement to the categories we're playing in.
So this whole notion, how that works, that's going to be the main content of the presentation that Patrice and Stephan are going to give to you. When it comes to driving organizational agility, again, the 2 headline drivers for the last 2 years were clearly the migration of that nutrition business, which has been pulled off very, very successfully. And then also the whole reorganization that Stefan Paltzer has led from the beginning of 2018 in our research and development area. But beneath that, there's hardly a week, hardly a month going by without some additional step that we're taking somewhere in the business to make it more efficient, more agile, faster, delayering, increasing span of control and overall just making it a faster, leaner and more responsive organization. And I think some of that is clearly showing through.
Now in this context, let me also say we get a lot of ideas from the outside how to organize the business. And what I would like to very strongly confirm is our strong allegiance to the core organizational model, which is the matrix between the 3 zones where the business is organized by region and then the strategic guidance that comes from the strategic business units. That is the backbone of our business. It covers about 80% of our business volume and that matrix works. I know the word matrix these days is not exactly in fashion, but when a matrix works, it does beautiful things.
And when you think about what the alternatives would be, if you only organize by geography, you would end up with a sprawling conglomerate. And if you only organize by global businesses, in a business that is as local as food and beverage is, you would miss out on a whole lot of local opportunities. I think we are bringing together the best of both worlds. And just as an example that this responsiveness is not coming at the expense of speed and agility, Just look at the recent fast launch of our Starbucks coffee range, which happened basically between last August March. That was done under this matrix.
So this matrix can perform and it can perform really, really fast. And we're constantly fine tuning that matrix to get the most out of it, but it's important for all of us to confirm to you, it works, it delivers, it's the right business model for us. The next three slides, I'd like to talk about this whole notion of creating shared value, which again, it's finding renewed interest with our consumers and with the public around us. But it's not a new thing for us. This is something that really has a mindset of doing business goes back to the foundation of this company more than 150 years ago.
And the thought pattern that when you're in business for the long term, all sides need to benefit. That's really underpinning all of it. You can't expect if in a deal, if in a transaction, if in mutual dealings with each other, if one side is always the loser and the other side is always the winner, then things over time do not work out. And this whole notion of making everyone at the table fulfill their dreams and ambitions and coming together and realizing their objectives, I think is very important to us. And I think we live in pre bid day by day.
So on the left hand side, you see that we give this a very important, very fundamental position. It resides above compliance and sustainability as the true mindset on how we operate this company. On the right hand side, you see the 3 essential dimensions on how we apply this thought pattern. So one is for individual and families. So think about, for example, our nutritional strategies and improving nutrition for the public that is focused on individuals and families as consumers.
The next level
is for the communities around us. So think what we would want to give back and do what we would want to give back and do with these communities to be sure that they see us as a welcome citizen. And then last but not least, of course, for the planet, there's a whole lot of planet wide global issues that we're dealing with today. Think about CO2 emissions, think about plastic waste. And of course, any company will have to face those and have to show what it does to address those issues.
Here on the from left to right, three initiatives that we're focusing on for this year that we highlighted in earlier presentations. One is contributing to healthier lives and especially with our Nestle Poor Healthcare Kids campaign that was kicked off last year and gets continued to be scaled up and rolled out this year. 2nd, we've put a lot of effort over the past year into contributing to a waste free future and in particular, addressing the plastics waste issue. Again, under the leadership of Stefan, we started a Institute of Packaging Sciences to find novel solutions, novel materials. We're exploring new business models.
And also, we are participating in all sorts of efforts that either help establish recycling systems or even address some of the damage that has been done. The 3rd priority area is fostering diversity and inclusion. Again, for a global company, this is clearly the right thing to do, and this is something where Nestle can make a difference. And we've always stressed this, and we've given this new intensity under the leadership of our new Executive Vice President in charge of Human Resources. And last but not least, on the right hand side, he has been a mainstay this has been a mainstay of the business ever since been founded.
This is the strong communities and supply chains that this company has been focusing on. Think back to the time when the company was founded in Switzerland and very dependent on dairy supply, very much in touch and in tune with fragile agricultural communities around the world. So this whole notion of dealing with them in a way that they can be your long term partners, that has been applied to many other agricultural commodities that we're buying. As a final slide on this creating shared value mindset, let me talk about communicating that through our brands. And Patrice will elaborate on that later in his presentation.
But the notion to me that's important is as much as all of the other communication tools are necessary, consumers these days are not buying sustainability reports. They're not buying high level government or NGO contacts. All of these are important. But when it comes to the consumer, what counts is a product and a brand on a shelf, either real shelf or virtual shelf, winning out over some of the other products. And those products and brands telling the story in a convincing manner.
And this is something that we make a top priority in our marketing area. And one brand in this context, I wanted to bring to your attention that doesn't get so much attention here stateside, but is certainly on a tier in Europe is our Garden Gourmet brand. We've been at this for more than 30 years. We're very consistently developing this towards a vegetarian and vegan offering. We're doing a lot on recycling packaging and avoiding plastics packaging in the future.
And this is also our key brand when it comes to something that has gotten a lot of attention recently and that's our plant based burger offering. As you know, this is a business opportunity that I think a lot of you have been asking about in recent weeks in light of some of the other competing offerings in the market. What I wanted to underline in this context and you'll get more information from Stefan Posner on this later on, this is a product offering where we believe we have a very, very, very competitive product in the market. Burgers these days are not only U. S.
Opportunity, just like pizza, they have become a global food. We're pursuing this opportunity on a global scale. We're committed to versions 2.0, 3.0, 4.0 that will be at the top of this market. And we already have a very exciting offering and very important chain customers are being signed up. This brings me to the final section of my presentation, just a brief recap of the financial returns over long periods of time.
So all of the efforts you've been seeing here that I described to you, I think have been translating into very consistent total shareholder return performance, whether you look at it over 10 year, 5 year, 3 year or 1 year time horizon, I think very consistently the company beats out the relevant stocks, food and beverage index. And on the right hand side of the slide, you see that that does not only apply to the stock price performance, but also to a very disciplined return of capital to our shareholders, be it in the form of dividends or share buybacks, just like the latest one that's still underway and that's targeted to be finished by the end of this year. And so this brings me to the end of the presentation. And again, this is the scorecard that I showed you at the beginning. So the same bullet points, the same ones that are highlighted in London.
And the key message is a lot has happened, but there's a lot more to come. And we're focused on this. We're dedicated to this. We're making it happen across all of these five dimensions. There's a lot more activity going on and you will see a lot more coming through.
And Verkaz is very excited when it comes to making good of the 2020 commitments, but also then on the wider growth in earnings ambitions beyond into that new decade. With that, that completes my presentation. I have the job now to introduce the next two speakers, and that is Patrice Buller, Executive Vice President of the Strategic Business Units or SBUs, Marketing, Sales and Espresso to my right and Stefan Paltzer, who joined us beginning of 2018 in that role of Chief Technology Officer after a very promising and successful 20 year career in our research and technology area. And so these 2 will really take you through the nuts and bolts of this innovation engine and what has changed here and how it's showing tangible and already visible results that make a difference in the marketplace.
Thank you.
Thank you, Mark.
Good morning, everybody. It's a pleasure to be with you again after the London meeting last time. A lot has changed, a lot has moved and it's my pleasure today to do a joint presentation with Stefan Palser. It's a joint presentation because this is the way we work. This is the work the way we work every day and we work every day with one goal.
And our goal in this metrics that Marc described is to provide winning GAAP, competitive GAAP to our people on the front line to develop for our customers, the zone and the market winning strategies for our brands, a pipeline, a rich pipeline that allow them to convince consumer to stay with our brand and buy our brand with behind it a very strong R and D program, brands that are well managed, brand that we steer and protect because sometime we have to protect them to convince the consumer and to convince them at the heart and in the brain. This is what we do day in, day out. And what we have done over the last 18 months is not only to develop these capabilities and do that to help our markets win, but to bring acceleration in this, to bring acceleration culturally by working together and being closer and closer to the zone and market requirement, but also capabilities. And this is what Stefan will also show you what we have done concretely to be able to offer to our market the way to come faster to market test with new products. I come back to where we left you 18 months ago in London.
These trends that we mentioned last time and how we were going after them are continuing to develop. They are no more trend. They are reality. They are big segment of what today constitute the food industry. And we are addressing these trends with our brand across the world and at various level of intensity.
These trends, of course, are feeding the food industry. They are feeding the core and the all timeless consumer favorite. And these are big categories in which we are present. And we see an explosion of taste, an explosion of different texture, of people trying new things. And we want to be part of that because these categories in some of these categories, our brands are leading and our brands are able to offer this to the consumer in a timely way.
So but to do this, brands have also to evolve. And we have worked a lot continuously to make sure our brand stay relevant to this new demand. It means, 1st and foremost, that our product have to be aligned to what they want. A lot of work has gone into making sure our labels are clean, that we remove what we used to have in some part of the world for some of our product, because a brand starts with its product and no advertising can change a reality of a product that is not fulfilling the demand of our consumer. We have moved our communication brand from talking to consumer to embracing brand conversation with them and driving this together.
We provide with our brand also experience that goes beyond and I will show example of that, that are self worthy, that achieve virality because people today and this generation love to take pictures of their food or brand and share it with their friends. And finally, and very importantly, we believe, as Marc said, that every brand we have has to play a role on being authentic to itself, to this generation and to us and be a force for good and what it does, not only as a food product, but for the planet and for the community at large. It is our convictions that our brands can do that. It is our conviction and it's not because the brand is 100 years old that, that brand cannot continue to delight consumer yesterday, today and tomorrow. But to do that, you have to constantly nourish this brand.
And we nourish this brand with innovation, with new way of communicating, of being part of life of our consumer. And sometime, we have to push the envelope and even disrupt this brand. I want to show you three example of Mike described of high growing brand high growth brand in non growth high growth priority categories just to show what we do. But before that, we activate this with 3 main pillar for us: innovation, innovation, I will show the example of that how we engage consumer with new brand experience, and I will show you example of that And of course, this is backed up with a leading R and D in the industry with extraordinary capability to continue to build a pipeline of product. So three example of such a brand sorry, three example of brands that have had an extraordinary run over the last few years fed by innovation and brands that are not new, brands that have been there for 100 of years.
Milo, a brand less known for some of you, a brand that is achieving close to €2,000,000,000 today. A brand that we in its core activate every 3 to 4 years with new active ingredients coming from R and D to reinforce the core of the proposition of that brand, which is energy and energy drink. Variant with no added sugar to remove barrier for those who want less sugar. A new format, breakfast on the go, which is a complete meal for kids, for mother who are worried because their kids are going to school without anything in the stomach. And finally, more recently, a protein plus product addressed to the adolescent and in trend with this higher demand for protein.
Another example, Coffee Mate, this is a brand that was has been disrupted for the last 10 years to adjust it to the new reality of the consumer demand. This is the brand that is also a brand that's been there for a long time, a favorite, an iconic brand in the USA and several other markets. We have naturalized it. We have changed brand architecture to be part of this. We have developed plant based variant that you could taste today.
And we have pushed the envelope today to come with a premiumized product. And we have done that at speed over the last 18 months. Another example, which is more iconic and more known is KitKat. How a simple four wafer product and rubbed with chocolate can become an iconic brand that get a full page on the New York Times on the culture of Japan and the ability of this simple brand to premiumize, to bring completely new taste to the markets. And you see example here of the green tea that we have launched in Japan, but now today also in Europe and successfully.
And again, this is not done with long markets research. This is done on the spirit of having trying and putting this in the market and surprising our consumers. We are also leveraging our technology and where where we brought our technology to lengthen the shelf life of our Camelon product and Starbucks will talk about it later on. The framework we use with R and D, our market, all of us is based on 3 pillars of innovation. The search for authenticity in our product, the search for healthy lifestyle and the search for inspirational experience.
And this is also done in the context of developing socially responsible brand offer. So let me cover this rapidly. Seeking authenticity, this is about naturality, about origin, about craft, about clean label, about making our product relevant to consumer. You saw the Nesquik launch with all natural product breakthrough for the consumers. You know L'Atelier and of course, Origin Coffee in and Origin for the coffee.
Seeking healthy lifestyle, we divide this into 2. This is where people search for great food, but which has an impact on their life and their health. We divide this into science based product. And this is where we can tangibly express and talk to consumer about a benefit that we can deliver. And you have example here, is a lot of course in the infant formula market, but also in Nestle Health Science and a few and in the pet care business.
The other part has a lot to do with what I described as new food ideology is a choice of people to adopt some food because they feel better, because it fits a new diet and that they want to believe that it is their pursuit into a healthier lifestyle. Of course, at the center of this and we talk about it is a plant based, but also high protein diet, also grain and nuts diet and the gluten free trend. Last pillar is inspirational experience. And this goes first into products, where we provide new texture, surprise the scents with new taste, new texture. I think the iconic product here has been the Ruby Kit Kat, which we launched last year.
We were the 1st to use this new cocoa variety to bring a completely different sensorial experience to a consumer. But you see a cold brew in Nescafe first to launch a cold brew into China. And finally, more that and providing other dimension is into retailing with, of course, the Nespresso boutique, where we have now close to 800 boutiques in the world, but also the KitKat chocolatry, where consumer can come experiment and taste and prepare design for themselves a new Kit Kat. Also the project Loop, we'll talk about that and our 2 direct delivery system of tail.com with personalized nutrition of pet food and Freshly.
As I said, all of
this is done in the context of this brand delivering and being part of our creating shared value. And this is not new to us. We have been creating value and selling brand with purpose for more than 150 years. And without going into all these detail, this is about responsible marketing, recognized responsible marketing of infant formula. This is about delivery addressing deficiencies in developing market with our product, offering €185,000,000,000 of serving of nutritional reinforcement in this country.
Our commitment to packaging and at Lou Anne also our commitment upstream to farmers with the cocoa plan, with Nespresso on buying higher quality product, but also recycling system and Nescafe. This is rapidly to bring you to where Stefan will show you more concrete also capabilities that we have built to allow R and D to be closer to market and help market to launch product faster.
Thank you very much, Patrice. I would like now to take you through a number of measures we have taken during the last 12 to 18 months to accelerate innovation to bring those innovations pruning our brands more rapidly to the marketplace. Foremost, it's about redesigning our ways of working. We started to enable a much earlier translation of science into innovation. We intensified rapid prototyping and we increased frequency of test launches.
We added and we funded additional fast track projects, some of them even proposed by our employees. We revisit the effectiveness of our innovation partnerships. And finally, we are also piloting new approaches to lower capital investment required for market entrants. And all that was enabled by much leaner and more agile R and D organization. And on top of that, we also simplified our project management process.
Now I would like to take you through all of those 6 areas and explain a bit more in detail what we actually did. Let me start with the lean and agile R and D organization. As you know, our R and D organization is composed of fundamental research and product and technology development. Fundamental research, we consolidated into 3 major research institutes. Initially, we had 6 units and now we have 3 major institutes.
We added, like Marc already mentioned, a new institute for packaging science. This institute will pilot here, pioneer new packaging materials, which allow us to address much more effectively the global plastic challenge. The institute will work closely together with suppliers and will assess all these new solutions, which are popping up like mushrooms in the marketplace in terms of food safety, performance, but also sustainability. We also completed a major overhaul of our product and technology development. Actually, we moved from a technology focused organization to category focused organization.
And finally, we strengthened our regional innovation centers, which are placed here really in high growth regions. Now let me talk about our improvements in terms of ways of working. As mentioned before, we accelerated the translation of fundamental science into innovation. So we shortened the timeline from project start until we see a first launch by 20% to 30%, And this was achieved by an earlier conceptualization of the findings of fundamental research, but it was also achieved by implementing generations of claims. So you could imagine in the middle of a project, you have already a claim, sometimes a bit softer.
And at the end of the project, we moved and eventually to much harder claim. On the current slide, you see already some examples, many of them obviously in our Nutrition business. We stepped up our efforts in terms of rapid prototyping and testing. Prototyping allows us to move comparably fast from an idea to prototype, which we can then validate in the frame of a test launch. We equip now half of our centers with prototyping kitchens and prototyping specialists.
And until mid of next year, we will have completed this transformation and all our centers will have prototyping capabilities. This enabled us already during the last 12 months to deliver hundreds of prototypes, some of them leading already to launches, others are still in evaluation. An exciting area, our additional fast track projects. So we started 40 new projects and these are really enabled by a very pragmatic funding process. This works a bit like Shark Tank.
So you have employees, you have your own workforce coming with ideas, they pitch those ideas and we release here the required funding in the frame of 1 or 2 hours. So we're not talking about days, we're not talking about months, we're talking about hours. The project team executes then those ideas, those projects in 12 months and then hopefully we have launches. And you see here on the bottom of the slide already some success stories also here amongst those success stories, the Garden Gourmet Incredible Burger, which we will discuss a bit later. A great tool to encourage here entrepreneurship amongst our workforce.
So really an exciting initiative. Let me briefly talk about the effectiveness of our innovation partnerships. Effective innovation partnerships are absolutely crucial to accelerate innovation. We started to perform now ideation exercises, trend focused ideations with students and universities. We intensified our collaboration with startups.
We were always a part of programs like Marschallenge, but now much more important, while we are talking, we are installing an accelerator in our major research center in Switzerland. So here we will be able to host up to 20 startups. Those startups will collaborate with the 600 scientists we have in place there. They will have access to all the labs and the pilot plants. In this respect, this is a unique accelerator.
Every company has to do an accelerator, but I think we have the only one we are the only one which has an accelerator which is really embedded in the fundamental research center. What's also unique, the teams working in this accelerator will be composed of startups, entrepreneurs, students, suppliers and our own experts. So we will see how this is working, but we are quite excited about that. And eventually, we will roll out this concept amongst all our major centers. We started collaboration with bloggers and influencers to identify trends like insect based food for instance much earlier and to understand those trends much better.
And finally, a focused co development with suppliers provides various opportunities to accelerate key projects. Last but not least, we're also piloting new approaches to lower capital investment required for market entrants. So we started to manufacture our first batches in existing pilot plants. So we are avoiding here CapEx. And then we are designing and also installing now flexible and modular lines.
Collaborative robots play here a very important role. Artificial intelligence is instrumental here to provide a flexibility in our manufacturing base we haven't seen before. So we'll be ideally set up to manufacture different products on those lines without having major capital investment. Now I would like to show you three examples of accelerated projects, some of them already mentioned by Mark and Patrice. Starbucks Home, in only 24 months in only 6 months, we developed 24 new products by leveraging our proprietary Nestle Technologies.
We will be able to test those products in the product exhibition. So we are leveraging here our capsule and systems expertise. We are using here also our booster technology to provide a creamy and outstanding cappuccino form. And last, not but least, also our roasting capabilities were instrumental in delivering here outstanding products. This project and this rapid timeline was also enabled by intensive prototyping.
You see here the power of prototyping. 6 months is really an aggressive timeline and we provide here ample prototypes which were validated together with the Starbucks team and which we brought them to the market. Another very good example are infant formulas with so called human milk oligosaccharides, HMOs. These are complex sugars, which are only found in human milk. They are not found in bovine milk.
Administering those human milk oligosaurides to babies is associated with a much more healthy composition of the microbiome of the baby. And this provides a number of health benefits to the baby. We observe fewer respiratory tract infections. The risk of bronchitis is massively reduced. And finally, we see also reduced usage of antibiotics in those babies.
We rolled out this technology under different brands and Thierry Filador will go a bit more in detail, but we did in this respect in 44 markets in only 12 months. It's a very good example of a very early transformation of fundamental science into product innovation and accelerated rollout of this new technology. Last example, our Garden Gourmet Incredible Burger, developed in 1 year and launched in 10 markets by end of 2019. I have the product here in front of me and you will be able to test it also in the exhibition. So this is a burger patty, which has a meat like texture and color.
The red color is achieved here by a special extract of red meat. So it's a natural color. Sizzling sound and color change during preparation. So if you put in a pan, it behaves like meat. And then you have also a superior nutritional profile compared to many products in the market.
This is enabled by our proprietary extrusion technology. And I'm pleased to mention here already that until the since end of last month, this burger is now available in 1400 McDonald's outlets across Germany. So a big success for us. Now I would like to hand over to Patrice Buller, who will explain to you how we deliver engaging brand experiences.
Thank you.
Thank you very much. This was the end of
the first pillar of how we build brand and make our brand relevant at the heart and in the brain of our consumer. 2nd pillar, how we continue to nourish our brands with engaging brand experience. So what I would like to do is to show you three example of how we do this and not in traditional media. This is all activation outside traditional media. The first one is a KitKat.
It's self explanatory. I will not talk about it. The second one is about Felix. Felix is a brand that is less well known, but it's an extraordinary brand and it's become a billionaire brand this year for us. Felix as an icon, as a cartoon cat, that is a witty street cat and you will see how we have activated this in the streets of Europe.
The third one is a Milo partnership with Barcelona. This is interesting when a big club contact you usually is to ask you 1,000,000 to sponsor them. This time the Barcelona ask us how they could be part of what Milo does in the world and what Milo does as a grassroots movement. And we have found a way and of course, there was no way we would finance it the way they wanted it. So in a very, very cost efficient way for us to partner brings value to what Milo is all about, which is grassroot movement and teaching life value to children.
The third one is a bit longer. I'm sorry, but the total is 4 minutes. So if we could have this video, please. So three example and in this case, of course, the value in the virality of what we show, it's not just only what you do in the street of Paris So but of course, how it is shared and travels the world on the digital world. We do these these are 3 maybe anecdote, but we do this at scale.
And we do this by monitoring also our performance. And again, in the FEA awards in 2019, we come unfortunately this time second. And I have to say humbly, we have to accept that one great of quick serve restaurants was ahead of us. But you can see also that we created further gap versus other packaged food company. And we'll have to learn and regain this number one spot that we hold for the last 3 years.
You see on the right how we measure the effectiveness of our copy advertising and make sure we get in this first quartile of persuasions of our brand. In parallel to this, we pursue personalization at scale. And we pursue this on already a very large base of more than 100,000,000 first party data that we own. And you see the numbers of which this is an acceleration of acquiring this data, but also qualitative data that are attributes that we capture that allows us to do more and more targeted marketing and personal messaging that you see in the second pillar here. 10% of our contact today are personalized.
We put also all our assets into what we call content studio and we have 20 of them in the world from which the market can draw, personalized, tailor made their advertising and what they think is important in their culture to achieve the right way to touch the heart of people, but also in an efficient way. Last but not least, with programmatic coming in, we are now working more and more with this way of buying media and you see here the effectiveness of it. All this leads us to believe that we will be able to continue to gain efficiencies in the way we work and reinvest this efficiency behind our brand. We'll do this in media, where we have worked from doing media review at market level to continental level. And we know we believe that we can leverage our scale and the scale of our brands to get lower and lower buying rate.
We consolidated activation agency. We do not accept any more creative fees that are done on a market basis, but we want our supplier to find the way to provide us at the lowest possible cost and the best quality possible. We develop assets more centrally to be redistributed to market and tailor made. And last but not least for what is a simple advertising Twitter like type of promotional and response and witty brand contact with consumer, we have brought this in home into a content studio. So this will bring us to the 3rd pillar, which is this the strength of Nestle in in this fundamental R and D that is able to deliver a pipeline of new product today and of course tomorrow.
And I'll leave Stephane to give you a glimpse of this for the future.
Thank you very much, Patrice. Well, let's have a look at our 9 most important science and technology platforms. It starts with coffee roasting and extraction. Then we have a platform comprising of material science to reduce salt, sugar and fat in our products. Alternative proteins, a very important platform, comprising of technologies to deliver dairy, but also meat analogues.
Microbiome, the science driven platform, which provides innovation opportunities for many of our categories. Cellular nutrition is instrumental to effectively address healthy aging, infant and maternal nutrition, multi omics profiling, a very important platform for authenticity control and food safety, digital nutrition and finally, our beverage systems. These platforms we are leveraging across our brands. Good examples here are roasting technology, which we use to innovate for Nescafe, Nespresso, Blue Bottle Chameleon and now Nuuly also for Starbucks. We leverage them also across categories.
I took here the example of dairy alternatives. Dairy alternatives typically you start with different plant materials, oat, rice, legumes, almonds, nuts, quinoa, millet and so on. Then we transform those using our proprietary fermentation separation technologies, micro milling, homogenization and also protein aggregation where we have various patterns into plant milks and dairy alternatives. And this allows us to innovate in different categories. You see here the economies of scale at work in the R and D area.
So we can innovate for our beverage business, Desk Cafe Dolce Gusto plant based you see here. Then for our Dairy business, ready to drink products, creamer and also plant based ice cream. But it's not also only about trend focused innovation. We also deepen our understanding of the link between health and nutrition for all stages of life. Starts already with metabolic programming, starting actually with conception.
So during a pregnancy continues with breast feedings, we investigate how maternal nutrition is impacting here metabolic programming of the child and also the health of the child. Epigenetics seem to play an important role here. Then we investigate how nutrition is here impacting the development of the child, cognitive development, but also physical development. Myelination of the infant brain is impacted here quite significantly by the absence or presence of certain fatty acids. And finally, it turns out that many of our health related conditions are linked to malfunction of mitochondria.
Micro mitochondria are the power stations of the cells. If they are not working, we have a serious problem. And now we can address this mitochondria malfunction via natural bioactives. Now these fundamental scientific understandings we are leveraging also not only for different categories, but we are leveraging also for different species. I took here the example of a ketogenic diet and medium chain triglycerides, which are effective for treatment of epilepsy in humans, but also in dogs.
Dogs, certain breeds have up to 10% prevalence of epilepsy, probably you don't know that. And these MCTs can be also very effective for improving cognition in elderly. Now this we can now use to innovate on one hand for our Purina business, but to innovate as well for our dairy business and our Nestle Health Science business. Similar example, probiotics and microbiome. The microbiome has a huge impact on our immune defense and also gut and mental health.
So the findings we have here, we can deploy for our Purina business again and we can leverage them for Nestle Health Science and our infant nutrition business here. For instance, the reason launched by Purina as a probiotic, this probiotic has been proven to be effective equally for humans, but also for pets. So that brings me to the end. I hope that I could have shown you that we have an R and D powerhouse in place and that we are leveraging those capabilities to fuel our brands. Now Patrice will show finally some billionaire brands and show how we drive those brands through innovation.
So ladies and gentlemen, all of this, our ability to innovate and to innovate faster, to read trends and read the trends, but also bring the product to these trends faster than before. Our ability to keep our brand in conversation with consumer and you just saw the backbone strong deep R and D capabilities we have, allow our brands to continue to grow. And if you look at last year, 29 out of 34,000,000,000aire brand grew and grew some significantly in the world. We added 2 new brand. I talked about Felix.
We are very proud of a brand that was built in the heart of Europe, a tough market, a difficult market, where we have built with, again, technology, an iconic product, iconic communication, backed up by real science, a complete new businesses that is winning for us in Europe. Another winning business that Chris will talk more about is Illumina, who became a billionaire brand in ultra premium affinity milk position in China, and you will hear more about it this afternoon. This we hope we try to share our conviction, Stephane and I, that our brands are extremely well positioned to continue to delight consumers today, tomorrow and in the future. And that it is far less about this so called big food against small brand than it is about great brands continuing to do their job, continuing to be invested in, continuing to be delighting consumer and having the R and D capabilities that really make a difference in the life of consumers. Thank you very much for your attention.
Okay. So we can open it up now for
the Q and A.
I think we are perfectly on time. We have around 25, 30 minutes for Q and A. So if you want to ask a question, please press on the voice button of your microphone. Please identify yourself by speaking your name and the name of your organization. Limit yourself to 2 questions every time.
Anyone who wants to? What
James?
Yes. It's James Edwards Jones from RBC. Stefan, you mentioned that R and D has moved from sorry, to a category basis from a technology basis. And then at the end there you gave us examples of a technology that's relevant both in pet care and nutrition. How does this process work if it's one category has responsible responsibility to that technology?
How do you then work out how it can be transferred across the categories and what's the process by which it actually happens?
Yes, very good question. Our R and D structure is we can describe as follows. We have a fundamental research bound, which is going across categories. And those examples, those technologies, fundamental science results, they are all elaborated in this fundamental research organization, which is highly concentrated. And then we use that to innovate in different categories.
So product and technology development is category focused, but fundamental research is going across categories. So that's why we are guarding a strong fundamental research organization in order to fuel now all those categories with the same fundamental science.
We go for a second question. Maybe at the bottom of the
Hi. You've got John Innes from Goldman. You showed a slide talking about how 60% of revenues fall within high growth categories. I just wondered what proportion of your innovation efforts fall within those high growth categories? Is it more than the 60% of sales that it represents?
And then what then to what degree is the growth acceleration for the group getting back to mid single digit reliant on those high growth businesses accelerating from the 4% net delivering today? Or is it more a function of improving the low growth businesses that are kind of lagging behind the group? Thanks.
We if I understand well, you are asking how much. Can I ask you to repeat the question? Sorry.
Yes, sure. So the question was, you showed that 60% of revenues fall within high growth categories. And I wondered what the proportion was for your innovation efforts, I. E, to your innovations, are they 80% focused behind the high growth components of the business? And then I wondered if you could link that back to what is going to drive the overall group acceleration.
Okay. Sorry. I should have understood that question. No, we of course, you can imagine we have high growth categories, but we for whom we have specific efforts to continuously come with a pipeline of new products. We do not measure in percentage of our innovation.
We know that we renovate a product between 1,005,000 products a year because a big effort is renovation. When we do Mylo Hypertane, is it an innovation renovation for us? This is not so important as how much does it have an impact on the consumer we want to reach and transform this into growth. So what we also wanted to show you is while we have, of course, effort on this high growth category, the one we have identified, we also continue to do a lot of work on all other brands. Why?
Because these brands are absolutely critical for some parts of the world, are equally important. And think we try to show you here 3 brands that are not in the identified high growth categories, but are providing us very, very nice growth. And to do that, of course, we have to constantly also stimulate this with what you saw in Coffee Mate, a very important brand in the USA. And you saw what results we can have at the heart of the U. S.
Food and Beverage segment. So I think I'm not answering this very well, but our effort is continuously broad based. Broad based because we have this extraordinary portfolio of and you saw our billionaire brand, but we have also more than 2,000 local brands. And these local brands benefit from some cross fertilization of having technology platform that we deploy maybe was developed for one product, but we developed on others. And these brands are very important locally for our organizations.
By the way, Jon, in Francois' presentation this afternoon, we have a chart that shows that 63% of our CapEx goes into high growth categories. Maybe next questions? CapEx. Yes, CapEx, correct, yes. Eileen?
Hello. Eileen Ku, Morgan Stanley. I've got two questions. The first one is how much of a competitive advantage are these innovations that you talk about? So for example, patent protections, things like that?
Or is it easily replicable by your competitors? That's the first question. And then secondly, on the subject of patents, I guess you talked about the sugar breakthrough innovation a couple of years ago. I wondered where you are on that. Is there any more opportunities to roll out that technology?
Thanks.
Sure. So if you look at IP protection and the barriers you can build via technology and via science depends always a bit on the category. If we go in a category like infant nutrition or beverage systems, yes, there we try to protect as much. In other categories, it's also much more about speed. If you take confectionery, we go very quickly and we try to accelerate the innovation machine and to outpace the competitors via speed and global rollout.
We saw I showed you a number of examples where in a remarkable short time we covered a large number of markets. And here the competitive advantage was coming from speed. So it depends always a bit on the category and you will see us still heavily patenting in certain areas. You can track that. Certain areas we want really to protect ourselves via technology.
Specifically, like I said, infant nutrition, speed is a bit difficult because you have regulatory constraints, you have safety constraints. So here you need to protect a bit more via technology. Then what was the second part of your question, sugar, yes, the sugar technology, this hollow sugar. Now we launched that in the U. K.
Like you rightly know under one brand. Now we start to combine that with other technology building blocks. It has proven to be very effectively if you have this one technology and you combine it with others, you can bring the product even to a much higher sensorial experience. So we will roll it out, but in combination with other technology building blocks.
I think to complement what Stephane just said, I think you will see us very often now do things faster and come up with a product that is maybe a 1.0 and then continue to work at it to improve on it and improve on it. So we wanted to bring this sugar because it was a breakthrough. We did it. It's doing well. In the meantime, we have continued to work to enhance the organoleptic delivery and the way we can combine it further and you will see us continue to dig in and dig in and bring 2.0, 3.0 and the product.
So this is a price to pay to be fast. You don't wait this to be perfect, but you do, you learn and you move on and hopefully improve the product continuously.
Okay. We move to the next questions.
Alain? Thank you very much. Arnaud Hooper, MainFirst.
I have
a question regarding the Billionaire brands. You said 5 brands didn't grow last year. Was it because you didn't do any product innovation? And if so, if you did some product innovation, why did that fail? No.
I mean, yes, you have when you have all the children of the family, you hope that all of them will do well. And sometime you are slower. Sometime you have not caught one trend, sometime you have decided that you want to fix other parts of the business, that you want to fix margins and are doing other work than just grow. And this sometime we make that choice that it is more important for us to get back substance in the P and L than innovating. But yes, it's a combination of this.
In this brand, you have seen some issue that we want to address. We have been challenged and we will be there. But these brands, of course, benefit from innovation and R and D, but you don't win every time, but we win a lot of time. If you look at our portfolio, we win a lot of times. And we cannot unfortunately expect all of them to do always well in such a broad portfolio on a broad geography like what we do.
Okay. We move to the next question.
Thanks,
particularly when you think about the research backbone? And specifically within that, what metrics do you use? There's lots
of people who contribute to
the success of great innovation across the zones and products. What metrics do you use to manage and pay the people in that R and D organization? Thanks.
Interestingly, I get this question quite frequently. So it's a question I'm used to. Now what we measure is on one hand the spend in R and D and also marketing and what we measure against that is the growth which we achieve. And there if you compare that, I think we are doing well. So that's one of the measure.
Then we compare ourselves also in terms of R and D intensity with major competitors. So how much of our turnover we spend for R and D. If you consider the mix, I think it's very comparable. So that's the metrics which we measure. And then what I want to see is also how many launches we finally have.
Let's talk about launches. And in this world, in a new environment, it's very clear that not every launch will succeed. So you have to try a bit more frequently than in the past. So we have to get a certain number of launches and then we are tracking how those launches are doing.
Okay. Maybe we move to Selena.
Celine Panetti, JPMorgan. My question is about boundaries in your categories because it seems that there is much less boundaries that we are used to before you could say coffee, confectionery and so on and so forth. Now I see that you go into QSR and launch vegetable burgers. You also have the snack bar with almonds. So my question is, how do you decide whether this is a category or subcategory wealth go into?
And how you balance the top line opportunity versus the cost and overall the margin that you can do there? Thank you.
Thank you. It's a very good question. One of the key role of the SBU is to design the strategy of categories. And this is what you referred to, which have been quite defined in the framework. And we do this.
And we do this as a very dynamic process, which involve the market. So when we do this, we look at are we able to win? Is this category continuing to be relevant to consumer and can grow at the level we want? Adjacency. Adjacency, what is around our category?
In today's world, a lot of the disruption of our categories has not come from inside, come from the outskirt of our categories. And then you have to decide, do we do this? And the extraordinary thing at Nestle is usually we have the capabilities, the technology to do it. And then you have to decide that if part of what is the impulse chocolate categories is not growing as fast as before, is because people want alternative grain based. And we can do it under the YES!
Brand and do it, we do it. We do it and we do it fast. And we try in some market to really lead these categories. So this is a concerted of course effort. What I described as the role of the SBU is a very dynamic process of working with the market and the zone and say, well, if we do the zone committed.
In our metrics, of course, we are here, we are the competence builder. We are trying to bring to the zone what they can do, but the zone at the end have to say, this is my priority and I will do it. And this is why I think our metrics works very well. So yes, we will continue to expand the boundaries there where we feel we have the brand, the competencies and there is a segment to be taken and Nestle can take it. So that you will see, I think on QSR we have had contact and we have businesses with some major QSR company.
We have always had with them. And I think when this customer sees very interesting breakthrough product and that we can work together, of course, we will work together and try to develop this business.
Okay. Next question comes from James Targett.
Hi, there. Yes, James Targett from Berenberg. You mentioned the 6 to 12 months sort of maybe best in class launch time. Could you give us some color on where you struggle the most to reduce the launch time across your categories? I think you mentioned infant formula because of maybe regulation, but generally where it's hardest to be so agile and so quick to respond to new trends?
Thank you.
Yes. Very, very good question. I think we have and we did not want to go in detail, but part of our end to end process review, one of this process was called idea to launch, which was a process with a lot of barriers of each person having to sign on a lot of thing before it was we're able to launch. This was a perfect process. We have decided, this is very important culturally also to say we will give far more freedom to the people on the frontline in the market to do it or not, but we will not check it anymore.
So it's up to them to take the responsibility to cut some buyer and make sure the organization there has gone through regulatory QA process. And so and that it is not always done with the back and forth with Verve and so. It's of course, when you look at some categories, if you look at where we need clinical trials, where we need a product for infant or for senior people or when Greg will talk about Health Science. This is where we need far more time to make sure that the product we bring to market can deliver on the benefit we propose. This is different from doing 24 new products for Starbucks, of course, because there you have less constraint to the clinical trial or the benefit.
You want to complement?
Yes. And in areas where you have safety considerations. So we go in certain sensitive product categories, you have to do much more studies to ensure that product is safe. So it's categories where we have regulatory and safety constraints. There it's a bit tough to compress timelines and we shouldn't do because it will put a lot at risk.
Okay. Next question, Alan, Alan Erskine.
Yes. Alan Erskine from Credit Suisse. Two questions. 1, I just want to understand if you could elaborate for us the movement of the greater responsibility into the categories, because as I understood it, you always had that backbone in Lausanne and you always had these product technology centers, which were confectionery or serial based, so we're very specific to the category. So firstly, if you could just elaborate a bit more about what's different to the way you were organized, say, 3 years ago?
And secondly, when you were asked about the metrics, you didn't mention the sixty-forty test. Is that something that you still apply? And how are you performing on that? Thank you.
Yes. So let's first talk about the organization. Yes, it's true. We always had a fundamental research organization. But initially, this was comprising of 6, you can even say 7 subunits.
So we consolidated those into 3 major institutes. So there was a consolidation which took place. And then like I said, I explained that we added the packaging institute because this was a major gap. And by the way, it's the only packaging institute you find in the entire industry. There's no others.
Now when it comes to product and technology development, this product and technology development was pretty much centered around technologies. So we had a center which was a team which was working on spray drying for instance. Now we are focusing those centers much more around certain category and certain brands and the collaboration with the SBU is now very, very close. So we have joint meetings nearly every week. We agree on innovation pipelines.
So the focus of those centers is now around categories and brands. Before it was pretty much focused on technology, which is super optimal for the innovation process. So that's the changes which we did there. Second part of your question was on help me. On sixty-forty.
Sixty-forty. Yes, exactly. Now sixty-forty will still continue specifically if we renovate major brands. We don't want to lose your product preference. Then if we do fast track innovation, sometimes we go also on more pragmatic tools like preference mapping tools for instance.
But sixty-forty is still there. We want to guard sensorial preference specifically for our major SKUs in the marketplace.
Well, I think we still have time for 2 more questions. Jean Philippe.
Jean Philippe Bertier, Francois. To come back to the returns of your new innovation, are you not afraid to increase dramatically the complexity in the SKUs as well? And I think Frozens has been doing a great job with working capital. So how is it disruptive to this target? And the second one would be on pricing.
How are you trying to price up those innovation?
So I'll take the first part of the question and the second part I'll leave to Patrice. Now in the first part very clear I explained to you that we have tried to build now and design much more flexible manufacturing lines. So complexity is an issue if you have a very rigid manufacturing base. But if you have the right IT tools, flexible manufacturing setups, cobots I talked about, then complexity is not such a big issue. So we adapt our manufacturing base to allow also for more different products.
Otherwise, it's very difficult to test these different innovations in the marketplace. You see in the marketplace a proliferation of offerings. The time where we had only a few offerings in the shelves, they are over. So we have to accommodate for that. And that we do while having a bit more flexibility in manufacturers.
Okay. I think also I will answer the second question, but also what you don't see in the talk is that every year, every market review the tail end of the SKUs and cover them. We of course, you have to you always move, but you always see at the end of the year what was your 20, 30, 100 SKU did not perform and you take them out. So this is a dynamic process of adding on one hand, but also taking out on the other On pricing, what I did not do well is to give credit to what has been done with the 3 example I showed. On the pricing we are getting in this journey into having new products and it's the single finger volcano cocoa bean paste that we are launching in Japan is the finger is the 3 times the price of the 4 finger that you see on the left side of the product.
And it's the same with Coffee Mate. So as we do it, we price it accordingly to what we think we can get to the benefit we give to the consumers. And of course, this is a very, very important part of making our brand relevant and delivering this at the right price and the right value for money for consumer.
Okay. We have the time for one question, Jonathan. And then we have the final remarks by Mark.
It's Jonathan Cook from State Street. Could I ask, I guess, as a percentage of sales, is the combined sum spent on innovation, brand experiences and R and D capabilities going up year on year? And if so, what's coming down? Or another way of asking it is, how is the marketing mix changing if you're prioritizing these three areas?
I can just talk about the R and D spend. Let me first cover that. Our R and D budgets are stable, but we are using those budgets differently. So you saw a number of initiatives where we are funding fast track innovation. In the past, we wouldn't have done that.
In the past, we would have a very rigid portfolio of projects which we execute. So how we spend this budget is changing, but the budget per se is stable.
I think it's the same on brand building. I think last year we had a slightly positive in real term what we call PFME spend. But I think very, very importantly is the we believe we're living in a time of incredible disruptions and opportunities in the way new media, digital and beyond allowed us to get greater and greater efficiency. And the old drive of the marketing of the future towards personalization when done at scale and done very, very well, allow you through hyper targeting and so incredible efficiency for your dollar. And we are on the journey to that.
We are accelerating because we can see that how much benefit it brings. So I believe in the future, the number per se in value of what is PFME will be a bit or far less relevant to are you really getting gross with the money you spend and can I see it in your results because we intend to gain a lot and work a lot on that dimensions?
Before we
start the break, let me just say, I hope you found this interesting. I hope you found this motivating. This is the single biggest driver of long term successful OG performance. You can do tactical things on the ground, all sorts of things, but at the end of the day, captivating strongly resonating products under strongly resonating brands, that is the single most important OG driver going forward. And what I really credit Patrice and Stefan, they have reinvigorated this collaboration between the 2 because it has to be the 2.
If you spend $1,700,000,000 on R and D, there needs to be some guidance from the SBUs about what you spend it about, what the consumer wants. And likewise, when SBUs come back with market insight, we need to have an innovation engine and R and D that really makes it happen fast. So this needs to be really fluid. I know it's very, very hard to describe this to you because these inner workings between these two groups, I mean, this is deep down in the machine room of the company, but I can't tell you how different it feels now and how much more specific it is and how strong it resonates inside the company. And most of all, and I think this comes specifically also from the changes that Stefan has done at these fast track projects, there's not a meeting going by with something that you can put your fingers on, eat, touch and really evaluate.
At the end of the day, consumers don't buy PowerPoint slides. They're buying products. They're buying brands that are convincing. And that whole mindset, that specific mindset, I think that is something that really has changed in R and D. And I think that also facilitated this collaboration with the strategic business units and ultimately with the zones in the market.
So this is a whole new engine. There was a good reason why we featured this very early on in this day because it is a significant change in the company. And for you, if it's very hard to track, of course, these inside things, judge it by the output, judge it by what you see, where you kind of rub your eyes and say, well, this was fast or this is convincing. And hence, I think the products we're showcasing in the breaks and also what you're seeing during the store visits tomorrow, I think this will be an important proof of the pudding, if you will, on this new function and what it can do for us. Thanks a lot, and we'll start the break now.
Okay. Welcome back, and good morning. My name is Marco Seppembrin. I'm leading ZONE MENA since the last 30 months. I'm a Nestle veteran, 30 plus year in Nestle, and I'm an Italian baby boomer.
So the purpose of today in my presentation is to update you on the Zonema transformational journey and also to convey you how in the zone we are profitably growing and how we can grow in an hectic and vibrant environment. So if what you should retain from the picture of Zonimena from these figures is that beyond the numbers, there are amazing number of people, brands and assets in the company, historical assets of this company. But anyway, there are 2 key numbers that I would like to focus on is 1 and 9. So it's €19,000,000,000 business that I'm managing is 19% of profit that the zone is doing and 1.9% organic growth in 2018. So in terms of geographic, it's sixty-forty, 60% Western Europe, 40% is Central, Eastern Europe and Middle East and North Africa.
I would say quite balanced because if you take into account the valuations happening in many other markets of Central Eastern Europe and Middle East and North Africa, in reality is there is a good balance geographically speaking. We have 7 I have 7 reporting units, P and L responsible, that represent 6 main categories in which the most important one is beverages. If we talk about the environment that I mentioned at the beginning, yes, it's a very lively environment in the zone. Political and geopolitical scenarios clearly show uncertainty in the future. If you think about Brexit, I would have expected to come here and to discuss about the what we are going to tackle with the Brexit situation.
But for people that come for London, you know that this is something that we continue to postpone to understand what is going to happen. What is clear that is the scenario is quite uncertain. But if you take into account also the European election, so what the European Parliament will be, what the Commission will be that influence a lot also regulation in Europe and then speed over to the rest of the zone is uncertain. Clearly, the balance, the equilibrium in the Parliament and the Commission will change. But also if you take into account the tensions that we have in Eastern Europe, Russia, Ukraine, but in Middle East and North Africa, what is happening in Turkey, in Iran, in Syria, in Saudi, in Algeria and so on.
Again, the constant is quite uncertainty. Disruption comes anyway from also what's consumer. The consumer is shifting its preferences. How I where I shop, how I connect is clearly changing the behaviors of the market in the zone. However, having said that, Nestle being embedded in every single country historically, very connected with the local communities and so on can transform and this transforming also this uncertainty in opportunities to grow the business in the future.
The Nestle operational model in the zones is simple and effective is our Nestle virtual circle. In Zone EMEA, we are applying that virtual circle since years and we are, 1st of all, achieving important efficiencies in operation, factory fixed overhead, distribution, also in the fraction in the overall company overheads. We are investing this efficiency in partially in the growth platform, in the choices that we are doing in the different portfolio, in the different categories, at the end to win. Winning for us is winning market share, winning in the marketplace. We are growing a lot market share quite substantially in certain categories like infant nutrition and in pet care, But also in categories like confectionery and food that in London, I was mentioning that we were putting as a priority to transform these categories, to focus more on the bottom line and to reduce cost.
But also in these two categories, we are seeing very good now trends, especially in the last 6 months in terms of market share and we are growing market share. We are also recovering very fast market share in coffee because of commodity and compatible capsule. We lost some share in the last period of last year, but we are now recovering very fast market share since the beginning of the years. We are improving the return. All 7 categories that report into the zone have improved profitability in 2018, while having at the core the people, the teams, the citizens and the society.
What more specifically for Zone and Mena, how we are organized in the Zone E Mena. In London, we made you known the fact that we are we were transforming the Zone E Mena in terms of responsibility by creating 7 regionally managed business, P and L responsible. And clearly, what I can tell you that we really are getting the benefit of the focus organization around the category expertise, around the consumer insights. This is giving us fast decision making. Resource allocation is more and more optimal.
We are avoiding local for local decision and also duplication of assets that we used to have in the past. We are doing that also exploiting and keeping the very high strong foothold that we have in Nestle in the different countries, as I said before. So the proximity with consumer, the proximity with the customer, the local presence in every single place harmonizing the solution at the category level is giving us a lot of strength. So by combining these metrics, as Marcos was and Patrice were mentioning before, combining the best of the category approach and clear decision making and the local presence, we clearly create a success factor of winning in the marketplace. Delivering, winning, working together, little bit demand of this organization that was category and market together.
And this approach is working. This working is demonstrated, 1st of all, in achieving efficiencies as part of the virtuous circle. In the last part, you see what we are getting in the zone, in the total zone in terms of structural cost reduction coming also from elimination of underutilized lines or assets overall. But more notably, in each category road map, we have clearly a road map of value extraction in each element and total deliver cost reduction path. You can see the example of confectionery.
We were talking before about innovating a lot and there was a fear also that we were proliferating SKUs and so on. This is exactly the opposite what is happening is we are reducing complexity, we are reducing number of SKUs that are unnecessary, but more importantly, specification, ingredients and so on. And I just put as an anecdote because some of the people asked me about what happened to the Santa Claus that in London, I was describing the 17 different formats of Santa Claus. Now we have reduced by 75% and surprise, surprise the business is growing and the Christmas campaign has been extremely strong and now we are preparing quite innovative campaign for the next Christmas in confectionery. But the approach work substantially also in the top line in segmentation strategy for all categories based on innovation that we saw very extensively with Patrice and Stefan and premiumization that was also explained.
As I indicated in London, in a low inflation geography and period, mix is the new price. And so for us premiumization is a way to really get higher price, higher margin contribution at the end of the day, higher profitability. A mix means to grow over proportionally in the premium segment and we are growing in the premium segment 4 times the average of the growth in the zone and MENA. Infant nutrition is a great demonstration that this model is working. Why?
Because the category was already focused, was a globally managed business. So it was already a category really focused since years in delivering great innovation. But now by embedding the category in the zone, these amazing harmonized science based innovation Thierry will explain in the afternoon have been implemented in a faster way and share growth every month is impressive. If you see that every month we are growing and we are increasing the gap versus infant nutrition and pet care share an important insight in the zone and in the category approach. Parents, when obviously a baby cannot be breastfed and pet owners rely on the company, on us, on Nestle and our competitor obviously to help them to shape the current and the future health of the baby and on the pet.
This video that is an advertising video shows how we focus on giving the best because of our science, but also because we see the baby and the pet with the eyes of the parents and the eyes of the pet owners. Let's see
this video.
Purina is another demonstration that the model is working. It was the 1st regionally managed business established 25 years ago in the company and is a strong success story. We continue to win market share. We are very close to the leadership in the zone. We have already taken the leadership in the segments that we focus especially on.
Coffee has been and will be another huge success story for us. With the current portfolio innovation and the addition of Starbucks range, we will create the condition a quite exciting future that is already happening in the short term, as I said before, in terms of market share. David will go in more details in the afternoon. So category transformation, the virtuous circle, the value extraction, clearly are critical enablers to perform in the zone. But to win, we really need to anticipate and to expand our journey.
So I will the expansion means to master 5 what I call 5 extra pillars that I will describe in the next 5 minutes that is sustainability by design, consumer and shopper centricity, competitive gaps in the operation, digitalization and inclusive teams. So sustainability by design is a must, especially in Europe, but not only, as Marc said at the very beginning. So we will expand our product superiority, our sixty-forty or sixty-forty plus, so taste and health connotation, towards a real sustainable competitive advantage. So this sustainability concept must be embedded in each original concept that we'll have in the future in each innovation project. Our plastic commitment in Europe especially is just a start.
And Nest, we call natural that is one example is a compelling innovation exactly for this reason because we really review each single element from the concept sustainable by design. Consumer centricity. Polina is not only a great example in the core in what we do in the core brand segmentation strategy. Consumer segmentation is a discipline that we follow in Porina. But this is also goes beyond the core anticipation, understanding new consumer plans.
And we are exploiting these new plans also to external opportunities. I described here 3 external opportunities that we grabbed since the last meeting in London. Terracanis, the first one, German company which we have invested that is focused on human grade pet food quality. Tail, investing in personalization. Tail is providing I mean, if you have a dog, you know that your dog is special, your dog is has a certain age, certain life, certain lifestyle that is also depending on what you do.
So with tail, we really give to every dog exactly what the dog your dog needs also with the product that has the name of the dog. Or we are partnering with, as we have announced in the last weeks, with a leading vet clinic company, IVC, to cooperate for the best nutrition and health of the pet. Go along with Shafter in this purchase journey is a key opportunity also for us. So we do it by win with the winners. And so we know that e commerce and discounters in Europe, especially but not only in Russia as well, we are clearly the winners.
But we win with our historical market execution also expanding to an omnichannel strategy, so to follow the purchaser, the shopper in each experiences. And also we support our partner, our customer, our big partner in every market with proper specific solution to help them and to help us also to win in the marketplace. A proper governance also is needed. You know that we have categories, markets, international customer demands and so on. Also having the right governance between and the immediate decision making in what to do in the different situation is also absolutely critical.
And that's now in the last 12 months, we have mastered as well this element. Operation. Operation plays a central role to enable growth To extract value, 1st of all, because I said at the very beginning, we need to extract more values from our operation. But we can and we create gaps in our operational assets by modernize, digitalized production and distribution. We see terrific results now in our operational asset intensity.
Cost reduction is improving substantially and this will be another competitive asset for our future. But digitalization is also critical. We already seen with Patrice before. So exploiting enhanced connection system and powered by the modern devices will allow to create for each category effective ecosystems. In infant nutrition, you can see the example.
You can understand what is becoming the consumer service of the future enabled by this digitalization movement that we have. Obviously, fully respecting the local regulation in engaging with stakeholders and eventually consumer. The company like Nestle, especially in Europe, but in MENA is and must be part of the solution and must be part of the better world creation as Mark has already explained you. So everything that you do in the healthier kids that is reformulating products, educating kids in youth initiative, the launch is already 6 years of the youth initiative, first on unemployment, now on apprenticeship schemes. And waste elimination in operation are only example on how we are impacting the society in all the
zone.
So this transformation is paying back, first of all, in growth. So in the last 6 years, the growth in Dorsone MENA has been around 2%. We see a strong acceleration now in real internal growth, especially in short term. In the low inflation, we really need to look also real internal growth. You know also that we put the mix in the real internal growth in Nestle.
Structural cost reduction, we have reduced in the last 2 years 120 basis points our structural cost. Profitability, we have increased 300 basis points in the last 4 years and 200 basis points in the last 2 years in the zone, reaching the 19% that I was describing. To conclude on the what the ZONE EMEA is delivering, and I will say also winning in many aspects, on the how we are transforming and evolving the zone in a very collaborative way, the categories, the market, but also the society. Thanks a lot for your attention, and I'm ready to take now few questions.
Thanks, Marco. As usual, the format is as designed before. We have 10 minutes for questions. Who dares to ask the first question?
It's Warren Ackerman at Barclays. I have two questions. First one is on the structural cost. You showed us that chart, 120 basis point improvement. Can you maybe elaborate where those structural costs have been taken out?
And how much further do you think you can take that structural cost number down, with particular reference to your manufacturing footprints and what you get the right optimal number of factories is in Zone AMENA? You can answer that one first.
Okay. So on this question, structural costs, under 20 basis points, I would say it's quite balanced between the different elements of the structural cost. Factory fixed overheads, yes, has been the main part, but not only. Overheads, Moji, as you call, marketing and general overheads, we have reduced. We are not only cash flat in the zone, but also we are reducing the cash in terms of structure that we have around the market.
When you have this organization, you can also start carrying certain layers, a certain duplication of structure, not only in the marketing and the generative demand, but also in the fact in the technical aspect because you really manage the factories from the category standpoint. So you don't really need to duplicate in every single market technical direction and so on and so on. Yes, manufacturing footprint has been one an important element of reducing structural cost, especially in Food and Confectionery. The journey is only started, I would say. We have plenty of action action that we'll take in the future to streamline the factories and the lines and so on.
Because you know also in the factories, it takes also some time also to really see the results. But every 2 to 3 months probably you heard about factories or lines closure in the zone.
Sorry. And the second one, if
I can, just quickly. On coffee, you told us before there's 100 compatible capsules aluminum or they've been launching more aluminum capsules that have been a driver of that share gain. Can you just talk about sort of going forward what you think about coffee? Why that market share has improved? And why it can improve further with the Starbucks rollouts as you put that into your machines?
Thank you.
Yes. You will see probably lots of answer in the David presentation in the afternoon. But clearly, you have a quite technical element in which the moment in which you the compatible capsule entering the market, Nespresso and Dolce Gusto, you have the element of distribution that takes market share just for the fact that they enter the market. Now I we see that the share of compatible is quite stabilizing versus both system, Dolce, Augusto and Nespresso. And now also we have the Starbucks opportunity.
We have seen the first results of the launch. We have already launched in the 1st market in the zone, Netherlands, Spain, Belgium and so on. And we see in the 1st weeks quite amazing response for consumer in the retail for both compatible Dolce Guste and Nespresso. So we have not yet France, Germany, U. K, the biggest markets.
So I'm pretty sure that Starbucks, in addition to what we are doing on the rest of the range, on the Nescafe Dolce Gusta and Nescafe Solvaux will be a fantastic addition to the to our coffee portfolio.
Any other questions?
It's Guillaume Delmas from Bank of America Merrill Lynch. My question is on your organic sales growth. It's been around 2% the last few years. You've been gaining or maintaining shares in the 59% of your portfolio. So should we conclude that 2% OG is a fair level for your zone?
Or is your ambition to accelerate that growth further going forward? And if so, what do you think the drivers will be? Is it higher category growth? Or it's actually bringing this share gains to a high level than the current 59%? Thank you.
You know quite well that your organic growth is also based on the prices and inflation. And we have delivered 2% organic growth in periods in which there was basically no inflation or deflation in most of the Western European countries. So that's already quite substantial. I'm pretty confident that 2% level will be confirmed also in the future. Obviously, I have an ambition to grow more.
But really, in terms of pricing effect, it really depends on we don't bet on the inflation in the future. It really depends on many different aspects, but we don't see sign of inflation. We see some sign of inflation on some commodities and that also could change substantially in terms of the ratio between volume and price. I more I mean, as a business guy, I'm more reliant on mix premiumizing, really winning in the mix. And then if I can only also increase prices if commodities and the market will inflation will allow, we'll obviously do it.
But even without this effect, the 2% level of organic growth is fair. You have seen the first quarter, we had 1.9% last year. We had 2.1% in the Q1. And I'm quite confident this level for this year will be at least reached.
Okay. We have 4 minutes left for Q and A. Okay, Jalan.
Thank you very much. Alain Oberhuber, MainFirst. A question regarding hard discounters, Marco. You did mention that. Is it because you tackle that issue much better than in the past?
Or is it because they are less vital or important for you? [SPEAKER
JEAN FRANCOIS
VAN BOXMEER:] It's a combination of elements. Also the discounters are changing a lot. And also we see the Russian discounters, the German discounters, the Polish discounters are already changing the way they approach the market instead of being 100% focused on private label or what was the discount about 20 years ago, now they are more open and they are becoming proximity supermarkets close to in a present in every city and so on with a good presence of leading brands. And we are leading in many different categories. We compete in every single place.
So in every with every single retailer. So discounters is part of the offer, is part of the consumer offer. We are now doing also in a very well concerted way. So discounters, yes, is part also of our way to reach consumer in every moment of their purchasing life and is paying back. I would say that we have very good growth in many of them.
We have time for one more question.
Go ahead.
Hi. It's Alicia Fori with Investec. On e commerce, that seems to be clearly industry. And you grew 12% in 2018, you said. Do you think that your legacy Nestle brands are fully penetrated in that channel at this point?
Or is there more to go for there?
Yes. I would say e commerce in MENA is not developed like in U. S. Clearly. You see that there are certain countries in which e commerce is quite well developed.
We see U. K, for instance, that is probably the most developed country in the Zolomea. Our portfolio, I would say, is well designed to get the opportunities to grow. I would say infant nutrition and pet care for many different reasons are 2 categories that are extremely penetrated in e commerce and we are very well positioned. Our share online is higher than the share offline.
And that's also give you the sign that we are that our range, our portfolio, our brands are well suited for this channel. In coffee also, we are now well positioned to really capture the not only in espresso that in the historical business built in e commerce, but also with Dolce Gusto, Starbucks and the rest of the range, coffee is very well designed, let's say, to win in e commerce also in the future.
Thanks a
lot, Marco. So that concludes Marco's presentation.
Thanks. Thanks, Luca. Thank you very much for your attention. And I hand over now to Chris Johnson, Zohr, AOA CEO.
Thanks, Marco, and good morning. I'm Chris Johnson. This is my 36th year with the company and I spent 12 years living and working in Asia. So it's really great to be back. Also, it's really nice to be back with and reconnect with many of you as well.
So Lucas showed a disclaimer at the beginning of the session. So I'll make a little disclaimer myself. I started in January, so I'm 4 months in the job. So I'm still reacquainting myself with this very dynamic, diverse and growing zone. So as you know, Zone AOA has around 70% of the world's total population in 95 countries.
We organize that into 13 markets or regions, which report directly into me. But then you cluster those into say 5 geographic regions. ASEAN would be the largest around 31 percent Greater China 30 percent. The developed markets we say Japan, South Korea, Oceania 14 South Asia, subcontinent, 13 and then Sub Saharan Africa, 12. Sales represent around 23% of the total group, while profitability at 22.8% is around 31%.
We have close to 100,000 employees in 90 factories. And when you look at the types of categories, beverages is the largest, coffee is around 75% of that 28%. Then we have dairy products, nutrition, food, confectionery and pet care with the balance of both local and global brands. There are a number of forces of course shaping the environment in Zone AOA, All of them actually providing opportunities for us. Urbanization is a driving factor as you know in food and beverage overall, the driving factor for our business is consumers seek safety and quality and convenience.
And today AOA is home to 2 thirds of the city dwellers in the world and this will continue to grow. We have the dynamic of growing youth and aging populations, growing aging populations both in Asia and in Africa and youth of course fastest growing in the Africa area. Personal income is rising, GDP of course across the zone is around mid single digit. But where we really see opportunities of course is when personal income per capita hits certain inflection points in certain markets And then we want to make sure that we time that correctly, so that we're there with our products when people can afford them. The trends in health and premiumization are similar to what we're seeing around the world.
Of course, in this part of the world, safety and quality are extremely important. That trust is key. But also we're seeing consumers demanding more and more the types of health trends we're seeing in the developed world for organic and natural and so on. And we're also seeing premiumization growing substantially. Digital, absolutely transforming the way that we do business, the trade does business.
And then increasing local competition in the past it used to be that perhaps local brands weren't as trusted. Now we're seeing in many cases in India and China and others that local brands are actually achieving a certain preference. And for that, of course, we have an advantage in that we are local. We have local brands. We have a long presence in these markets.
We have to be sure to communicate that well. We also have the virtuous circle. I think we've been operating this way for a long time. We haven't really talked about it very much in zone AOA, but it's an easy way to explain internally and externally how we operate. We do look of course to achieve efficiencies.
Last year, we did improve our structural costs. We did stay significantly from projects primarily in procurement. We invest those into growth platforms, which then drive market share gains. And I'm pleased to say that we did gain market share overall across the zone last year and in coffee in particular, you can see the 20 basis point gain. We also will deliver profitable growth.
We'll continue to do that and then creating shared value as well both Nestle and Society which I'll talk about later as well as an important focus on safety and quality. So we have 6 strategic priorities, I'll go through quickly, strengthening growth in key markets, leading in the coffee world, premiumizing through innovation, expanding in these white space geographies, leveraging our category strength and developing digital. Let's talk about key markets. And of course, largest single market for us is China. It's the largest in zone AOA.
It's the 2nd largest in the group. Total sales in 2018 were around $7,000,000,000 with mid single digit growth. Think what's impressive about China is the sheer breadth of categories in which we compete in this market. And as all of you know as well, data and how we handle this whole digital world in China is key. And what we've done is go way beyond e commerce.
I mean, we're talking really here about e business and starting with consumers. Because we have this broad portfolio, we're able to collect and then fully leverage the contact points we have with consumers across these categories in which we compete. We're also able then to take this information and partner well with leading e commerce platforms across China. And then also not only on the front end, but also on the back end hook up with their systems to ensure that we have good logistics. We're also looking to modernize the portfolio.
Cold brew coffee mentioned earlier is a one where we introduced. We are the leaders in ready to drink coffee in China this product has had great offtake. It took us 12 months basically from idea to launch, which in reality is too long. What we're looking to do is really drive speed when it comes to consumer centric innovation. And Stephane talked earlier about the R and D centers, one of which we have in Beijing.
We have 4 across the zone. But here we have it very close to the business and we launched an incubator team which working closely with R and D and then leveraging the assets that we have are able then to launch products often starting in the e com or the online area moving in some cases offline with incredible speed. In 2017, we had 34 new products introduced with an average time of, let's say, 12 to 18 months or so. What we're doing now is in 2019 looking to launch 170 new products in a timeframe of 6 to 8 months. So here are a few examples.
And many of these actually were ideas that were in the R and D organization and maybe had never been developed, but then very localized for Chinese tastes. We have some herbal soups, 1 shot soups that were produced on our Yindu platform. We have some healthy nut snacks, which were used in our Shu Fu Chi production lines and also a protein water, which is achieving some good results in the sports and fitness area. Another of course important market for us India. India being for us around CHF 1,500,000,000 market with last year double digit growth, number 15 overall for the group, but big opportunities to drive penetration across the urban areas, great opportunities to accelerate premiumization through innovation and also to expand our portfolio into some new categories.
We're the first ones to go out for example with this yogurt based dip. A new type of breakfast cereal we've launched under the Nest Plus brand, which is designed also with not just standard Western ingredients, but also Indian ingredients with a special crunch. And then also a chai tea mix, which is a little bit analogous maybe to a coffee mix. We're using our everyday creamer and adding chai tea mix to create a very tasty and also very convenient product. Also second coffee, big opportunity for us here in Zone AOA.
It's about a third of the total, let's say, coffee opportunity globally. And the category we estimate will grow around $10,000,000,000 over 5 years. And we feel very confident in the areas where we compete that we'll be able to continue to either extend our leadership position or continue to grow. Portion coffee RTD where we both where we have leadership and soluble as well where we have leadership RTD as you qualify except for Japan are all areas where we have some good innovations. And then workplace and hotels when we talk about out of home also show promising growth.
When we talk about coffee then, we basically want to make sure to strengthen our core business. This is primarily soluble coffee and coffee mixes, both with new technologies, as well as new consumer facing concepts. For example, using micronized coffee mixed with soluble coffee to create what we did in Japan, a new category called regular soluble coffee. We also want to lead in innovation, both in products and here's an example of the gold jar from Zona Mena, which we've launched in ASEAN and Oceania, but also in business models. For example, again in Japan, we've created the Nescafe Ambassador and Home Subscription Program.
And these continue to grow and we've created a network of more than 5 100,000 Nescafe Gold Barista and Gold and Dolce Gusto machines in small offices and households across Japan with more than 500,000 active users. So these are kind of innovative direct to consumer business models enabled by e commerce and direct marketing in small offices. And in fact, these ambassadors are kind of like a voluntary sales force for our products. The cold opportunity iced coffee in multiple RTD and soluble formats is very promising. Again, out of home, particularly workplace and hotels and Starbucks looks very promising.
It's still very early days. We've launched so far in Japan, Korea and Taiwan. The balance of the zone will start rolling out in the second half, but very, very strong equity of course for the Starbucks brand across the zone. Premiumization is absolutely driving profitable growth for us. You can see here that we've had yearly average annual growth from 2015 to 2018 of 9% and that's primarily driven by infant nutrition, but there's clearly opportunities in other categories as well.
I mean a good example of this is of course what has happened in China with Alumna. Now Alumna was first launched in 2011. It's really helped to lead the way in a dramatic shift in which basically China's infant formula market has evolved. Used to be 95%, let's say in the economy segment, whereas today this is completely transformed so that we have primarily into the Super Premium Premium Plus. We launched Super Premium as the base in 2011 and now launched in 2017 with the organic range in 2018 with Aytu Milk.
And as mentioned earlier, this brand is already at around the CHF1 billion mark. But also we can look at, let's say, more basic products. Mei Jin noodles has recovered very nicely since the 2015 crisis. And given the strength and trust that we have in this brand, we also see opportunities to premiumize this core by moving into new flavors and variants and some examples are listed there, Whether it be in portable cup of noodles format or the new Maggie special masala with 20 finely ground herbs and spices, which we launched in 2018 on Flipkart and then moved into retail. We have a sweet corn variety, which sweet corn is actually baked into the noodle strands and also oats and other varieties as well, which provide basically fiber of a bowl of oats and 15% of the RDA of protein.
So it's really moving Maggie from just being a noodle snacking brand into really more of a cooking and a greater food brand. There are white spaces clearly. One of the biggest ones is Sub Saharan Africa. We have a long presence here, over a 100 year presence. And Sub Saharan Africa is 40 countries, 9,200 employees, 17 factories and we have around sales of $2,500,000,000 in mid single digit growth.
And the population of course is around $1,200,000,000 and it will grow around 2% a year in the coming years, but it's also home to around half of the world's extreme poor. So this context requires a very different type of strategy. So we need to expand penetration, not just in Nigeria, but if you look at some of these other countries like Ethiopia, Kenya, South Sudan and Tanzania, they'll represent around 14% of Africa's overall consumption growth in the coming years. And if we talk about the types of products then, the Bouillon cube, which of interest we sell about 100,000,000 cubes a day in Nigeria, are a great carrier of the much needed micro fortification, which is an issue of course across the many countries in Africa and also in Asia. The types of products again, we need to provide our products which are sold by coin and not necessarily by note.
These are we call them popular position products like this Nido, Mylo or the Golden Maze product, Golden Maze sold in Nigeria. These type of products today already account for 70% of our sales in Central and West Africa. And Southeast Asia also provides opportunities. Myanmar as a country with a population of around 53,000,000 with good growth and good growth of the middle class. In October 2017, we launched the product you see here, which is the iron fortified malted milk sachet.
We do have a manufacturing and packing facility in Myanmar and this is showing good, good results. So again, the types of products we'll sell here nutritionally fortified products at affordable price points hopefully will put us in a good stead to grow in countries like Myanmar. We also of course are looking to further leverage our existing portfolio and there's 3 areas which are sizable and which we participate today and we see good opportunities. Leveraging for example, Bear brand in both childhood offerings as we see here in with the Vietnam product that we sell in Tetra Pak, as well as a product for seniors that we're selling in Indonesia. In Pet Care, we have a number 2 position.
Our business is still relatively small in zone AOA, but we're seeing a great consumer demand for premium products, whether it be in dog food with our pro plan line to support the immune system, which we have present in all geographies or the single serve wet case wet cat taste premium products like Mon Petit, which is sold in Japan and Hong Kong, which is like Fancy Feast, which you'll find here. RTD is also a significant opportunity for us. It accounts today of the group's sales. And what's very important here is that we're not just liquefying our powders and maybe in the past we sort of did that sort of thing, but we're in some cases, we're actually starting and entering and growing markets RTD first. Milo in Vietnam, for example, is a good example of that.
But we have to constantly innovate as you can see here and you've already seen this protein Milo which we're rolling out in Malaysia this year as well as a Nescafe Cafe Mocha Cup, which we're launching in the quarter 2 in Malaysia. Of course, we're seeing a blurring online, offline and new retail is really transforming the commercial and retail landscape globally, especially here in AOA. We've passed the $1,000,000,000 mark growth rate of 37% over this period, which is an increase in share of online. We're growing faster than the total category in this area. And of course, there are opportunities in a number of markets where we expect even faster growth potential.
Now of course a big key is adapting our business to succeed in this new retail. So digitization of retail and hyper connected consumers are the reality. AOA accounts today for 60% of the cross border e commerce primarily led by nutrition. We're seeing good use and growth in programmatic media and efficiencies. And also, of course, we're seeing mobile first markets such as Nigeria, India and South Africa.
And then we have the online channels as well. To end business models are doing well. And one of the more dramatic examples, I guess, is in China where we have the 11, 11 singles day where we increased our sales and Tmall 56% and jd.com by 36%. So we really exceeded the growth on the overall platforms themselves. And then also we enable personalization and customization at scale where we have a number of examples.
We're testing in Japan, for example, an Uber type model to help us with our e commerce deliveries using Cedar Citizens to help follow that last mile of delivery. We're using R and D social listening platform for again I talked about the innovation we're looking for in that market and in Singapore customized gift packs. Creating share value, absolutely key as part of the heart of what we do in Zone AOA. Rural development starting with nutrition, we have 120,000,000,000 servings of fortified fortified foods, 66,000,000,000 sorry, it's a 1,000,000,000 in Central West Africa alone. We're also helping markets with rural development.
We have long relationships with farmers, not just here in Indonesia, but also very much in Pakistan and India as well. And we're also actively supporting the Nescafe Plan, the Coco Plan and agripreneurship through the Global Youth Initiative. And then also water, we do operate in many water stressed environments. So we need to practice good water stewardship and our water use per ton as you can see here is down 27%. Narrowing in as you know is in many countries AOA faces a big challenge, probably the biggest challenge as far as a region goes for the group with respect to plastic waste.
We follow the global Nestle framework. We adapt it to specific issues and opportunities. 65% of our packaging in AOA is already designed to be recycled. That means the rest needs to change. We've already started that.
Two examples here in Thailand with an ice cream changing from plastic to paper wrapper as well as an outer on coffee. We're also going beyond because we know that recycling is not enough. We also need to support the development of the circular waste management systems such as Project Stop you see here. We're working in the Philippines to improve recycling infrastructure and also we're trying to also, let's say, promote extended producer responsibility schemes in India, for example, is one where we're doing this. And another very interesting example we're doing in India, We have had a promotion last year where we gave away 1 Maggi noodle pack for every 10 empty wrappers that were collected.
And so this resulted in 115,000 wrappers collected last year. There's no simple solution and of course we have to explore multiple approaches. Our since the last investor seminar, our growth has been steady and profitable. Our financials are healthy and we're committed to strengthening the momentum moving ahead. And so the takeaways are here.
We're looking to drive those new consumption opportunities, focus on white spaces, opportunities for growth, grow the infant nutrition, innovation, pet care, R and D and build capabilities and deepen partnerships with e commerce. So with that Okay.
Well, great. Thanks, Chris. Open it up for question and answers. Jonathan?
Thanks very much. You mentioned it a couple of times, but I didn't hear a lot systematically about local market competition. That's something that if development, especially when you get into these coin bot products, it's the barrier to entry isn't enormously high and local forms do exist and it would seem a lot of other companies are talking about improved capabilities, whether due to digital economics or whatever. Could you comment on your ability to retain and grow market share in that environment? Yes.
I think probably Nestle has been the pioneer in this particular area. I mean, if you look at the markets in this particular region, whether they be in Africa or they look in Asia, this concept of popular position products or designing products, which are not inferior to larger bulk size products, but are at affordable price points is something that we've been doing for many, many years. And what we and it's hard work though. I mean it's not easy work. It requires it's not just putting a different package, but it's actually a whole business model and route to market.
And it's something that we will continue and probably emphasize more moving ahead. What's changed a bit though is the ability or the ability now for digitization to help in these particular, let's say, delivery systems that are going to these small stores, these sorry, sorry stores or mom and pop shops. And so we're also connecting them to make sure that we're part of that digital ecosystem so that we can ensure delivery. But we talk about premiumization, I talked about that a lot. But clearly PPP as we call it is one of the key growth areas for us.
I mean, not just in Africa as I mentioned, but also in Asia. You have to get these price points right. I think the most critical thing is that you cannot raise prices beyond a single coin. Once you do that, your volume falls off a cliff. So you have to make sure that you reformulate, package the right way, distribute the right way.
So you do this and when you
do this right, it can be very profitable. Okay.
Next question. Martin?
Thank you. Chris, Martin Deboo, Jefferies. I want to ask you about China infant formula because it's obviously highly material to your business. How are you thinking about that medium long term? Are you confident that increased consumption and particularly increased premiumization can overcome the falling birth rate?
And also how you're feeling about local competition in China since the regulation changed? Do you feel that's reinforced local competition or not? Just value your perspectives. Yes.
I mean, clearly, it's a great opportunity. It's very dynamic. It's very challenging. And it's correct. It's no secret that birth rates are declining in China.
There are over 250 now local brands that are competing. Registration for infant formula in China is complex and it's difficult. But yes, we do feel as we've seen so far that a combination of let's say factors will help and then we believe continue to see growth in this particular area. One is premiumization, clearly, but it's not just premiumization for premiumization sake. We're talking and what we have of course is science based innovation where we are going in really first often in China with these lead developments.
2nd A second area which is interesting is the evolving trade structure. It's really evolved over time from being a mass market product years ago, if you look 15 years ago to the point now where these baby stores are quite an important area and e commerce is an important area and there's a sort of a blurring between the 2. And the 3rd area where there's interesting growth potential still are in those 2nd and third tier cities, where maybe in the past we thought the premiumization was not as much an option that you needed to go more into, let's say, the economy area. But we are seeing though that those premium segments are really increasing even in 2nd and third tier cities and that's also facilitated by e commerce. So overall, yes, we think there will be growth.
It's clearly an important area for us. I think well positioned, but we have to be very vigilant and we cannot be complacent.
I see yes, go ahead.
It's David Hayes from SocGen. M and A wise in the region, it's gone quite quiet. You've had a couple of deals in the last few years that perhaps haven't been as successful as you would have liked. You've not mentioned deals really here, whole links you walked away from as well. So the question is, is this an organic strategy now terms of white space, etcetera, for the next few years?
Or do you think M and A is doable, but it's just complicated and difficult in certain cases?
You. Yes. No, I think it's no, we are constantly investigating. And clearly, in many of these markets, the way that you, let's say, follow-up on M and A is often through developing relationships with the local companies, which are based locally. And that's one of the stricts that we have is that being there for so long and developing those close contacts.
So no, we are definitely looking at this. But if you ask me what the primary focus will be, it will be an organic strategy for us.
Waran Akhaman at the end.
Hey, Chris. It's Waran Akhaman at Barclays. A question on India. India didn't come up too much in your prepared remarks. Just interested in your thoughts on India.
I think it's only 1% to 2% of your group sales. For Unilever it's 8% to 9% of their group sales and they've been buying Horlicks for example. Just interested when Wang Ling came in she was trying to fix India with the Mackie issue. How do you actually go about trying to make India a bigger part of the overall portfolio given the massive opportunity in India? Is it going back to David's question, is it M and A?
Or can you actually expand the portfolio into new areas and maybe premiumize the geography overall?
Yes. No, I did mention India. In fact, I mentioned it as along with China, one of the geographic, let's say, priorities and focus areas that we will have. I think like China as well, we're fortunate that we have a pretty wide, let's say, number of categories where we participate in and where we have leadership now in 7 categories already across India, which we believe can expand. The demographics are right.
We talked about the increase in middle class households and in consumption. There are a number of categories I think which are particularly interesting, which are still very new for us. We're in pet care now in China, reentered. We're back now with we're in with cereals. Again, these are very small, but we're planting the seeds for the future.
But probably one of the biggest opportunities moving ahead is coffee. It is of course a tea culture, where I think in Northern India today it's 60 cups of tea for every one cup of coffee. And coffee is sort of a special beverage at the moment, but we really believe that there are opportunities to really grow coffee for us in India. On top of that, of course, as I mentioned was this food, which is unique in a way. I mean, there are a few markets where we have a really good food business that we can grow and expand on, Again, more just from noodle snacking into a true culinary business, a strong dairy business.
So yes, for me, India is one of the and nutrition as well one of the key potential growth areas
for us.
Well, Greta, we still have one last question. Maybe, Elena?
Can you hear me? Yes. Okay. So quick question and actually it's more of a clarification really. I think you mentioned that did you say ready to drink is 9% of sales?
And I wonder if that was group sales or AOA sales?
Sorry, AOA sales.
AOA sales. So that would be about EUR 2,000,000,000, right? And then on one of the slides, I think you quantified the total market as EUR 2 And what are the are there barriers to entry here? Like, And what are the are there barriers to entry here? Like how because you obviously mentioned ready to drink as a key opportunity.
So how easy is it to roll out outside of China where you are the number 1?
No. Well, it's not easy anywhere I suppose, but it's clearly a focus area for us. I talked about in China in particular in RTD, but we also lead in ready to drink coffee across ASEAN as well. RTD, again, we have strong brands. We have in many cases the route to market and we have more and more now manufacturing facilities that are geared around this particular area.
So yes, it is a huge category. It's a growing category. It is where the future is. And I think uniquely in AOA we're positioned to go after this. But it's 9% of AOA is to be put.
That concludes the Q and A.
Okay. All right. First I introduce Laurent Fries, who is Head of Zone AMS to Laurent.
Good morning, and welcome to Zone Americas. I will share the session with Steve, who will give you an update on the Nestle U. S. Growth model. So with €31,000,000,000 in sales, and Zone America is the largest business unit for Nestle and has something to do obviously with the sheer size of our U.
S. Business footprint with Nusa and PetCare North America in particular. But bear in mind that we got as well a tremendous footprint in LatAm. And even after the devaluation of the currencies in the last years, LatAm still accounts for a good third of the Zone Americas portfolio, more than €10,000,000,000 in sales. Pet Care, contrary to the other zones where liquid and powdered beverages is number 1 category.
Pet Care, and we are very happy about that, is our number 1 category. The number that you see on powdered and liquid beverages are the 2018 numbers. So they do not reflect the impact of the Starbucks CPG acquisitions. Once fully integrated Vision 2019, obviously, coffee and beverages will be a very strong second pillar next to Petyr. What is the environment?
It is challenging. It is a competitive environment, obviously. And of course, the topic of the trade war impact is very timely and very topical impact sentiment, but impacts as well input costs. We see a rise in aluminum prices, for instance, in the U. S.
And this in the context where input costs are have been adverse last year, will be adverse as well this year. On top, we got transportation costs on the rise. And that is this is a sheer product of the imbalance between supply and demand. So that's structural. We got the impact of the Latin American currencies, which have devalued significantly in the last years, record being the Argentinean peso.
There is a translation impact, but there is as well a transactional impact, which is compounding the effect of input cost increases. The retail environment is evolving very fast, driven by technology and driven as well by empowered consumers, digitally empowered consumers. And last but not least, we got a pretty intense regulatory environment, especially in Latin America when it comes to nutritional labeling and as well more globally, clearly, plastic and recycling is high on the agenda. So clearly, we want to accelerate growth and we want to grow in that environment. And there are challenges, but there are opportunities.
And the very first thing, of course, in the spirit of the spread of the cycle is to focus on achieving efficiencies. And we got and we continue to have ambitious end to end efficiency plans. There is not one stone that will leave unturned across the value chain. And this brings 300 annual millions savings annually that will be the magnitude for 2019 and beyond. This is giving obviously room to invest and we are at a time where there is a need to invest.
In our case, we have been catching up with CapEx in the last 3 years with €300,000,000 additional CapEx being put on the table to support growth. And all those investments are now coming to fruition and will support growth going forward. But we want also to increase investments behind the brands. Innovation is critical. We have seen it in the first session.
Innovation has to be incremental, is incremental and of course, requires incremental resources, especially as we want to continue to support the core. And of course, investing there in the brands, investing in innovation, investing to support growth, drives category growth, drives market share gains, which brings sustainable and profitable growth. And growth, as you know, of course, is one of the main levers of margin expansion and brings the sustainability into performance. We do that with people and teams at the core and with a vision to create share value for society at large, for our communities, for our people and of course, for our shareholders. I'd like to highlight some of the efficiency plans that we have in the pipeline.
So you can witness what we are doing when it comes to organizational agility and bringing onboard new capabilities. We got this new head office in the U. S, more open, more connected, digitally enabled. And on the same model, we have moved recently our Brazilian operations to a new similar environment, modern environment, connected. We continue redesigning our pet care organization to make it even more agile, even more entrepreneurial.
We are consolidating our media and programmatic capabilities in LatAm and that will bring efficiencies. And I would like to highlight as well that Starbucks is being integrated flawlessly. And there is a second project that Musa has executed with excellence. This is the divestment of U. S.
Confectionery. Those are major projects. They have been executed flawlessly without disrupting the organization while it's been accelerating the growth. We keep focusing on costs in the spirit of efficiencies at the Trading Leaders Circle. And one of the big news of the day is that we have decided to exit the company owned direct store delivery network, which we got for frozen food in the U.
S, supporting frozen pizza and ice cream. We communicated as we speak to the 4,000 people who are part of this organization. That explains the timing of the announcement, and we need to take care of those. Of course, they have been part and they are part of our success in the last years. But it's time now to evolve and we believe that the businesses will be better served from the warehouse system, which we got in place for the rest of the frozen business.
Steve will give you more details on this transformation, which will have a significant impact on our business in the U. S. We have moved to 1 single IT organization in the U. S. Last year.
We are moving this year to 1 single IT organization for Latin America. There will be efficiencies, but it's about effectiveness as well building up new capabilities for the future, especially in the digital area. We have set up a shared service center in Paraguay for LATAM. This is up and running in since September. Paraguay, because it's a good mix between cost efficiency, labor cost among the lowest in the region, but also a good source of talent.
And last but not least, our industry industrial network review factory 2020 will be completed at the end of this year, so already in 2019 and ahead of plan. We do that, continue to focus on capital efficiency. The increase in CapEx has not penalized the ROIC. It's been improving, and we are contributing to the group development. Why?
Because the CapEx have been well focused and are achieving fast returns and we continue to focus on improving working capital. We see still opportunities to increase payables, and we believe that there are there is also some room for improvement in the inventories area. We put the focus leveraging those efficiencies behind the growth categories, high growth, high margin categories, pet care, coffee and infant nutrition. And I would like to highlight that in all three, we got R and D capabilities in the region, especially in the U. S, which we can leverage to bring speed and relevance in our innovation plans.
Let me start with pet care, €8,800,000,000 of sales in the Americas. That's a real powerhouse. We are growing in North America. We are growing double digit in Latin America. E commerce, which has been, of course, a priority in the last years is booming, is growing 50% as we speak.
And we have organized to leverage the natural and organic trends, not only on the ultra premium brand, but as well across the core portfolio. Coffee, that's a big player, of course, for us. €4,000,000,000 in sales in 2018 in retail, if we include out of home Neste Professionals, it's €4,500,000,000 And once we have the full impact of the Starbucks integration, that will be €6,000,000,000 in sales. And of course, Starbucks is positioning us in the U. S.
Market, which is the largest market in the world, but gives us also the opportunity and the capability to win in the 2nd largest market in the world, which is Brazil. So leveraging the U. S. Part and making sure that it keeps the momentum while deploying in Latin America, which we're doing as we speak, will be absolutely critical to our growth and winning in the future, especially in the U. S.
And Brazil. We see opportunities to continue to premiumize and to leverage also the natural trend, both in soluble coffee, but as well in this powerhouse, which is Coffee Mate. And of course, out of home is a massive opportunity in the zone, both for Nest Cafe and for Starbucks. Infantuation, not as big as in Zone AOA, of course, but it's an important category for us. It's core.
It's part of the essence. We want to keep winning, especially in Latin America where we have very, very strong presence across the portfolio of options, meals and drinks, infant formula, superimization, supplements in the spirit of the 1000 days and personalized consumer engagement is also of the essence. But we want as well to reinvent Gerber, especially in the U. S. As you can see, we are bringing back the iconic glass jar, but we're also leveraging the organic and natural trends.
We are testing this fresh food start new business model as we speak. We are also revamping our infant formula to align the offering with our best capabilities globally and the internal expansion of the Gerber brand is a real growth opportunity. We see it in China. We see it in Asia, but we see it as well in Latin America. Of course, there is focus on the U.
S. Frozen meals turnaround, and it's about improving the relevance of the core, recipes, product quality, formats. There again, there is not one stone that is left unturned and we are really encouraged to see the business responding. And we want, of course, to expand the new platforms and the plant based platforms clearly is a significant opportunity for the short, medium and long term. We have expanded our footprint in core categories.
All those investments are now coming to fruition. We'll have more capacity to supply the wet pet food demand in North America and we have been constrained for a while because of shortage of capacity, capacity, but we'll be capable also to support the development in Latin America. Petliter is also an area where we are doing wonders, but we are limited by capacity. We'll have more capacity coming on stream very, very shortly. We are building up a platform to develop a super premium freeze dried soluble coffee in LatAm, which we didn't have up to now.
We are leveraging the Natty Factory to develop infant formula in LATAM, but also we use the platform to supply Africa. And we'll use this investment for Ross Sand Ground Coffee in Uruguay to supply RNG for the Southern Cone, including Starbucks in the near future. We are maximizing the mix through portfolio management. A lot has been happening in the zone, especially a lot has been happening in the U. S.
I'd like to highlight as well the impact of Terafertile, where we see an opportunity with this Nature's Heart brand way beyond Latin America that has global breadth that has global potential. And we are reviewing also the Brazilian portfolio as we speak and especially in the non added value dairy area, which is under review. We leverage the trends to innovate. Innovation is of the essence, of course, and it's about super nutrition, life changing nutrition and we can impact the lives of pets, of course. We can impact the life of babies throughout the 1,000 days.
It's about new health with organic and natural arguments, food intolerance, vegan and plant based, local origin, especially for coffee is a very powerful argument. And of course, we got the origin access to the best origins. RTD, convenience is another opportunity and premiumization. We see it across the board as significant value creation opportunity for our core categories in the zone. We are developing new innovation models.
We believe in the potential of open innovations, partnering with the ecosystem, startups. We got as well this internal incubator model, which has been very productive. We are testing new business model in Shield, for instance. We got with the Loop system, this circular subscription system, which we are testing as we speak. We are testing new vending models.
We are testing as well personalization personalized offerings in confectionery and in coffee. Of course, driving e business is essential. E commerce accounts for €1,100,000,000 in the zone. That's excluding espresso, and this is growing 50 percent. We are gaining share in the core categories.
And we want to keep of course investing in this area in the core categories, in the core platforms, pet care, nutrition, coffee and in the core markets. And that's part of it, of course, but this is not the end of it. We believe that it's important to be strong in the consumer facing parts, personalizing the consumer experience, personalizing the communication, but it's important as well to connect the enterprise end to end. And our focus is at building an intelligent enterprise end to end connected to personalized experience to the consumer, starting from procurement down to retail and distribution. Winning with people and teams is of the essence.
That's the heart of the strategic virtuous circle. I'd like to highlight the progress we have been making in diversity. And I'd like to highlight as well the progress we are making in our journey towards 0 accidents. We believe that it's possible to be efficient, it's possible to be effective and it's possible to be safest in the industry. And of course, we want to do that while creating shared value, value for society as well as value for Nestle.
And the focus areas are around nutrition, Nestle for health circuits, use, plastic what we what are the key initiatives that we have in the pipeline. What we what are the key initiatives that we have in the pipeline in the zone. We can play the video, please. And Momentum is back in the business. That's the big news and the big message.
North America and Latin America both are accelerating and the growth is coming both from volumemix and from pricing. Brazil is back to growth after a couple of years of decline in the context of economic recession. E commerce is booming and we got many areas of excellence, markets, categories, brand platforms where we are growing double digits, and we do that with improving returns. You see the development of the margins and as well the improvement in ROIC, which I've highlighted already and the improvement in working capital. So yes, growth momentum is back and it's accelerating.
Margin is on track to contribute to the group ambition or target by 2020. And we do that while reshaping the organization for the future, adding up new capabilities, investing in innovation, investing for the future and improving the portfolio for the new reality. Thank you very much. And let me hand over to Steve, who will give you full details on the DSD project. Steve?
Thanks a lot. As Laurent said, I'm Steve Presley, CEO for the U. S. And really a very focused conversation today around enabling profitable growth on our pizza and ice cream business. But before I start that, I just want to quick refresher on the U.
S. It's $28,000,000,000 of sales for the market, 30% of the overall Nestle Group. And you saw maybe tagging here some other previous presentations, the growth returned in 2018, we didn't just talk about, we did it in the U. S. And the momentum continued in Q1.
So good Q1 performance overall for the business in the market. And from a margin standpoint, we're in line with the overall kind of 2020 guidance for our business. So it's really around focused around accelerating growth in this market. And so we look at how we change the underlying performance of the business in the U. S, it's really around just fundamentally transforming everything we do here.
And it's focusing on growth. It's absolutely everything we do is around accelerating growth in this marketplace. And there's a bunch of different levers. But the 2 that I'll talk about are building the capabilities that are required to win in the future in this organization across from whether it's digital transformation or artificial intelligence in the way we sort and hire people to flexible manufacturing, whatever those capabilities are that you've heard kind of throughout the day, It's about building and embedding those in the way we do business every day. And then the second piece that's just as important, if not more important to our ability to accelerate our growth in this market is actually our people and our culture.
I believe fundamentally that we win in this market because our people are better and more passionate and more committed to this company than our competitors' people are. And we do that with pride and we try to build a culture that allows them to succeed and thrive. And so we're really focused on those levers. And if we do those well, we know we'll continue to accelerate our growth in the market. But really what I'm focused to talk about today with you is we've made the decision to move our pizza and ice cream business from our company owned DSD assets to our warehouse model that we use for our frozen meals business.
And for the mostly I think you guys know, but direct store delivery today, we have a frozen model that delivers our pizza and ice cream direct to store from our warehouses and we'll move it into our network. Now it's a win win for both us and our retail partners. So that's great. It enables key reinvestment behind these businesses that we haven't been able to unlock because of the route to market. And it really optimizes an existing best in class frozen network.
So I'll go a little deeper. When you look at it, look our frozen DSD is a highly complex and extremely costly operation. It's 4,000 employees, 230 different warehouse facilities around the country, over 1400 trucks, we have 2,000 routes, over 3,000,000 deliveries annually. So a very complex organization. It's incredibly high cost to serve our businesses and in these categories, it's just not sustainable.
And so as we move, if you look, we get the question a lot, well, why in the past were you DSD and as you think forward, why is it not part of the future? And for us, there were some historical benefits that DSD had that just no longer exists for a variety of reasons, whether it was, okay, did you get improved performance on the shelf or incremental displays or do you get better channel reach up and down the street or increased speed to shelf? All those things were kind of the old perception of what you got in terms of benefits from DST. And the reality today is, as the retail environments consolidated and the retailers have come more sophisticated in terms of controlling their space, they have really gotten very tight around planograms. And so there's no incremental space for display.
And the one unique thing for Frozen that maybe some of the ambient DSD people don't have to deal with, you need a freezer for display. And so you can't just build displays around the store. And so it's very hard to gain some of these advantage in the space. And ultimately, when you look at our company owned network, it's from our warehouse to big box retailer today. And so if you look at the total value chain across ourselves and our retail partners, it's a duplicative supply chain, right?
We both have assets that go from warehouse to store and take that business. And so we can no longer have that in the total value chain between us and our retail partners. And we look, we have a perfect analog. We have a very big frozen warehouse business and we have a frozen DST business. So we can see we don't see material differences in the performance on shelf of a warehouse delivery model versus DST for these.
It's really driven us to this decision. And for us, it's around simplifying our business model. If you focus on the left, today we really have 4 core route to market, our frozen DSD that we're talking about today, our frozen warehouse that we take our meals business through, our chilled warehouses, which is about a $3,000,000,000 business for us today, which is Coffee Made, cookie dough, some of our other businesses that go through that, and then our ambient warehouse, a traditional ambient warehouse. And we'll move from the 4 systems to 3 and we'll leverage our existing frozen warehouse system. So the complexity of that transition is actually fairly straightforward.
We've already got an existing network that we'll plug into, we'll add some capacity to that and we'll have a very large efficient network that we go to from frozen. So we'll simplify the business from 4 routes of markets to 3 and we'll move over our pizza and ice cream businesses into this. And I want to stress, look, it's a win win for both us and our retail partners. There's improved margin out of this for both Nestle and for our retail partners and in migrating these total value chain share. It's a far less capital intensive model if you move away from DST.
And ultimately for us, if you go back to what are the priorities in the market, it's about returning the market to a growth and accelerating growth. This is one of the levers we have to take to drive growth in this market and unlocks the resources. Both of these categories are highly responsive to investment from demand generation standpoint. And so this unlocks some of those and it simplifies the business ultimately. So when you look, it clearly has financial implications.
The warehouse model is a lower cost to serve model. So you'll see trade operating margin improvement across the P and L. It will have a one time sales impact. There's about a $450,000,000 reduction in sales when you adjust the business models, not all of that is organic growth. And you'll see from Francois later that it doesn't change the overall group guidance.
He'll address that later. But you'll see kind of a step change to the new business model that won't really overall affect the guidance. And it does come with roughly $500,000,000 of restructuring costs. And really it's around the assets and most importantly the people. We don't take this decision lightly.
We took it very, very seriously. And in the end, like always with Nestle, we will treat our employees with the utmost respect and care and concern as we exit out of this business model and we'll invest to make sure we do that well. And so the execution is across really 2019. We started in the beginning of this year in discussions with our retail partners working through the transition plan with them. And now we start the final transition planning for the next Q2 and then we'll really go live Q3 where we start to do the flip from warehouse to or from DSD to warehouse.
And the reality is 2019 is a transition year. So think of this year, it'll take us that year to migrate from one model to the next. And then 2020 is really when you start to see the value capture in that year. And why are we doing this? Why, right?
Why this is a big complex challenging product project that I think the market has proven, whether it's with headquarter relocation, divestitures, acquisitions, the ability to handle these complex projects, but it's to unlock growth. These are good growth businesses for us. Pizza has grown over 3%, ice cream has grown 3.5%. We've innovated very effectively on both of these businesses. We've got over 350,000,000 dollars of new item launches on in the last 36 months.
We know there's more growth here. We just need more investment to drive these. So they're attractive categories that will change this route to market and invest there. And just to close, look, it's really around how do we evolve our foundation to drive future growth. And if you remember, just the kind of 5 key things, right, we've got leading positions in these two categories and we need to have the right route to market to make them successful.
We already have a best in class frozen warehouse system that we're leveraging. It's not building a new network to do this. It's eliminating 1, so simplifying the business. It is a win win for us and our retail partners. It's really do it.
We're doing it to drive and accelerate growth in this market. And you'll see the transition as 'nineteen and 2020 for the value capture. But most importantly, this is just one of the projects as we think about, we try to create an organization that absolutely has the mindset and the capability to continuously transform our business in every single facet. And that's just one of the projects that we do to do that. So that's it for this transition.
I'll leave it at that and then I'll open it up to Q and A for both Laurent and I on either subject.
Well,
thanks a lot.
We have 20 minutes of Q and A before going to lunch.
Go ahead, Henry.
Yes, go ahead.
Thanks very much. So on the DSD exit, two questions. First, can we imply from your decision that there historically have been some trade offs made between traditional frozen and pizza and ice cream that can now be put together just as far as total frozen space? Because it would occur to me they're going to the same place and you can change that conversation with retailers. And secondly, would you does having an inherently more agile network, you'll have less cost and a lower quantum of a low quantum of fixed costs allow you to premiumize and maybe emphasize your DiGiorno's and Haagen Dazs at the expense of some maybe some less premium offerings?
Thanks.
Yes, sure. I'll take the first part of the question. Really you compete category by category and it's not like we today go in and trade off frozen meal space for pizza space or snacking space. We believe you've got to win the war battle by battle and each battle is category by category. So we really focus on driving the right SKU and the right assortment at that category level.
So that really hasn't been going on. I'd say the trade off has been, there's been a shift in dynamic in terms of the retailer capability to handle this transition and move, so less about trade offs within our own portfolio. And then the second thing is clearly a simplified, more agile structure and our ability to serve our customers is required and necessary. And not only does it allow us to kind of premiumize, but it allows us to drive that investment and drive innovation faster into this market and on these categories. We've got great research capabilities in ice cream and pizza and attached to the businesses today and we think we can use these new resources to accelerate that growth, not just in premiumization.
And on the last part of the question, it's clear that when you got a DSD network with significant fixed asset structure, you need to leverage that structure. So any volume is good to take. In the future, when we variabilize the distribution network, we can put the focus more on the super premium offerings and maybe slowly divest some of the less premium offerings. Thank
you. James?
Hello. It's James Targett from Berenberg. Two questions on the U. S. Can you give us some color on how your share momentum is between the channels, e commerce club, discounts, more traditional retailers, give us an idea of where the pressures are or where you're outperforming?
And I guess related to that, where you're seeing the biggest pressure from private label on the cash basis as well?
Okay. Steve?
Let me take. Yes, so actually if you look across the last 12 months, our share has moved pretty materially favorable almost across every categories. We have a few that we continue to struggle in. But there's a clear mix in terms of there's some retailers that are clearly winning in the segment. And we continue to invest and win with the winners, as Marco said, in other parts of the world and drive growth in those categories.
I think when you look at our total share basket on our food and beverage basket, it's actually positive in the last 52 and it's positive even more so in the year to date. Doesn't mean we don't have struggle points clearly, I think. And then if you go to the e commerce, we're actually accelerating our e commerce growth. You saw with LaRanna 50% at the market level. We're gaining share in that channel.
It's different category by category because e commerce lends itself better to certain categories than other categories for us. But we're over indexed in e commerce. And when we when you look across the retailer landscape, I had a lot of conversations about discounters in the breaks, but they're growing and we play a role with them. Their model is a little different in the U. S.
In terms of how they're trying to come to market, but it hasn't been incredibly material for us. I think when you look across the basket of retailers that are winning, we feel comfortably positioned with all the ones that are driving growth today across our portfolio.
Okay. Next question. Towards the end, yes. John?
Hi. John Ennis from Goldman. I had a question on the North American pet care business. That's the category where we've seen a number of premium new entrants. And I guess I just wanted to hear your thoughts on what makes you confident that you can protect or grow market share in that environment and fill the new capacity that you're building?
Thanks.
So we have a session dedicated to Petkay in the afternoon, but I can give you a flavor. Actually, the categories in which we are building up capacities have been capacity constrained for a while. So we were just not capable to supply the demand. And it's not a nice position to be when you see the opportunity to be able to constrain the retailers, constrain the deliveries and not be in a position to promote your brands. So we are unlocking capacity and that was a global issue by the way, that was not specific to North America in wet pet food because the potential is global.
We are building up capacity in the U. S. And I'm confident that this will be occupied at a good level very rapidly. We have built up capacity in Latin America. And at the time when we are building up the first line in the Leon factory in Mexico, we are building up the 2nd line because we saw the demand.
We are supplying from the U. S. We saw the demand booming. And in pet litter, we have been also under constrained demand for a long period of time. We could have sold a lot more.
So on those, we are absolutely confident that we will be able to leverage the CapEx. And LATAM is booming, growing double digits, and we are adding capacity where we see the potential to grow. So we are really, really confident that those will be leveraged and will help us accelerate the growth of the category and contribute to the global performance of pet care. And we're clearly Zon Americas has a strong role to play next to Zonemanal.
Next question from Alan.
Can I just clarify the sales impact from this reorganization? I get that there'll be an impact on the selling price because you're letting go some of the distribution to the retailer. But is there a volume impact as well? Because I thought one of the advantages of the DSD system was it was getting you not just to the big box retailers, but convenience stores and mom and pop outlets up and down the street. Are you going to actually lose some volume as a result of this?
Or are we just looking at a price adjustment because the distribution has been taken over by the retailer?
Yes. I mean, it's predominantly just a price adjustment. There is a small amount of volume as you change a little bit of assortment change that goes into it. But for us, it's important we talked about company owned DSD. Our company owned DSD is what goes to big box retail.
It actually doesn't go up and down the street today. So we use 3rd party DSD to do that today and we'll continue to service those customers in that same way. So we don't expect a volume impact in the nontraditional mass channels from that. And so it's predominantly price because of that.
Great. Any more questions?
It's Guillaume Delmas from Bank of America. My first question is for Laurent. You mentioned at the beginning of your presentation that there was a heightened level of regulation in Latin America with more labeling, use of plastics. And I understand that in the short term, it's creating some headache and a short term disruption. But would it be fair to look at it in the medium and long run as a key source of competitive advantages for you because it raises the barriers to entry for small local players.
It favors large multinationals with great R and D capacities and a strong sustainability agenda? And my second question is on that shift to the frozen warehouse model. You mentioned that it's going to generate additional benefit from a margin standpoint. How should we look at this in the context of the 2020 targets? Is it more fuel to put behind your brands?
Or could you exceed your initial 2020 targets? Thank
you. Okay.
On the very first point, it's clear that challenges always contain opportunities. And you're absolutely right that Nestle will be always within the framework and compared to competitors that might, especially local ones, take at ease regulatory framework. The fact that it tightens is not necessarily a bad thing. And the fact that we adjusted very quickly and very well to the Chilean the Ecuadorian first, they were the first to move. And then the Chilean model has created an experience that is shared now among all our operations and we are ready to face Peru.
We are ready to face potentially Mexico. We are contributing to the framing of the regulation. Obviously, our position, our credibility in each and every country of Latin America gives us the speaking opportunity and to be listened to. But we are absolutely well prepared for that new environment and the level playing field that it creates actually is playing in our favor. So I fully agree with that point.
The second one was related to the DSD impact. Yes, Steve was highlighting that this will give opportunity to put more fuel behind categories and brands, which are responsive to investment. That's Pizza, DiGiorno and that's typically Haagen Dazs, but that doesn't change the 2020 margin guidance. That's part of the 2020 guidance.
We still have a few minutes. David?
David Hayes from Societe.
Just just two questions.
Just on the DSD changes. Is it fair to say that taking those brands out of that own system makes them easier to sell to other parties? And then the second question was just on the U. S. In terms of SNAP and these subsidized payments.
What is the outlook for that? And what impact and what exposure have you got to change in that over the next couple of years?
I'll take the first one. I'll pass second one to Steve. As was highlighted, we see this move as a significant value creation opportunity and we want to capture that opportunity. That's the answer. And on the second one?
Yes, I mean, Snap continues to be a bit of a political football as it passes between administrations. But for us, you took the big step down a few years ago in terms of reduction of subsidy. This one really has just been timing where it's caused short term noise a little bit in the top line as the subsidy payments were delayed across the shutdown. But for us, as we look across it, we have some businesses that over index with SNAP households and most of our businesses don't. So to be honest, our overall exposure is not extremely high predominant food and beverage business.
It's very few of our brands that actually over index that.
Next question from Celine. Did you have one?
Yes. So I just also wanted to come back on the frozen food. The margin for the frozen pizza as well as ice cream, could you comment below that of frozen food? And as you look into 2020, would it mean that we will be aligned and that means aligned with the group average? So if you could comment on that.
And second in terms of U. S. Frozen food, I know there was a slide, but could you wrap up exactly on all the initiatives you are doing in order to sustainably improve competitiveness here?
Sure. You want me to?
Yes.
So on the individual margin of the businesses, we don't really comment at that level in the market. And so but it's clearly one. This change is around improving the foundational performance of those businesses so we can drive them for better growth in the future. But we don't really comment specifically on the margin structure on And for us on frozen food, look, it's a primary focus. If you look at the performance and you really can't take there's no such thing as frozen food.
It's a segmentation of individual businesses. So you look at ice cream, we're growing over 3%. You look at pizza, we're growing over 3%. Hot Pockets is actually growing and growing share over 3%. Stouffer's, we've returned to growth in Q1, still lots to do on Stouffers.
I don't want to give any indication that the fight is done on Stouffers. We have a lot to do there, but good strong performance and turnaround on that business. Where we still continue to struggle is on the diet segment on lean cuisine, right? So that portion of the business hasn't really responded to some of the changes. I think we're working very diligently right now to determine what the future of that business is.
I think it will have to evolve to a different place to meet the consumer needs of today's dieters and healthy eaters that we're kind of stuck with today that we've got to move and reposition that brand some to capture that growth. And so if you look across our total frozen portfolio, we actually have some really nice growth segments within that. We have some very big weak spots on predominantly on nutritional meals that we've got to address to fix. But overall, we're pleased with the momentum. And I'd say the fastest the best thing we've done in the last 12 months is really around speed of innovation, right?
It's food. We want to make delicious tasting food and get it to the shelf as fast as possible. And we've changed the way we innovate. We innovate, we change the way we work with our R and D partners. We're able to go from idea to launch in a matter of months actually get it onto the shelf in a matter of months instead of 1 to 2 year cycle like we were in the past.
So really food is not hard. It's about delighting the consumer every day and making sure we're doing that with our products is what we've really been focused on and re embracing just the absolute commitment we have to delighting the consumer.
There is
one more question before I hand over to Mark. Warren, at the end of. I'm going to
ask a question on Brazil. I think in Q1, Brazil was up double digits organic sales growth. And given that you're a 4th largest market, just interested to know what's driving that recovery? Is it market growth coming back? Is it market share gains?
If you can maybe kind of outline what's underlying that and what your outlook for the country is for the rest of the year? Thank you.
Yes. So the positive thing is that we got volumemix growth and pricing growth. So it's clear that after a period of decline in pricing, pricing is coming back on the back of the dairy business, but volumes are also well orientated. So we are playing efficiently in a market, which is also resuming, which is recovering after years of decline, years of recession. So this is a timely very timely turnaround that the market is back to growth and we are back to growth in the market, back to growth.
So there is a market share component into the equation, obviously.
Thanks, Laurent and Steve. And as we close out section on the zones, I just wanted to share 3 quick comments with you. One is and I'm sure the presentations bore that out. I can tell you how impressed I am with the zone leadership that we have in place today in all three zones and also in those key markets that are part of these zones. And to use a good baseball term, we have the basis loaded here for major markets going forward.
And very pleased with the change that has happened and how it's really getting traction for us. Second thing is, on DSD, this is massive, okay? So this is a major news item for today. I can tell you, I mean, when I think about some of the preparation that was building up to this day, Laurent, Steve and I and a high level team, we've been huddling since last summer and hashing out all the details doing precision planning that goes into this announcement today and then into that transition period that Steve was referring to. This is not sort of one of these light high level decisions.
This is something that goes deep down into the operations of the company, but it's massive in terms of the value it can generate, can translate into the margin and also the growth upside, as Steve has indicated and Laurent has indicated. So this is a big, big deal to us. And I think it's also that commitment of generating value through improved operations that are in tune with the change times. The time has come to make that move, and I applaud Steve, I applaud the U. S.
Leadership team for not shying away from this because it will be easy to kind of kick the can down the road and kind of not face that change. But that change has happened in the marketplace, as he pointed out, and we take that opportunity and I'll make the best of it. And the 3rd comment I would like to make specifically refers to Zone EMEA. And I know some of the questions were focusing on the OG. And it's important for me to highlight one thing that we also highlighted in London.
And that is, as you compare all three zones, of course, I mean, we're doing a wonderful job in all three of them. But because of the peculiar and specific situation that we have in Western Europe specifically, which is 60% of that zone, there is an unusually large share of legacy issues that we have to deal with that prefer to zone and mail. And we're doing this in massive markets like Germany, France, the U. K. I mean, these are among some of the largest markets we have with lots of silo style management for essentially 150 years because we've been in this market for a long time.
And now we're driving these cross zone strategies here and avoid some of the duplication, avoid some of the inefficiencies that were built into that system. We're doing this in a low growth environment, lots of pricing pressure, also lots of pressure, as you can imagine, from our employee representatives and union partners. And so this is not an easy environment. And the mix of issues that Marco has to deal with, when you think about legacy things you have to deal with as opposed to the pursuit of opportunity, he clearly has to deal with a much, much larger share of legacy issues while basically then also positioning the business for the future. And I can't tell you how impressed I am with that balance.
And finding that balance here is particularly tricky in Western Europe, but when on the one hand, addressing those in a fearless manner, just doing what needs to be done, really facing it and not shying away from it. And yet on the other hand, positioning the business for the future, making sure that we're not missing out on future trends that give us this growth that ultimately also energizes that part of the organization, that geography. So fantastic job. But it's important to me as you compare these presentations side by side to just keep that particular circumstance coming from Western Europe in mind. And I think under the circumstance, that 2% OG number that you've seen us produce very consistently, coupled with the ambition, of course, as soon as we can to do better with that.
I think that is a very good result. So those are just 3 comments I wanted to make. Hope you enjoyed that section. Hope you enjoyed the morning and then hope you also look forward to the lunch break and more of our products.
Good afternoon. Are we on time? Yes, we start. So I hope you all had a very nice lunch, and you enjoyed the varieties of food. And I saw the queue for the plant based burger and a few other things.
So I'm very pleased if you had time to experience these new products and so. This afternoon, in the first part of the afternoon, we would like to cover to expose you to 3 category high growth categories and have then a Q and A about these three categories. So it's my pleasure to introduce to you David Veni, who is the Head of our Beverage Strategic Business Unit, which of course encompass coffee and he will focus this afternoon on coffee. Then afterwards, we will present to you our Purina, our pet care strategy. And we'll have Joseph Wright, CEO of Purina Americas working through the whole continent and Nina Lee Kruger, who is President of Purina North America to cover pet care.
And finally, Thierry, Thierry Filardo, Head of the SBU Nutrition will cover that category. So without further ado, I invite David to come and start the presentation.
Thank you. Thank you, Patrice, and good afternoon, everyone. It's a real pleasure to be here. I'd like for the next 20 minutes to take you through the coffee category. And at the start, it's important to note that this is a dynamic and growing category, and we see that dynamism and growth continuing into the future.
Over the past 3 years, the category has been growing at over 5%, and you see that growth is coming from both out of home and CPG retail. And just to give you a flavor of how the category works, about 70% of the value of this category globally is in out of home, but only 30% of the cups are consumed in out of home. CPG is the exact opposite of that, where you have about 30% of the value but 70% of the cups. Importantly, as I say, both out of home and CPG growing in the past 5 years, and we see both growing into the future. So where is that growth coming from?
In out of home, the biggest segment of out of home and the fastest growing segment of out of home is coffee shops. But very close behind coffee shops is the emerging growth area of workspace or offices. And that's essentially driven by 2 big trends that we're identifying. The first is the macro trend of more and more of the world's population working population are spending their time in office based jobs. There are just more offices available to serve coffee in.
But also, cheap workplace coffee is increasingly being replaced by solutions offered by better brands and better experiences. So there's a value up as well as a category growth story in that space. The last out of home space that's really dynamic is hotels and lodgings. Again, as people are spending more time on leisure, you're finding the expectations of travelers in that space much greater and that gives us many more opportunities to drive coffee into that area. Within CPG Retail, the big drivers have been portioned coffee over the past few years.
We see that continuing into the future. And also, we see a lot of growth coming on soluble, which is a very traditional category, one of our Heartland categories, but soluble is still growing at about 3% annually. The explosive growth in the category, and you heard Chris talk about this earlier today, is in ready to drink coffee. We're seeing this trend, which was essentially for a very long time a Japanese business with some U. S.
Business really beginning to expand across the world, particularly in Asia. And I'll talk a bit more about our plans in Asia later in the presentation. The last area of CPU growth, which is growing but not quite as fast, but we see this emerging, is in premium and super premium roasting ground and whole bean coffee as people increasingly are looking to get back to the origins of coffee and are prepared to pay a premium for what in the past was a pretty commoditized piece of business. So as I said, looking forward, we've seen that growth continuing. And on the right hand side of the chart, as you look at it, we've identified these 6 big areas of growth, which I'll refer to as we go through the presentation as the key focus areas for us to grow.
It's also important to note that with the 3 brands we now have in our portfolio, we believe we're incredibly well placed to delight consumers and our customers with these brands. Nescati is the world's favorite coffee brand, and a statistic which staggered me when I first heard it but is absolutely true is that 7 cups of coffee drunk globally, in home or out of home, is a Nescafe. So Nescafe as our biggest and leading coffee brand is still very much at the heart of our growth strategy going forward. But to complement that, we have in Nespresso, the premium single serve portion system, which is still growing incredibly fast and you'll see some of the innovation that we're bringing to this platform and delivers a luxury and quality every time in every cup through that capsule system. And then the most recent brand that we have in our portfolio, of course, being Starbucks, and that is a brand that really defined the coffee shop experience and coffee shop credentials for an entire generation.
So with these three brands, I think we're very well set up to capture that growth. So coffee for us is approaching a $20,000,000,000 business, about $19,000,000,000 with the Starbucks acquisition coming in this year. It's the biggest business for Nestle in the portfolio. It's about 19% of our total portfolio. And now in the U.
S. With Starbucks, we are very clearly the number 2 in the U. S. Market. That means that we have an unsurpassed global footprint as well as these 3 great global brands to go out and capture the growth.
So with that as background, how are we going to set about capturing the growth? We've identified these 5 strategic priorities. Chris, Laurent referred to some of these this morning. I just want to go through them in a bit of detail now and give you a flavor of how we're going to make them work. The first is strengthen the core.
And I want to focus on some examples of how the core adding value to our brands and to the consumer proposition against the trends that were highlighted this morning. The first is in authenticity and origins. Now single sourced coffee is something that consumers are increasingly interested in importantly are prepared to value through their purchase. I give you three examples from across our brands and our formats of how we're taking origins into our mix. From NESCAPI Gold all the way to master origins on Nespresso, we find consumers are interested in the taste profile, the uniqueness, the speciality of these origins and, as I say, are prepared to pay for them.
All of these products are launched. They're all doing well. And importantly, they're all retailing at about 20% premium versus their base variance. So we will continue to drive and value up through using Origins and Authenticity as a lever. The next area that we talked about this morning, just again to give you a flavor of how we're bringing this to coffee, is in these new sensorial experiences and coffee shop experiences.
First of all, let me start with new health. The innovation that you see in the front, which is our Nescafe Gold nondairy cappuccinos and lattes is a product that will be rolled out this year, 1st of all in the U. K. And then all the way through MENA and LATAM. And that's the first ever at scale quality product that offers dairy free alternatives in cappuccinos and latte.
So we'll be launching that with oat milk, almond milk and coconut milk. Very exciting innovation, again, premium priced versus the base range. We're also on Nespresso, creating a range of barista creations, which is a specialist range of Nespresso products, which have been specially designed and roasted so that they work extremely well with milk based recipes. So they're designed for cappuccinos and lattes and macchiatos, and they are now on sale. And again, that values up the proposition and allows consumers to get precisely the right experience through our coffees based on the trends and their expectations.
And then last, more mainstream but still very important on our Nescafe DOC Gousto brand for those of you not too familiar with this platform. It's well over 1,000,000,000 and a half dollar platform, which is particularly important in our European business, our Latin American business in Asia. The flat white coffee shop experience now brought into Nescafe Dolce Gusto. So you see we're using all of these trends and all of these experiences to really bring new flavors and tastes to our coffee consumers. The next area I'd like to talk about is sustainability, really important for us.
And sustainability is at the heart really of our journey in coffee. Simply put, it would be impossible for us as the world's largest coffee company not to have sustainability at the heart of our business because if there are no coffee farmers, clearly, we have no business. I want to give you some examples of what we're doing in the area of coffee sustainability. The first is a project that we've been running is a project that we've been running on Nespresso, which is called Nespresso Revivals. It's no surprise that unfortunately, coffee tends to be grown in areas that are relatively unstable and are prone to disease or to famine or indeed to war.
And what Nespresso has been able to do through its AAA program, which is a premium sustainability program that runs on espresso, is go into regions of the world that have been devastated by either war or famine or disease and reintroduce coffee to those farming communities. We started in South Sudan. And this year, we'll be rolling out into Zimbabwe a range of products where we have gone into communities and retooled, re educated, replanted coffee plantations and allowed the local communities to thrive through our brands. The next is much more mainstream and is our Grown Respectfully program, which we put through the Nescafe plan onto our Nescafe brand. This is the largest sustainability program of its type in the industry.
And I want to give you an example here from Mexico, where we buy about 24,000 metric tons of coffee through the Grown Respectfully program every year in Mexico. And last year, for the first time, we really connected our Mexican consumers with our Mexican farmers by celebrating 1,000 individual farmers on Nescafe jars in the market. And that was an amazing piece of connectivity. The pictures of farmers visiting stores and seeing themselves for the first time in the store is really humbling. And it allowed us to, in a meaningful way, connect what we do in the farms with what we do with consumers and bring both parts of that journey together.
And then the last example here is on recyclability as opposed to coffee sustainability. Patrice mentioned this morning how importantly we take the challenge of aluminum recycling. And on aluminum recycling, we are 90% plus ready for recycling those aluminum capsules. This is an example of a premium pen, a Caron D'ache pen from Switzerland, which we made entirely from recycled Nespresso capsules and was a big hit last year. So the next area I want to look at is leading in innovation.
You heard a lot about that this morning. And of course, much of what I've talked about so far is in innovation. I just want to give you 3 more examples of how we are driving superior technology to deliver superior consumer experiences. The first, we've talked about cold brew quite a lot already, but the point in this slide is we have a proprietary way of creating cold brew, which allows us to manufacture at scale. And one of the successes of our cold brew initiatives is that we're able to take that formulation through our proprietary know how and expand it very quickly into different markets at scale.
The next example on healthy eating is a range of cappuccinos and latties again that we've developed, which have significantly less sugar and fat with no loss in taste. And again, for health conscious consumers, that has become a very important initiative. And then last, in our leading brands, making sure that we can leverage our technology and systems and continue to develop systems is important, which leads me to my next area, which is really harnessing and continuing to build our expertise in systems and machine design. Great coffee in portion is not just the coffee in the capsule, it's the delivery of that coffee through a superior system. And these are just three examples of some of the work that we're doing.
The first and most significant is the virtual line. You'll have sampled it, many of you, in the break. This is nothing short of a revolution for Nespresso. It's the new platform for Nespresso, offering a variety of cups from very small espressos all the way to mugs, and we're rolling that out very aggressively. We'll be in 22 markets by the end of this year.
You also see here an Asperta system, which is the new machine from NESCAPI DOC GUSTO, which is going to add real value in NESCAPI DOC GUSTO by and allows us to have Bluetooth enabled connectivity, providing great solutions for consumers as and when they want it at the touch of an app button. And then the last example here is a small example. It's a test that we did, but we talked about India. This is a test in India that we've done with Amazon, where we're offering that aspiring middle class urban consumer in India the chance to have an on the go Nescafe, which they prepare in their own home in an instant, creates a fantastic cup of coffee, and they take that with them as they go on their daily commute to work. That's a test that we've been running for 6 months, very interesting results so far and just an example of how we continue to innovate in systems.
Emphasizing the cold opportunity, very important as well. We've talked a lot about that. So let me just say, in China and Asia, we will continue to drive that platform. It's critically important for us. And we have plans to advance on this platform and make sure that we continue with our number one position in China and ASEAN.
As Chris said, we have acceleration teams in place and we'll be rolling out more initiatives in that space. And also we have a strategy in the U. S. To take our Miss Happy brand and the Camelium brand into many new areas to make sure that we capture specific growth in these new trends. You see on Nest Cafe a couple of examples of a Flip Flati and also a coffee protein drink.
Again, you'll have the chance to sample that over the course of today. So let me talk about accelerating and out of home, the second to last of our areas. We see about a €50,000,000,000 cup opportunity in this area, 70% of which is going to come from the workplace and hotel space. So those are the 2 spaces that we're really focused on. Let me just give you a little bit of context.
Our business traditionally has been pretty soluble based and it's been single serve or bulk, simple products for simple occasions with espresso coming in the top end. Over the last 3 years, we've done a lot of work to make sure that we can capture more of the value through the chain by offering more ground and more complex solutions. And now with Starbucks, we're able to take that to a whole new level with 3 brands that will really allow us to compete in that space. So I've got 3 examples of
some of the machines and systems
that we're bringing into this space to allow us to capture that. Let me just focus on the first, which is on Nespresso. We have a brand new machine that will allow us to pick up medium sized and large offices with a machine that is fully wired to understand when it needs cleaned, how it needs cleaned. It has milk as well as coffee as integral to the delivery system and has a payment system built in. Complicated telemetry that allows us to be right, be at the right point of contact with Amalgene to service it and give a great consumer experience, but importantly in this space, a great customer experience for the provider, which brings me to the last part of my presentation, which is the last part of the slide, which is really driving the Starbucks opportunity.
I get asked this a lot, so let me just give you 2 minutes on the background of the deal. With Starbucks, we have acquired roughly $2,000,000,000 worth of sales, the vast majority of that in the U. S, but also some other markets in foodservice. And also the rights to perpetually license the Starbucks brand, Starbucks and a number of their other brands in every CPG cashew with the exception of ready to drink and in all out of home environments. So that's the deal.
As you've heard already, we moved very fast to capitalize on this deal. And within 6 months, we've gone from signing the deal to having 24 products available for launch. You've had a chance to sample many of them over the course of today. These are the products. We have 8 Starbucks by Nespresso.
We have 8 Starbucks by Nescafe Dolce Gusto. And we have 8 roast and ground and whole bean varieties available. But at the same time, we continue to drive our North American business, this big business that we bought, and here's just some of the innovation that's coming. You'll see the same trends, authenticity, new sensory experiences, healthy lifestyles. We continue to drive the business we have with that innovation as well.
So really, Starbucks is coming home. We are live in 10 markets already. We will be live in over 30 markets by the end of the year. And initial indications of consumer uptake and customer excitement are very encouraging. Early days, but we're well on track to see this opportunity realized.
So that's been a fast look at the landscape of coffee. It's exciting. It's dynamic. We have lots of growth. I wanted to leave you with these 4 key takeaways.
First of all, Nestle is the number 1 global coffee company, and we have the 3 leading global coffee brands, very well positioned with differentiated brand offerings to meet consumer needs the world over. We have significant growth opportunities across brands and channels and markets. We're leading innovation, and we're leading innovation with a strong pipeline. And last but not least, we are committed to moving with speed to capture those opportunities. Thank you very much.
And I'd like to hand over now to Joe to take you through the world of PEC here. Thank you, Joe.
Thank you, David. Good afternoon. It's my pleasure to be here today and talk about our pet care business with you. I'd like to beg your indulgence in advance. I'm fighting a little bit of a respiratory thing here.
So if it sounds a little scratchy. The other thing as we get to this in my section when we refer to pet care, I'll be referring to dog food and cat food only. Nina Lee's presentation, there's a little expanded definition and she will share that with you. I'm going to provide more of a global perspective and then Neely will follow with a deep dive if you will on the U. S.
Business. So globally the pet category is large and growing right an CHF 82,500,000,000 category with a strong track record of growth. In fact from 20 16 to 2018, grew at a rate of 6%. Current estimate in terms of a forecast, we believe that could be 7% by 2023. Importantly, the growth is occurring across all the regions with the U.
S. And EMEA, excuse me, roughly 75% of the category. From a competitive standpoint, the category really is highly fragmented. You have 2 main global players in Mars and Purina who represent roughly half of the category sales. The rest, you have some other brands, but there is a large fashion if you will of smaller players, local players most of which are probably CHF 100,000,000 or smaller, right?
So the continued growth is propelled by some pretty impressive growth drivers, right? The pet population is large and growing rapidly, right? In emerging markets, there's considerable upside in both penetration as well as commercial coverage. One prime opportunity is China where the household penetration is significantly lower than in the U. S.
Another opportunity is commercial coverage. And when we talk about commercial coverage, this is the percentage of pet nutrition that is delivered through commercially prepared pet food versus table scraps, handmade whatever you want to call it. So for example in Brazil where dog ownership is higher than in the U. S, commercial coverage is still less than half, right? So even in developed markets, we have great opportunity.
In the U. S, millennials are acquiring pets at a much earlier age. They're showing a much stronger intention of continuing to own pets. Importantly, today they're spending more on pet food and treats than boomers and Generation X. Globally there's a strong pet owning culture, right?
Pet ownership is very desirable effects. It's somewhat aspirational if you will. Pets are members of the family. It's a very eye catching thing for retailers. They see these high value shoppers.
They know about above average margins. For Nestle, this translates into a category that fits very well within nutrition health and wellness delivers above average margins with unsurpassed nutritional science. Purina has a global presence with operations in all regions. Our portfolio is balanced nicely between dry dog, dry cat and wet cat, delivering sales of roughly CHF13 1,000,000,000 and a profit of over 20%. The global nature of this category allows us to have global brands.
We boast that we have $7,000,000,000 global brands all of which are growing. The other nice thing is with the global reach and consumer loyalty commanded by these brands, it demonstrates our ability to meet the consumers' needs worldwide. Globally Purina is a critical contributor to Nestle. We take that very seriously. Purina contributed 14% of Nestle sales and 15% of the trade operating profit in 2018.
2018 was also a strong year as we saw accelerated growth and improved margins. This continues a track record of over 10 years in the making. 2019 is a special year for Purina. In 2019, we will celebrate the 125 years of our founding, right? We've always had a strong commitment to unsurpassed quality, a culture of excellence, a faithfulness to the values inspired by our founder, William H.
Danforth, which are now exhibited today through Nestle's purpose and values. So that's what I want to share with you today. I'm going to turn it over to Elyse so we can get to the meat of the business matter. So there you go.
Thank you, Joe. The U. S. Is the largest pet care market in the world at $32,000,000,000 and that includes litter sales. Over 60% of households own a pet and 82% of those households believe that their pet is an integral part of the family, which really demonstrates that strong bond between pet and owner.
Pet is the number 2 trip driver behind prescription drugs and is the second highest spend per household just behind tobacco. As Joe mentioned, the global pet care market is growing, the U. S. Is growing as well. Over the last 20 years, we've seen a 5% growth rate.
We expect that growth to continue and to reach 6 plus percent by 2023. Similar to other Nestle businesses that we have here, we have a deep consumer insight around our pet owners and that has provided us with a competitive advantage. When we take a look at the trends that are impacting the industry today, the first one is around how consumers are feeding their pets. More and more consumers are looking at human food ideology trends to inform those choices. Where they shop and how they engage is also changing.
They are expecting these personalized experiences to be a part of how they relate to their brands. These consumer trends are shaping the future of the pet care category. Over time, we've achieved this leading market position by understanding and fulfilling our consumers' needs through our portfolio of innovative brands. I'm confident that we have a strong plan in place to build on our strengths and to realize our future growth potential. It is built on these three strategies.
And now I will walk through these at a high level to share with you what they entail. Premiumization is key to the pet care category in the U. S. It is delivering over 80% of the growth in the last 3 years. Purina has a commitment to innovation and premiumization across our entire portfolio.
Take a look at our Castor and Pollux brand. It fulfills the needs of consumers who are looking for organic and responsible sourcing. Our Tidy Cats Lightweight Litter solves those consumer pain points of lifting heavy consumer packaging litter packaging and carrying at home. And finally, many of our brands have introduced new feeding occasions and experiences which truly delight consumers and their pets. A great example of how we're driving premiumization in our portfolio can be seen through our Fancy Feast brand.
In January, we launched Fancy Feast Gourmet Naturals, which really provides that ultimate wet cat food experience along with those natural attributes that consumers are now seeking and desiring in their food. We've also introduced appetizers, broths and fillets, which have expanded our market reach and our consumer reach. Speed to market is also important and can be seen through our most recent introduction of Fancy Feast Infusions, which took only 6 months from IDEA to launch. All of these are delivering outstanding product experiences, while delivering both top line and bottom line growth. Also key to our first strategy is natural.
Purina is committed to cascading natural across our portfolio in the context that consumers find relevant for the brands that they buy and in the channels where they shop. Take for instance at the high end of the category, we have brands like Merrick and Beyond. These consumers want a comprehensive suite of natural attributes. They want all natural ingredients, nothing artificial, real whole foods. Contrast that with our core brands, where we've cascaded relevant natural attributes at affordable prices, such as Binaful Superfoods with quinoa and kale.
Purina drives leading edge innovation through our unsurpassed knowledge of pet nutrition and our world class R and D. We've recently established the state of the art Purina Institute, which provides a voice to more than 500 Purina scientists and Pet Care Experts globally, whose sole mission is to advance pet health science. Fundamental to Purina is delivering life changing nutrition. Stefan mentioned today our Purina Pro Plan Veterinary Diet's Calming Care is one of our new introductions that we've had. We've also introduced formulas like Purina Pro Plan Bright Minds.
Purina is the fastest growing manufacturer among science focused brands, growing at twice the rate of our competition in 2018. And finally, important to our first strategy is increasing the relevancy of our core business. We remain committed to ensuring the long term health of these brands, which represent over a third of our business and almost a fourth of the category. In recent years, we've renovated our portfolio to address new food ideologies. We've improved the ingredient decks on Dog Chow and Cat Chow, and we've made real meat the number one ingredient on Benefal Mainline Dry.
Our second strategy is to win in high growth retail channels. If you take a look at this chart, this represents 2018 category sales. All channels are growing with the exception of Pet Specialty. If you take a look at Q1, we've seen modest growth in Pet Specialty. At Purina, we remain committed to this channel.
It represents a third of the growth and is where most innovation is launched. It is also a place where we can grow our brands like Pro Plan and Merrick. E Commerce is the fastest growing channel representing over 75% of the growth in 2018. By 2022, we expect this channel to have 25% of the category sales. Purina has a number one market share here and has been the fastest growing manufacturer in 2017, 2018 and Q1 of 2019.
We believe that we have a strong plan in place to continue our leadership position in e commerce and it's built on these three pillars. The first is to win the digital shelf in pure play. This is really all about leveraging our consumer and channel insights to optimize our portfolio mix to provide those customized solutions that these retailers are looking for. The second is to drive adoptions and win early through based. This is really about piloting different approaches with retailers to accelerate their click and collect businesses.
And last, drive loyalty through our direct to consumer businesses. We need to continue to aggressively build our D2C platforms through our Purina for Professionals, our Pro Plan Vet Direct and our Purina Store. As consumers are looking for more personalized experiences, we've heard this over and over today, Purina will be at the forefront of this consumer led movement. Our personalization at scale team is working to transform how we engage in this two way continuous dialogue with our consumers. This will ultimately help Purina be considered their trusted pet care partner fostering a lifetime relationship that drives sales loyalty for our portfolio of brands.
We've invested in a comprehensive suite of personalized digital solutions to enhance consumer engagements. This includes a new and improved pet finder app to ensure it remains the number one online destination for pet adoptions. Our U. S. Team is also working closely with tails.com and WAMISE to leverage their expertise to accelerate our business models in the U.
S. We understand how important open innovation is and we have to continue to keep our pulse on innovative business models to rapidly learn, adapt and activate. For instance, Nestle Ventures and NINE Square Ventures are 2 vehicles through which we invest in early stage entrepreneurial companies. The Pet Care Innovation Prize provides resources to start ups in the pet care space. And through it all, we remain committed and focused on our responsibility to pet owners, the communities in which we work and live and the planet.
A great example of how we work in communities is our partnership with Red Rover, which enables victims of domestic violence to remain with their pets. 48% of these victims will not leave the situation that they're in because they are worried that their pet will be harmed, and only 10% of shelters today can provide space for pets. At Purina, we are fortunate to be in a position of strength. We will continue to lead in pet care through our portfolio of brands built on deep consumer insights, our unsurpassed knowledge of pet nutrition and world class R and D affording us long term sustainable growth and profitability. At Purina, we will lead and others will follow.
Thank you. I will now turn it over to Terry to talk infant nutrition.
Yes, it's not because I follow that I will not lead. Before we start, I'd like to stay a few minutes few seconds with you on 3 words, which are on this first chart: science, innovation and speed. They summarize the way we want to compete in this infant nutrition category. Infant nutrition is a growing and competitive category. The category growth that we project for the next 5 years is around 3.2%, taking into account changes in birth rates and also the rate of breastfeeding.
Up to now, AOA has been, as you can see, the leading engine of the category and this will continue. This is a very competitive category where we lead with 20%, but you can see a lot of, let's say, competitors behind us. So we lead and they follow. But this category, for sure, even though it will continue to grow slightly at a lower pace than before, has ample innovation opportunities. We can really play with the innovation engine we have in the company to still find pockets of growth everywhere.
First, through science led innovation, and our HMO launch is a proof of that, but same for our OPTI Pro rollout. We have also a lot of opportunities in the naturalization field and the new food beliefs through A2 organic, goat, etcetera. And last but not least, also by expanding the usage of our bronze to later stages. We are uniquely placed with our business today to win this battle. First, we have a balanced geographic footprint.
AOA is still the biggest part, 50%, but you see EMEA, EMS, well balanced. We have 7 power brands, 7 billionaire brands, representing 86% of the business. We have a support and you could see that this morning with Stephane's presentation, unsurpassed scientific expertise. Now we do this business since the beginning, 150 years of experience, you don't build that in one second. You can see 2 33 patents in the last 5 years.
We have 33 clinical studies at the moment. We have also an engaged structure behind that. That means this organization we discussed this morning, this winning matrix, SPU zones and markets, 15,000 people passionate, of which 450 science and technology experts. We have reorganized through the zone organization, and it's not only a reporting line change. It's really a change of way of working with 1 strategic business unit with authority and embedded R and D with 3 zones, 3 regions reporting to the zone heads and the markets which are now fully aligned with zone heads to implement the strategy locally.
We did that, and we reduced the above market cost by 16% without disturbing anything. And we were able to roll out rapidly our HMO innovation in 44 markets. And I can tell you at the end of Q2, it's going to be 50 markets. All this led to an increase of organic growth by 3 30 basis points to 3.8% and also growth of our Utah. What is our vision for this business?
First, and it's important, is to become a recognized trusted business and societal leader in infant and parenting nutrition solutions for the 1st 1,000 days of life, the 1st 1,000 days of life being pregnancy and the 1st 2 years of the child. We have 3 important beliefs that we all share within the SBU and in the community of nutrition. Breastfeeding is the ideal nutrition for babies. Every child has the right to the best possible 1st 1000 days. All moms should feel respected and at peace with their decision on how to feed their baby.
That's important. And we are committed to 2 things: deliver cutting edge innovation and services to all parents and babies. When I say all parents and babies, it's also including breastfeeding parents. And lead the industry in responsible marketing practices. We are not selling things like many others do.
We are providing 100% of the nutrition to a baby for 6 months to 1 year. So it's an important responsibility. And we feed every year 15,000,000 babies. So we have, if you want, the responsibility to feed a country like the Netherlands per year. So we don't take that not seriously.
Our portfolio, both of products and services, is unique across this 1,000 day from maternal nutrition to, let's say, growing up milks and later stages. We have services to mothers and parents with Baby and Me and to doctors and health care professionals with the Nestle Nutrition Institute. So a unique position in that 1,000 day window. Four key strategic priorities for the infant nutrition business. 1st, continue to build our leadership in Greater China.
2, strengthen our infant formula leadership globally outside of China 3, turnaround gear beer in the U. S. And 4, realize the CERELAC full potential. The Chinese market is key to this category leadership. Why?
Because it's onethree one eighth of the birth, 1 third of the sales and 50% of the growth. And this country, this region is exceptionally receptive to innovation and to science led innovation. They are also very dynamic and open to new business models with baby stores, advanced e commerce players and unique cross borders capabilities. It's also a very competitive market, as you can see, where we lead, but there are still 250 brands and maybe, let's say, in the regions in the West. So we can seize new opportunity to really strengthen our leadership there.
We have 3 power brands, Illumina, S26, MNAN brand and sub brand. We can win and execute also a move to the West, a move to the Deep China to 3rd and 4th tier cities where we plan to add for instance this year in the next 18 months another 10,000 baby stores. We will accelerate on domestic and cross border e commerce, and we are actually partnering with Ali and JD, launching cross border innovations, and we have now a dedicated structure for cross border in China coming from different countries in AOA and in the U. S. And last but not least, an important pillar is also to expand our baby food with organic.
And we became leader in the last 2 months at China level in baby food. 2nd pillar is to strengthen further our infant formula global leadership. As you can see, AOA, AMS and Imina out of Greater China are quite well balanced. And we enjoy good market position with 60% of our markets where we are number 1 22% where we are, number 2. So strong positions, which delivered profitable growth accretive to the category.
The second element, of course, is about innovation, like I said at the start. To create this competitive gap with cutting edge nutrition, here again, the HMO in 44 markets, but also our happy growth launching 5 markets on lactogen or more affordable formula and our non OPTIPRO optimized protein in 70 markets now. We also took the lead in rolling out in 24 markets our organic infant formula range, including also our new A2 versions, but also with specific baby conditions products to help health care professionals and mother solve issues that are specific like hypoallergenic solutions for allergies. We also are pushing forward through our Nido brand on the, let's say, later stages growing gut milks and later on. Number 3, of course, is to solve and turn around GABA U.
S. We have executed the relaunch, and I hope you had the occasion to see our new products on the exhibition today and test some of them. So we have this stage in the core. We have accelerated on organic. And you can see we are starting to move the needle on organic, but we still need to reinvent the core.
So we will execute a profound transformation of our business. First, bringing naturality to the core range with the launch of Gerber Natural. We will launch this quarter 20 new SKUs. We will further deepen our organic offer with organic for Baby Gerber, and you saw some of the products which are absolutely delicious, 21 launches are planned for this quarter. We will win in growing channels with those partners.
And also never forget in the infant nutrition or baby food category, counseling and being behind the parents is important. We will lead with best in class services with our 20 fourseven service. Last but not least, we want to fully analyze the potential of infant cereals. This is the base of this company. The first product that was launched by Henri Nestle was infant cereals.
So we are clear leaders in that category. We are leader number 1 in 8 of our top 10 markets. But there is still growth opportunity around the corner because you can see the growth is easy to find when you look at the per capita consumption. So we will really push between Sub Saharan Africa and Brazil. There's a lot of possible opportunities in terms of consumption occasions, diversification and bringing the right nutrition to those consumers.
A few examples, we will roll out we have rolled out in 20 markets are no added sugar and Xeroxacruz solutions. We are now driving the new cereal ideology with launch of organic native selection and ancient grain varieties. We will drive affordability, especially in Africa, with 12 markets with single sachet. And finally, you saw some of those products expand consumption to snacking and meals, including savory meals. Last point, which is important in creating shared value, is lead really taking the lead in the industry in responsible marketing.
It started not yesterday. It started in 1982 where we started to implement the first instruction regarding the WHO code. But it has been a continuum. And even a few months ago, we were in London with stakeholders convening together with Mark, and we really engaged with the civil society. And we are committed to be the leaders in implementing those breast milk substitute policies responsibly.
We have we are serious about it. So we have external and internal auditing for that. Last year, it was 28 audits. And 11 employees were dismissed for not respecting the way we do business on infant formula. We have also pushed forward our progressive maternity protection policy with a lot of effort in the places of work, 425 breastfeeding rooms that's necessary.
So with this, I can conclude that we are well positioned to continue to win 7,000,000,000,000aire runs trusted, an innovation pipeline that is unsurpassed. We have a great advantage and balanced footprint and a complete portfolio from maternal nutrition to later stages of growing up pigs. So with this, I would like just to conclude with a new baby, our latest communication for NAN that will be on air in 2 weeks' time. Thank you.
So thanks for listening. We have abundant time for question and answers until 10 minutes past 3. So here we have the 5 speakers. Who wants to start with the first question?
John? Hi. John Ennis from Goldman. I've got 2 actually. The first is on the Starbucks K Cups business.
I wondered if you could comment on the growth delivered by K Cups relative to the rest of the Starbucks portfolio. And then maybe detail how the margin profile differs for Nestle, I. E. Did the K Cups does the K Cups component, sorry, have a lower margin than the rest of the Starbucks portfolio because there's a higher degree of profit sharing? And then my second question is, when you go through the 3 presentations, the category growth for pet, I think, was around 7.
Coffee was at 5. Nutrition was at 3. So to fulfill the high growth criteria for nutrition, I guess you're baking in an element of share gains to get to above 4%. And I wondered if you could maybe outline the countries where you feel the most confident about that market share gain. It looks from the presentation that the U.
S. Was 1. Thanks.
Okay. Thank you. On the question on K Cup, the way the Starbucks business divides up is roughly roughly 1 third is out of home, 1 third is K Cup and 1 third is traditional roasting ground. So when we look at the Starbucks business we have, that's the sort of shape of the business. And Key Cup is an important part of that portfolio.
The Key Cup Starbucks share of Key Cup is about 20% of that Key Cup system. And Starbucks continues to be a major driver of the Key Cup business. So it's an important business for us. It's about onethree of the business we've acquired. I'm not going to get into specifics on the margin on your respect, but it's an important part of the business, but it's not a disproportionate part of where we see the growth.
So important, but not disproportionate. And we'll continue to drive all the elements of the business that we bought going forward. And on the second question, could you just repeat this back end of the second question? Was it
was on category growth or planning to gain market share. Yes. Because category growth would be on average
claimed. Exactly. It was for
the nutrition business really. Okay.
Thank you.
That was the category where growth was below 4%. So it's therefore implying market share gains.
Yes. I will not joke because you remember, Marco, when we were 30 years ago in Italy, both Elmut Maurer came to the market and he made a comment at the time and everyone was laughing, but not so There are no mature markets, there are only mature managers, he used to say. So I don't want to be one of them. I'm convinced we have opportunities to win in many places, including China, just by going west, if you want, going to today, we are selling to something like 40,000 baby stores. We plan to go to 50,000 in the coming 18 months, going west, going deep in the 2,300 cities where we can do business and where we have somewhere left some of our competitors not play alone, but not to focus.
And in those parts, by the way of China, birth rates are higher. So we can kill 2 patients with 1 and so on. We have also a balanced footprint. When I talk India, where we are strong leaders, when I talk Brazil, when I talk Mexico, when I talk Philippines, when I talk Indonesia, we have strong powerhouses to continue to grow. And last but not least, the fact that we have a portfolio from maternal nutrition to baby food like we have shown in China where we are now growing very, very fast in China, we can play also on the duration in which consumers are entering into a category.
So I'm convinced that, yes, it will have a sort of stabilization, 235,000,000 babies a year, which probably is a good thing for the planet. But there are ways. We know that a Chinese consumer on average spends with 1 child as much as a French consumer with 2.4. So that means premiumization is an opportunity for us. And we have solutions, top notch factories and great solutions to capture the needs of all those demanding consumers.
So I'm convinced The category growth is one thing, but we have the means to win share in this category.
Any other questions? Well, I see that Warren?
A question on China Baby. You said that you've got 3 brands: Aluma, S26 and NAN. On Aluma, can you tell us what share of the super premium part of the Chinese market you have? What kind of growth is that brand doing? Can that brand actually go outside of markets in China to other Asian countries?
Just interested to know how far Aluma can go and what share it's already got. And then secondly, if I look at the other brands, S26 and NAN, if you strip out the growth of Voluma, it doesn't look like those other brands have been growing very fast. And I was just wondering whether you can maybe talk to us about S26 and NAN in China and whether those brands are growing or what your plans are to try and get them to grow? Thanks.
Yes. So ILLUMA is the flagship became the, let's say, leading brand in the market with 74% distribution in the country. It's what we call super premium, so above CHF 50 per kilo. It is, let's say, the number one brand of our portfolio, the showcase, and it has indeed grown faster than S26. We are in the middle of relaunch of S26 with our 2 pillars Gold and Ultima.
And what has happened somewhere, we tend to prioritize in the past ILLUMA only. Now we are back with a strong proposition on brain with S26 and we will push forward. These are the kind of categories where were discussing means behind growth. Clearly, management has given us the means for the coming years to push those 2 brands forward simultaneously. NAN is a more specific proposition on hypoallergenic conditions and a bit less, let's say, mainstream.
But even NAN has also plans to grow distribution in internal China. So I think, let's say, in the past, we might have put too much emphasis on Illumina only. Now we have an allocation of resources that allows for growth on all the portfolio, as you have seen with latest NAND communication, but also on S26 on brain development, And Illumina will continue to thrive for sure.
Any more questions? Maybe on
pet care.
Well, I see that the sell side are actually having the monopoly of questions, but okay.
Go ahead. Thank you. I hope you may first. I don't have a question on pet care, but on infant formula.
Thank you.
I'm sorry. The question is regarding China and the indirect and direct sales. Obviously, you're mainly in China with direct sales. But how do you protect that on e commerce, your goods will be tracked by yourself and not by other wholesalers?
So first of all, you have to know that our share in e commerce is superior to our share in offline. So that's important. We are category captain at Ali. So we are really highly engaged with the key our key e commerce partners. So that's important that we win there.
But what is important to understand for China is we are playing all cards in China. We have not all our eggs in one basket. We have 2 big factories where we produce locally. We have a brand like HILUMA that is imported from Ireland, so exclusively from outside. We have baby food imported.
We have baby food produced locally. So we have different sheet, different pillars to build on. And I think it's wise in a country like China, where, let's say, the regulatory framework is more and more difficult to have those different, let's say, possibilities to play. So we can win with different solutions. So we are not afraid.
We are not only on e commerce. We are not only on imported. We are not only on locally produced, but we are a local international player and recognized as such by our customers and the authorities. So I think we have a great advantage to play on all these different pillars to cards to win the game.
So this is a buy side question and it's on pet care. Maybe talking just talking about e commerce, so this is Nadeem Ryska, FIOR Capital. Just talking about e commerce, can you maybe comment on the margins? Without I know you won't maybe give specific numbers, but how do margins compare on the Pet side between ecom and the traditional channels? Right now, excuse me,
trade spend is a little higher on the ecom side, right? And so versus brick and mortar, we're at a little bit of a disadvantage. I do expect that to level out over time. I think once we've leveled the playing field between pure plays and click and collect that will help. But at this point there is a little bit of a disadvantage.
And this is so this is a question of just a scale didn't I get the scale or this is just
a question of
investing in ecom capabilities today?
This is a question of balance of power. And the pure plays have the balance of power right now. Yes.
Thank you.
Precisely answer.
So any more questions?
We go back to the sales side, Selena.
Well, thank you. I'm afraid. So yes, so I'll start with the Pet Care. Three questions. So why is the growth going to accelerate globally?
2nd, you didn't mention Pet Health. Is this I mean, I know in terms of nutrition, but going into more OTC type of fat, is it an area of interest and of growth? And then my third question was on D2C. How big that could be as an opportunity? Because I think you bought tel.com and like could you elaborate a bit more of what you do in terms of D2C in Pet?
And then I have a few more questions on coffee and nutrition. Thank you.
So globally, I think what we're looking for is basically you see a lot of emerging markets. And as I kind of pointed out excuse me China where you have household penetration that's so low with pet ownership and then Brazil where what I call caloric coverage, commercial coverage, everybody is still so low. I think we're seeing a lot of one of the signposts for an emerging market is an emerging middle class. And we're seeing that more and more around the world, right? And we're also seeing our portfolio becoming sharper and sharper and with the advantage of the digital word etcetera much more efficient and effective in terms of us getting there.
So for me in terms of true growth right, I think you're going to see it that way. I think premiumization plays a really strong role in it. I think if you look at some of the human food ideologies and how that's been translated into pet food, I think that's going to justify, right, some of this premiumization. I think as the human food ideologies continue to grow, consumers are going to be more aware and be more accepting if you will of a commercially prepared food. So I think that's a big one there.
Okay. Hit me with your next one.
What was the next question?
It was about pet health supplements or OTC products. Is that an area of
So we did not spend a lot
of time talking about our veterinary business or our pro plan veterinary diets. We have a very strong therapeutic diet business. I think calming care is a great example of if you want to call that a supplement, it's really a sachet. I think it's of high interest to us. I think the veterinary channel in general is seeing a little bit of a resurgence and we are going to actively participate in that growth.
Relative to over the counter and things like that, I'm not sure that's something that would be our strong suit short term.
1 was on D2C in pet health in pet care, sorry. D2C, if you could elaborate.
So we're rapidly. We have multiple platforms that I talked about already, which is Purina for Professionals, Pro Plan Vet Direct and our Purina store. We're also we have a brand Just Right, which is direct to consumer and we're partnering with our colleagues in M and A with tails.com to determine how do we best bring personalized nutrition to the U. S. Market.
And we will be revamping and launching something near and dear here in the next few months.
Okay, Janan, go ahead.
Perfect.
As I've two questions on coffee, 1 micro and 1 big picture. The micro one is outside of the U. S, how do you expect your Starbucks sales to split between espresso, Dolce Guseau and the Rostenbrand variants? And then my big picture question is, if I look at what you paid for Starbucks and I do an NPV of what the likely royalty payments are going to be over the next x number of years. I mean, that's a lot of money.
And I guess my question is, how much consideration did you give to building rather than buying and ruling out and creating or using an existing brand to take those to exploit that opportunity that you see Starbucks fill in?
Okay. Well, let me start with the macro, and we'll move back to the micro. The question of build or buy, I think when you look at the portfolio that we now have with Nescafe, Nespresso and Starbucks, you can see they're very complementary brand propositions. Nescafe has a unique role within our coffee portfolio. Nespresso has.
Starbucks is really, really incremental in terms of its reach, in terms of its brand values and in terms of the sorts of places you can take that brand. So would it have been possible for us to create a Nescafe version of Starbucks? Honestly, probably not because it starts from the coffee shop, as is to bring the coffee shop in home. So I think in terms of make or buy, this was one where the perpetual license that
we have. And remember, it's perpetual, so this is
a forever deal, which Was the right move to was the right move to allow us to complete that portfolio of the 3 leading global brands. So that's my answer to the first point. On the micro point, we really see especially initially with the launch of these three products that the Nespresso and the Nescafe Dolce Gusto platforms outside of the U. S. Are where we're going to see the majority of the volume and majority of the growth.
There will be business to be had in roasting ground in whole bean in that first tranche. We will definitely be launching that across the world. But if you're looking to see where the majority of
the growth will come from, it's going
to be on those capsule platforms in the first tranche of launch. Maybe just it's a question you haven't asked, but just to finish on that notion of we have 24 products launched today. We're already working on the next level of innovation to see where we can take that Starbucks brand in the future onto other platforms. So we see this as the beginning of a portfolio, certainly not the end. So there are many more places we can take.
That's Haverock's proposition.
Adena, your turn.
Can you hear me? Yes. So I thought I'd ask more questions from Pat just to round things out a bit.
Yes.
So the first one is on Merrick. It's clearly a great brand. I was wondering what the plans are in terms of expanding maybe outside the specialty channel, maybe even outside the U. S? And also more broadly, what the percentage of your sales is now in the S.
Market that's from the premium segment? So I think you've underperformed the category in the last few years maybe because of under indexing in that segment. So that's the first question. And then the second one, in the annual report, I noticed that the pet care margin for Americas was expected to decline in the medium to long term. I don't know if that's correct.
If that's the case, sort of why that is?
Not according to my boss. So the Merrick question, in terms of expansion on Merrick, I mean we've been a little capacity restricted and we have a massive capital job going on in Hereford, Texas right now that will give us both wet and dry capacity for future growth. I think what we've just saw in the past couple of months, we expanded into PetSmart, right? I think you're going to see an acceleration on e commerce. We have no plans to cross channel with that brand.
And again this goes back to our consumer segmentation. And our consumer segmentation is so tightly defined and it really gets to how we optimize brands and products to consumers. We don't need to take Merck cross channel. The other expense you talked about international right now we're in some test stores in Mexico with Petco. As a global steering committee, we're looking very hard at what some of those expansion opportunities might be.
I think now that we're in a position where we have the capacity to support that demand more of those things will be considered.
Do premium?
Go premium.
Okay. I'll do premium.
So I mentioned in the presentation that for us, the premium business represents about onethree of our business, whereas it's about 25% of the category. And we have had declines in there in the past. The good news is when you look at that in the Q1, we've increased our sales. And we believe that's because increasing the relevancy of our core is starting to pay off. And so we expect those trends to turn as we move into the rest of this year.
No,
there's no deterioration in margin that I'm aware of so.
Okay. Well, we can follow-up later on that specific question. Jamie?
Jamie Eisenwater from Ash Park. A question on Nutrition and Well and Coffee as well. Does the Baby Nest business still exist? And if so, should that would that not have a big opportunity in China given the premiumization of that market? And on the coffee side of things, what sort of interaction do you have with Starbucks on that side of the business now?
Do they have to approve products? Do they have veto rights on new launches? Can you just describe how that process works? Thanks.
So on the babyness, I think you are right. We have actually decided last year to focus on China. So today, this business is limited to China only, where we know, let's say, the proportion of parents that are ready to pay for a certain amount of money for their children and also really looking for personalized solutions. So the Chinese market with 24% of parents that we consider terminology, people that don't make compromise compared to what you would have in an average of the world 19%, so higher proportion of people that are what we call uncompromising pioneers. So they relate to the Baby Nest brand very well.
But it's a limited business for the moment, especially in the only big cities Beijing, Shanghai, Hong Kong. We want to, let's say, make sure the model is sustainable and is very robust before any decision of expanding that. So we really still have work to do, but I agree with you. It was necessary to focus where really consumers resonate with that proposition.
Thank you. And on the Starbucks relationship, the first thing is, as we set out on this relationship, we saw it very much as a partnership. This is a brand that we have forever. So it's now our interest as well as Starbucks' interest to make sure that this brand continues to grow, be a premium brand and add value. So very concretely, we have established a brand board.
We meet CEO to CEO at least once a year. We meet the management of the Starbucks business at least once a quarter. And we sit down and discuss our plans, their plans and understand how we can amplify the joint businesses together. So it really is a business of partnership. And one of the reasons we were able to move so quickly was that our sales and Starbucks sat down and agreed that we were going to qualify these 24 products, which are Starbucks recipes and Starbucks flavors.
They're not our flavors put with a Starbucks brand. They're Starbucks coffees that we have developed with Starbucks. We sat down and agreed on those 24 products over a sort of 4 to 5 week period. So the partnership is really strong, and it's in the interest of driving that brand for the long term through premiumization, adding value and getting the best for those businesses.
We still have time for one.
Thank you. One more question on the Chinese Nutrition, I'm afraid. On your Going West strategy, I wonder what are the implications from a mix and margin standpoint because as you're expanding into Tier 2, 3 cities, you're probably looking at population with lower disposable income. So do you think you've got the right product offering in place at the moment? And what could be the incremental cost associated with that in terms of be it nutritional consultants or infrastructures?
I mean, in other words, how are you planning on balancing organic growth and continued growth and operating margin expansion?
So first of all, going west doesn't mean that you go cheap. The reality of the market is that, in fact, some Chinese companies have super premium products in the west, okay? What has changed is we have really engaged with our B2C partners B2B partners, sorry, Ali, JD, etcetera, to find ways of reaching those 10,000 baby stores with a new route to market, if you want, with the right, let's say, supply chain setup and without sacrificing margins. And we have the brands and sub brands, I would say, to attack that part of the market. So no sacrifice on margin, just innovation into the way we go there.
Any other questions? Otherwise, we can conclude the Q and A session, and I open the break.
Good afternoon. Good afternoon. My name is Maurizio Patanello, and I'm the CEO of Neste Waters since January 2017. 26 years of Neste, of which over 16 dedicated to the water business. And I'm happy to be here today and to show what we are doing to improve the profitable growth of Nestle Waters.
Let me, 1st of all, introduce the category. Between 2016 2018, the category continued to grow at 7 percent in value, mostly driven by emerging markets and especially Far East. The perspective of the category continued to be good. We forecast for the coming 5 years a growth of 6%, and Nestle Waters is the global leader. And interestingly enough, the first four top players, market share is just above 30%, which shows how the category is still very fragmented.
Bottled water is in excess of 50% of the total non alcoholic beverage. We still have a dynamic volume growth with 6%, mostly driven by 4 consumer trends. Number 1 is innovation that last year accounted for more than 30% of the total growth of the category, but also healthier drinks that for the categories means essentially low calories or no sugar or low sugar, but also a premiumization in the premium steel segment, especially in the U. S. That had a very good growth in the last especially in the last 2, 3 years and a comeback of the growth in the last 2, 3 years of Sparkling, especially in the U.
S. More than 50% of Neste Water sales are done in North America and the balance is equally distributed between emerging markets and Europe. Traditionally, we are very strong in the mainstream where we are leader and in Sparkling with 20% of our portfolio where also we are leader. We have about 20% of our portfolio, which is exposed to lower hand to the competition with the private label and we have 4% of our portfolio, which is represented by premium steel and functional flavor water and we are planning to catch up there in these 2 promising segments. We have 6 strategic priorities with the aim to turn around the U.
S. And win globally. The first is to continue to sustain our growth with international brands. The second is to protect our core and premiumize. The third is to differentiate through services and technologies, and we intend to fund this growth through a reduction of our structural cost and active management of our portfolio, which we have done already in the past, and we have taken a certain number of actions and we continuously look at our portfolio and we review with a specific focus on those businesses that do not offer a good growth perspective or where we have a low ability to win.
And then especially for water, it's extremely important to have as a strategic priority, the sustainability that for us is water and plastic. And I'll come back to these points. Let me, 1st of all, focus on the international brands that had also last year a good growth as also in the previous years. For us, the 2 iconic brands are San Pellegrino and Perrier. We have been investing in the brand in the previous years and had a good growth.
Now we intend to expand also in other segments and especially what we call taste with no calories. And I would like to signal the very promising launch of San Pellegrino sensor that was launched last year at the end of last year and is very promising, but also in the area of what we call pleasure with low calories. And I would like to outline 2 very promising launches, Perrier and Juice that has been launched last year and then now is with Roll Up Global and Momenti, which is a sparkling beverage, fruit beverage under San Pellegrino brand with low calories. However, we want to associate to these 2 iconic brands also Aquapana and enter in the retail in the premium steel. Aquapana is being present in the market, together with San Fellegrino in the Orca, very successful.
However, now we intend to take advantage of the strong growth in the premium steel and take our position in the retail by launching a full range of the PAMA brand, especially in the U. S. For the home and out of home consumption. And we've just launched nationally with in the U. S.
With the range that you see there and with the positioning of that capitalize on the smooth taste of this water, which is recognized and appreciated by the U. S. Consumers. We expect a good growth out of this launch and also here the good growth in 2018 with Aquapana. The second priority is to protect and premiumize.
As you know, we have a good part of our portfolio, which is represented by the Case Pack and especially by Neste Pure Life. We intend to protect it, first of all, by rejuvenating the image, but most importantly, to support the brand with our customers. And this is a brand, especially in the U. S, that is concentrated in a low number of very big retailers. Important, for the first time, we intend to differentiate our regional brands.
As you know, we have a network of regional brands. And here you see 2 examples, Fauna Spring and Deer Park, but there are other good spring waters in the U. S. We intend to invest in the equity of these brands and focusing on the unique differentiation point, which is being Spring Water and with a clear unique origin. But most importantly, we intend to launch nationwide Poland Spring.
As you know, Poland Spring is a very strong brand with a more than 50% market share in the Northeast of the U. S. And now we intend to launch it nationwide. And you can see here that we just launched the first SKU, which is made of 100% of recycled PT at nationwide level. We launched it, 1st of all, in Amazon.
It's very promising. On the other hand, we are also now approaching the large retailers in
the U. S.
To introduce PawnaSpring at nationwide level. We are going to invest in media behind this brand, and I would like to share with you the video, which is the advertise. This is the advertising that has been chased hard in the U. S. And continue on the priority of premiumization, we intend to enter in a more aggressive way in the functional and flavor water.
Here, you have three examples. Last year, we launched flavor water under the regional spring water brand, and there's been a quite successful launch. However, we also want to enter in the functional water and there are few examples where we already launched in the course of 2018 under the infused water, infused with flavor with fruits and also infused with the tea base, leveraging and capitalizing quite good European brands such as Betel, Contrex and LeVissima. And we have just launched in emerging markets Nestle 2 Life with electrolytes to give and enhance hydration, what we call the next generation of hydration and based on 2 concept, active and balanced, and we're going to roll up this in the rest of the world. The 3rd priority in growth is to differentiate through technologies and services.
You may know that we have a business of about €1,000,000,000 which is direct to consumer. Most of it is in the U. S. Under ReadyRefresh. We serve more than 1,300,000 family directly in the U.
S. And we are reengineering completely this business. First of all, exiting those area where we were weak and reinforcing those area where we had a good density to increase the density as this business is based on having a good density of customers that we can deliver directly. We have also launched recently our new Internet platform, which will give to consumers a much more user friendly experience. And I'm also happy to announce you that we're going to enter in the water dispenser.
As first as Q1 2020, we're going to launch our 1st water dispenser Refill Plus under Neste P Life brand, which will provide customers in the out of home with a personalized experience of flavors, enhancers, minerals and different level of carbonation, leveraging and capitalizing the distribution through ReadyRefresh in the U. S. Now how do we intend to support these launches and these premiumization? 1st of all, through reduction of our cost and primarily structural cost. In the 2017 2018, we have done a first already started to do a reduction.
We continue to do it in the course of 2019. And this should fuel our growth and enable us, 1st of all, to put some of it in the profit, but most importantly to invest behind our brands. And I've given here a couple of examples that where we have invest in especially in the U. S. In our brands being in the regional borders, being in the premium brands.
And most importantly is our sustainability strategy, which is made of 2 parts. First of all, is the water stewardship journey and the second, the plastic, I'll come back in a minute. We have been focused for many years within defense of our factories, focusing on reducing the water consumption, and we have achieved very good results in the last 10 years. We have reduced by nearly 30% the water consumption and we've been focusing in protecting our water wells and our catchments. Now we decided to open up as these watersheds are mostly shared with the communities.
So we want to open up and make sure that we can protect this watershed together. First of all, we transparently share all the knowledge that we have of the watershed and we know them very well. And at the same time, we work together with the communities to protect them. And at this regard, we also have taken a commitment that by 2025, we will certify to a standard of sustainability all our 94 sites across the world using the standard that has been fixed by Alliance For Water Stewardship. This is a journey that is taking and is a change of approach from being focusing in our premises to opening up and working together with the communities to protect and to ensure the sustainability of the watersheds.
And plastic, of course, we follow the same framework of the group and, of course, adapting it to Neste Waters. This is made, 1st of all, on developing the packaging and the solution of the future. We have taken commitment to use recycled PET, and I'll come back to it with some example. And at the same time, to develop new kind of packaging such as bio packaging or biodegradable packaging, especially for those countries where the infrastructure or recycling is not yet at the right level. I mentioned before the solution that we are introducing to have a free waste environment and the example of the Refill Plus water dispenser is one of them.
And altogether, they ensure that we can tackle through recyclability, through new kind of plastic and solution with free waste, a good part of the packaging of the future. At the same time, we have taken a commitment on neutrality. By 2,030, we have taken the commitment to collect for recycling as much plastic as we produce. Last, of course, is taking the commitment to drive new behavior with internally in the organization, but also with our customer, consumers and to develop a strategy of advocacy. Let me give you a few examples there on recycled PT.
We have taken the commitment to reach at least 35% of recycled PT by 2025. Here, you have some example of brands where we're going to go higher than 35 the same time, we've been able to introduce a few SKUs where we proved and we are among the first in the world that we can produce bottles with 100% recycled BT. And here, you have a few examples. And then we have some alliances and partnership to develop bioplastic or biodegradable plastic. And we work together with the regulatory and private in different parts of the world with the strategy or collection that is different geographies by geography and with the aim to reach to neutrality.
Let me go to the performance of the business. 2018 has been a difficult year for Mr. Waters. We have been strongly affected by a sudden increase of the cost of the PT and of the cost of transportation, especially in the U. S.
That as you know is more than 50% of our business. We have reacted to it by taking price, but at the same time reducing our cost. We have been able to offset a part of the impact of 3.30 basis points and through reduction of our cost and price increase, but at the same time, this had an impact on our volumes. This obviously is something that, let's say, happened in 2018, although also in the price of the PT continued to be challenging also in 2019. Just to summarize, we have our strategies based on drive the growth, found the growth and enable a sustainable growth.
I mentioned, 1st of all, that to drive the growth, we intend to premiumize, to innovate, to enter more aggressively in function and flavor water, to differentiate through technologies and services, but at the same time also to protect our core. Found the growth through a reduction of our structural cost and an active management of our portfolio and enable a sustainable growth through a water stewardship journey and a plastic roadmap. Now I'm happy to answer to your questions.
Thanks, Marc. Thank you. We open it up for questions. Pierre?
Pierre from ODDO. I have a question on portfolio management. You have driven over the last 3 to 4 years. You exit from Brazil, you dispose some brands in Europe. In the short, medium term, it's probably good decision in terms of management and return on capital employed.
But we are seeing that over years, you are unbalanced with big exposure to North America. So on the long term, is there a plan of developing more the water business outside U. S. Because there is plenty of opportunities in Latin America, Asia, where you are quite small. So on the very long term, what's the plan?
Well, first of all, let me tell you that most of our growth today come from emerging markets. So organically, we are addressing the portfolio. But most importantly, what our portfolio is very much exposed especially to the case back in the U. S. So this is a part that we are continually reviewing to see what the opportunities there.
And this, let's say, to ensure that we can be in the part of the portfolio where we have a good ability to win. And certainly, the case pack, especially the part of the case pack, which is exposed to competition with the private label is definitely a part where it's challenging.
Tristan?
Tristan Van Strien from Redburn Partners. Just a question whether you are considering the mixer category, especially when I look at San Pellegrino, there's also a tonic version of that. I'm just wondering why you haven't expanded on that one considering the growth of that category?
No, thank you for this question. By the way, it's clear that the tonic water, it is something that we had in the past and we have seen a strong growth with the Fever 3, for instance, in the mixer. And I'm happy to tell you that we are reintroducing San Pellegrino Tonic in the course of 2019 under renewed packaging image. So we are aware that there is a good opportunity in mixers and San Pellegrino clearly can play an important role there.
Any other questions?
Thank you very much, Alain Oberge, May 1. Regarding DSD in waters, obviously, you exited now in other categories. Do you still think it's vital, the DSD in the water business?
You see, the DSD as it was described this morning from the it's quite different from the DSD that we have in the beverage. In the DSD in the beverage, we go straight to the point of sales. And in the DSD in the frozen food, we are at the logistic level. So it's true that still the DSD in the beverage plays a role to get to the customers. And we actually have today in Nestle Waters North America, we have a mixed model.
So we reach through a DSD through wholesalers that they have a DSD and we go direct to the large customers. So we have a mixed model, but it's quite different compared to the frozen food.
Well, we would still have time for one more question.
It's Anubhav Malhotra from Liberum. I just wanted to ask about the emerging market growth. And could you break that up for me into 3 components of volume, mix and pricing? And then further, if you could break it up in terms of how much of the volume goes through case packs and how much goes through individual bottles? And does that have an impact on your margin in the emerging markets?
And am I correct to assume it is higher than in developed markets? Yes.
Let me first say one thing. In the emerging markets, the position that Nestle Pure Life has is not equal to the one that we have in North America. It's not positioned on the value, it's more positioned on the upper hand of the mainstream. So it's not really comparable. And we have in emerging markets, most of them a dual brand strategy.
So we have Neste Pure Life and we have a local brand. And most of the time, the volumes are split equally between both of them. But it's not comparable. I mean, the case of the United States, the case pack is quite peculiar and is exposed to the competition against private label, which is not the case in emerging markets at all.
Maybe last question,
First question on the plastic as it is a huge concern nowadays. And I wonder whether you're exploring some new packaging. I think some new startups companies are exploring like Citi cardboard for instance. Are you exploring such options?
Look, I mean, I showed before, we had signed 3 main alliances, if you want. One is to develop bioplastic, and we're going to start to have the first results, the first, let's say, quantity, the first tons, as we said in the category in 2020, and then we have to scale it up. Then we have an alliance with the Dynamir to develop biodegradable PET, which still has to deliver its result. And we recently had joined a consortium with Cardios, who is going to develop a chemical PT based on enzyme technology. So we are into the development of this new plastic and we will continue in this direction because the recycled PT alone will not be sufficient to answer to all the needs in the future.
Really the last one, yes, Warren.
Hi. Can I ask a question on pure life in the U? S? How do you actually differentiate pure life versus private label? You started to take pricing in pure life.
Private label didn't follow. You lost a lot of market share. There seems to be a brand that's really struggling to differentiate. I know you're doing the new Pure Life into offices. Is that going to be something that will differentiate the brand?
Well, these are 2 different things because the pure life in the offices, the water dispenser, it will be only dedicated to the offices, while the case pack and the competition versus private label is in the retail mainly. It's clear the way it is structured today, the U. S. Market offer a tough competition between pure life and the private label and the differentiation is more difficult. However, we see that the U.
S. Market is starting to segment. So let's say, while before it was a very large mainstream category in which there was pure life and the regional spring water. Today, we started to see a clear segmentation. In the future, it's clear and at present, the differentiation Life is number one concern for us versus private label.
Thanks, Mauricio.
Okay. So let me now hand over to Greg, who will introduce you Health Science. Thank you.
Thank you very much, Mauricio. Good afternoon, everybody. It's a pleasure to be here. And let me take you through the exciting business of Nestle Health Science. First of all, let me start by just saying what employees at Nestle Health Science are passionate about.
And this is about empowering healthier lives through nutrition. And very often this is impacted by personal and family experiences. I will take you through our business and then we'll deep dive in our strategy, creating shared value and last but not least, a few numbers on our business. So first, just a few numbers. Nestle Health Science is a €2,700,000,000 business.
Our underlying top number is EUR 55,000,000,000. We're investing for growth and driving scale. And then last but not least, we're focusing on 2 categories Consumer Care and Medical Nutrition that are more or less evenly split. Let me just take you through a little bit of deep dive on the 2 categories. 1st, Consumer Care is a large and attractive category.
We define this category as nutritional supplements, vitamin, minerals and supplements. It excludes drugs, OTC. It is a fragmented category. There are few global players and we're a strong number 3 in that category. The growth is driven by underlying trends and I'll take you through those trends afterwards.
Private label is very low at below 10% rate and we're driving about 2x category growth in this segment. Medical Nutrition on the other hand is a smaller category, but with very attractive growth. The definition of medical nutrition is medical food for special health conditions from acute care to pediatrics. It has significant overlap with the Consumer Care business. It is fairly consolidated with 2 global players.
The other players are really regional or local and we're a strong number 2. The channel here is evenly split between what we call institutional, hospital, nursing home, home care and about 50% in pharmacy. The key trends in these in both categories can be summarized as here you can see here. First of all, Vol, about health consciousness, prevention and self pay driven by this Doctor. Google.
1 in 20 Google searches today are related to health information. Over half of U. S. Health purchases are driven by digital. And so we see significant opportunity in specialized diets also.
When you look at, for example, searches on Google related to ketogenic diets, this is at all time high. The growth in these categories are also driven by natural, organic, non GMO, real food and sustainability. And then a significant growth in both categories is specific conditions, the specialty conditions that drives about a 5x growth versus the general nutrition. And last but not least, a key influence on the growth in these categories is the significant increase of evidence, scientific evidence supporting nutrition and health. And if you look at the number of high quality publications and studies that relate nutrition and health in the last 2 decades, that number has been multiplied by 20x.
So one more last slide on our business. Let me just highlight some of our key brands, leading brands on the Consumer Care side. 1st, with Garden of Life, it is a leading VMS brand in the specialty retail and also leading in e commerce. It is a 100% portfolio organic non GMO certified. We also have Pure Encapsulation as a leading brand in DMS for professionals, health care practitioners.
And here, this brand is about innovative leadership in high quality free from movement, nothing but pure. Then we have leading brands with Boost and Nutrien Senior for example. These are nutritional brands, nutritional supplements allowing the 60 plus to achieve and maintain healthy nutrition and achieve complete nutrition. And then in Medical Nutrition, we're the global leader in specialty in, for example, specific range, complete nutrition for the most vulnerable all the way to intensive care units. With Alfa Amino, we have a leading brand for children suffering from severe food allergy.
Here we provide nutritionally complete solution allowing children to grow to their full potential. And then last but not least, leading brands in tube feeding and oral nutrition, in surgery, cancer and for example, gastrointestinal malabsorption. So let's talk a little bit about strategy and we'll start very high level and then I'll deep dive. So with this unique portfolio I just described, we have really an amazing opportunity to go from prevention to treat all the way to treatment with a specialty nutrition science based and high quality portfolio. We basically offer the best coverage in Nutrition and Health.
Now this broad portfolio combined with a unique capability to execute gives us a repeatable successful model. We have about 5,000 professional employees in our business. About 40% of them focus on health care providers. We reach more than 300,000 health care providers across the world, and we provide them high quality content and education. We focus on reimbursement and market access for patients.
But at the same time, we have significant capability on consumers from consumer insights, DTC, retail, but also we manage more than 1,000 ambassadors, giving us access and coverage for 100,000,000 plus followers. So a bit more substance on what we're focusing on to drive our growth at 2x category. First of all, growing our core, medical nutrition, consumer care, with significant growth opportunities in markets where we're already present. For example, we invest in significantly in China where we're growing more than 40%. We're focusing on delivering new growth.
Will deep dive on some example, where we're focusing in leading innovation and as well as internal and external opportunities. Let me just highlight here also how we're focusing on sustainable operational excellence, driving synergies between all the categories we play in, in terms of reliable and efficient supply chain and manufacturing capability, R and D and clinical evidence building, excellence in quality regulatory and medical. This is key to the success of our business. Now, let me just deep dive in 6 areas where we are focusing to take advantage of the trends I highlighted before and deliver this accelerated growth. 1st of all, allergy from prevention all
the way to
treatment. The prevalence of allergy is significant and high across the world, 10% in children, 6% in adults. And this offers significant opportunities. Healthy aging, Stefan this morning talked about the R and D capability that we have at Nestle on the mitochondria. And this is a key area of focus.
Obviously, you've heard a lot about how the expansion of lifespan has happened. I think there is still a significant opportunity on extending healthspan, quality of life. And this comes from providing better products in malnutrition, but also driving innovation in nutrition at the cellular level, nutrition cell by cell. Stefan also alluded to capability in R and D in microbiome and this is another significant opportunity we're focusing on. Here, I would say the microbiome is responsible for 80% of your immune system.
I call this the launch pad of your health and we see significant opportunity. Nutritional also plays a significant role in weight management, diabetes. We focus on specific formulation impacting blood glucose level for example. And I will take you in a few minutes through some examples of how we are capturing and focusing on personalization as well as e commerce and digital technology. So starting with e commerce, it is already a significant platform for Nestle Health Science, dollars 300,000,000 in sales with significant growth, focusing on the 2 largest opportunities for us U.
S. And China growing significantly with leading brands Garden of Life and Pure Encapsulation, but also expanding further that growth through the rest of the world e commerce execution and investing in digital health providing services problem service solution, which I'll provide you a few example moving forward. Driving growth and differentiation through our pipeline, using exactly the same framework Patrice Beulah highlighted this morning in his overview. We focus on consumer and patient trends we talked about this morning as well as unmet needs and the benefits we can deliver to them. We're launching more than 150 products every year.
Let me just highlight a few. On the natural organic, here complete was the first tube feed, complete nutrition, real food organic non GMO launch last year in the U. S. Significant success driving significant growth for our business. On the authentic side, for example, we've entered with a full 20 SKUs herbal line launch in the supplements category organic non GMO.
This is a significant
category and we're already
number 5, 6 months after launch. Active in the vegan category. Stefan talked about the alternative protein technology in our R and D framework. And again, here we are the leading plant based protein solution in specialty retail with Garden of Life. We are the leading brand also in specialty retail with our probiotics and microbiome solution.
And then last but not least, just highlighting experiences that we provide, providing services and product solution. Let me just highlight here the COPS program we just launched earlier this year. This is a service to help cancer patients meet their unique nutritional needs, while being mindful of any side effect and nutritional challenges they may be experiencing during the treatment. Moving fast on trends. That's also core to our business.
And let me just highlight very proudly that we are launching 19 SKUs in the CBD. We launched those 19 SKUs 2 weeks ago with Garden of Life, soft gels, oils and sprays. This is the 1st true national brand launch in a health food store. We're setting the right standard with Garden of Life, a well known and trusted brand. It is THC free, 3rd party certified on purity and potency, organic traceable, solvent free extraction.
So this is a major launch for us, very exciting and you will get a sample in your goodie bags as you leave this meeting. You won't get high on that CBD. Now let me also highlight that at the same time, while we launch in mass retail, we also launched a brand in the CBD professional range with the same quality standards that I explained before for Garden of Life, but adding patented delivery system for improved absorption. So that was launched also last week. Now let me also highlight how we innovate on personalization.
There is a significant opportunity as I mentioned before And we basically focus on 3 pillars. 1st of all, mass customization, where we're targeting for example rare disease solution with specialized clinical nutrition products. These are diet for life, where we improve life expectancy for people going through our products. The second pillar here to highlight is the integration of products and services. So we launched at the beginning of this year the Modulife platform for Crohn disease patients where we combine basically our product with a service in terms of food tracking, recommendation of ingredients.
It's an exclusion diet where we provide that support to specialists and patients and basically reducing inflammation for Crohn's disease patient. And these combination diets has been studied in clinical trials and published with a significant reduction of inflammation, we achieved that 75% remission rate and sustained over time. Let me just for those who may not know, these are similar rates that patients achieve on biologics. So this is a significant impact for people's life going through exclusion diet and one of our product. It is patented.
It has IP exclusivity and it was developed with GI gastrointestinal experts. Let me also highlight as a quick comment on the acquisition of Atrium Innovations in March of last year. We're very excited about the acquisition of Atrium Innovations with the 2 leading brands Atrium Garden of Life and Pure Encapsulation. Both brands represent 70% of the business of Atrium Innovations. We're confident about our ability to deliver on the acquisition plan.
Now innovation is great. Execution is key too. And let me just highlight how we think. It's a fail fast move forward mindset. We're leading to success stories like the 2 highlighted here.
We launched a woman vitamin brand, MyKind, 1st gummy to deliver a full organic non GMO certified product. We use apple pectin instead of gelatin from porcine and or bovine source, huge success a few months after our launch. The same applies to the Doctor Formulated probiotics launch. We launched here an organic non GMO, the first shelf stable solution probiotic, significant impact right after our launch. Now impacting the well-being of people around the world is a key focus of ours, making a difference in every single day in people's life.
Millions of consumers face challenges to reach their nutritional needs every day. And we're proud of being able to help with our products, hundreds of patients, for example, in Crohn's disease. Girls like Sydney here on the picture, we met Sydney. She's on a sole nutrition on one of our product called Peptamin. And we met her.
We met her parents. We've invited her over to visit our factory in Eau Claire in Wisconsin. It was an amazing experience for her to see how we source our product, how we manufacture with high quality and it was an amazing experience also for our employees to meet and see the impact we're having on this girl's life and her parents. The same applies to cancer patients where with our products we reach more net than 400,000 patients globally. We make we can make their life a little bit better every day by giving them access to nutritional support they deserve.
Now impacting individuals and society is core to our focus. We're focusing on 3 key pillars: Ingredients and packaging, science support and sourcing transparency. I just want to highlight here one thing we are executing as we speak. We are removing 100,000,000 straws from our business in 2019. We will remove another 100,000,000 next year in the U.
S. And basically by the end of 2020, we will have removed all the straws from our products. And this is not just pressing on a button and executing. We need to execute this hospital by hospital to make sure there is a smooth transition for their patients. So a few numbers on our business.
We're focusing on delivering profitable growth in terms of continued acceleration. We have a sound business. We're comfortable delivering a 7% growth. We are in an investment position. We have potential for significant further improvements on the bottom line by driving growth, driving scale and innovation.
So let me just summarize. We have an exciting business. We have a successful model with very strong brands. We have the opportunity to scale and innovate for profitable growth. Thank you very much.
Let's take questions. Thanks, Gregor.
So we have 15 minutes for questions. Getting tired, it seems.
It was very convincing. It was
a very comprehensive presentation. Pierre, go ahead.
Pierre from ODDO. You said at the beginning of your presentation that the consumer care market on which you operate is a bit fragmented. That's purely the case because I think that's the leader has less than 3% share worldwide. Do you think that there are the long term characteristics for this market to be a bit more concentrated? Or do we think that at best we can expect only regional big players to emerge, but global players, it's a bit tougher to
expect? Thank you.
Yes. It's a good question. I think that fragmentation is here to stay for a while. We won't see a significant shift overnight. I do think there will be consolidation.
We have seen quite a few acquisition around that category and I think it will continue. Having said that, acquisition of a salad source of many brands across the world may not be the solution. So careful assessment of that fragmentation and of clear opportunities is key to do the right thing in terms of consolidation. But I would say, I'm expecting this fragmentation to stay for a long time.
Tristan? Yes. Justin Van Strien from Rep and Partners. Maybe not a question for you, but perhaps from Joe since you mentioned CBD. We've got companies like Canopy Growth looking at dog food with CBD.
Is this something that Nestle would consider?
All right, Joe, you got it.
Absolutely.
He said absolutely. Well, let me just say out of the 19 SKUs we're launching in CBD, there is one pet formulation, because it's just the same similar product in terms of the formulation and it's the same channel. So right now that's one SKU, but I think we'll there is more opportunity for sure.
Yes. Jimmy, go ahead.
Thanks. I think it was a 2011 seminar with Luizi sort of presented the vision of this space between farmer and food and that in 10 years' time you'd be market leaders. Can you give us a sort of appraisal of whether that was the right vision and whether that sort of focus has changed now? And then there were various investments. I remember you mentioned VITAFLOW today, but there were various other investments very small, which I don't think have been successful.
I may well be wrong. Can you give us an update on how some of those sort of wider, more left field programs, how they have panned out? Thanks.
Right. Thank you. So I think the vision was very relevant then continues to be relevant. And I've given you that feel of the vision on my first slide. It stays the same how you go at it evolves and you learn along the way.
And I think some of the acquisitions for example that were made were part of that learning process. VITAFLO is a huge success story that that business has multiplied by 3 since their acquisition. They continue to be a significant innovator and they drive significant profitability. The other acquisition has not been as successful. They've been great learnings.
We've exited 1 and we are currently reviewing the Prometheus business, which was one of the acquisitions back in 2011.
Any other questions?
Tom?
Someone raising your hand in the back. Right there.
Seems that's okay, James.
Hi there. Yes, just trying to think about how we should think about the split of the portfolio in the future between other products which are bought at retail, products which are prescribed by health care professionals versus administered on premise by health care professionals. At the moment, obviously, it's I guess, it's retail seems quite a small part, although bigger, after the Atrium acquisition. Particular, how big does that part of the portfolio how big is that like to grow?
Yes. So good question. Thank you. So and maybe I can summarize. Your question is how big is the mass retail of Atrium?
It's fairly small right now. It's about 5% of the total portfolio in terms of food, drug and mass. That was one of the reasons for opportunities in the acquisition. And we expect this to grow significantly. The health food store channel represents about 15% of the category of consumer care.
Food drug mass is 65%. Garden of Life has the potential to be a major player in Food Drug Mass. It will take time. We're developing specific SKUs for that channel. And we're executing leveraging the big Nestle and the capabilities that we have.
So that's where we are. We're 1 year into the entry in the food drug mass in the U. S. And so far it's going very well. I can tell you that on a 4 weeks basis, we are the number one absolute growth driver in that category in Food Drug Mass.
Okay. I don't see any other questions. So we can reconvene at 20 to 5 with the last presentation by Francois in the Q and A session. Thanks, Greg.
Thank you very much.
Good afternoon to all. So my name is Francois Roger, CFO. I joined Nestle 4 years ago. So my presentation is the last one of the day before we move to the Q and A. Just to avoid any expectation, my presentation does not contain any photo or any video, only numbers and good numbers.
Just I will cover 5 topics today. I will start with an update on our progress towards our 2020 targets. Then I will cover in-depth capital allocation and return on invested capital. And I will cover briefly earning per share and capital structure. 2 years ago, we set ambitious targets for ourselves for 2020.
We are halfway into the journey now. And we are on track to deliver our 2020 targets. Starting with the top line, we have already seen some progress in organic growth last year and further progress in the Q1 of 2019 where we landed at 3.4%. As far as the bottom line is concerned, we improved our underlying trailing operating profit by 100 basis points over the last 2 years. There are still some factors that could influence the exact lending for next year, starting with commodity pricing and potentially need for reinvestment in our own business.
We have led the foundation over the last 2 years in order to get to our 2020 targets. And everything that we have done over the last 2 years will also contribute to our profitable growth agenda for 2019 2020. And I will walk you through some of these items in the next couple of slides. Starting with our portfolio, which is clearly geared for profitable growth. We have a certain number of profitable growth drivers.
The 3 main ones are high growth categories, emerging markets and premium products. High growth categories, you know them coffee, pet care, water, infant nutrition and consumer health care. They account for 57% of our sales. Emerging markets, they contribute around 43% of our sales. We are very pleased with the recent development that we have seen in China, mid single digits in Brazil, double digit or I could mention as well Russia, which was double digit in Q1 and India as well, just to name a few.
And premium products, it accounts for 22% of our sales. It grows at more than 2 times the average of the group in terms of organic growth. Premium products will account for 22% of our sales today. It was 11% 6 years ago. All of these three growth drivers, not only do they contribute to our top line growth, but they contribute to our margin improvement as well, given that each and every single of these drivers have a margin which underlying trading operating profit margin which is above 18%.
Portfolio Management is also contributing to growth. We set an objective 2 years ago of rotate about 10% of our portfolio by 2020. By the middle of 2019 in a couple of months, we should be around 9%, if I take into consideration the businesses that are under review, which clearly indicate the fact that we are likely to land at a higher level than our original target. What is also interesting to note is the fact that the businesses that we have sold so far had negative growth, while the businesses that we bought had last year on average 12% organic growth. We are working very actively to increase our gross margin.
And our gross margin has increased in 5 out of the last 6 years. We are acting on all levers and you have the list of all the levers there. I'm not going to cover all of them individually. I'll just mention more specifically 2 of them. Pricing, for example, even if we had a limited price level over the last couple of years, we have been able to hold prices or even to increase moderately pricing when commodity pricing went south.
I would like to mention as well industrial productivity. Last year, we reduced our fixed factory overheads by about 2.5%. When we compare that against our organic growth at about 3%. At 3%, this means that we increased in terms of productivity in 1 single year, we increased our productivity on the industrial side by about 5%. 2, 3 years ago, we shared with you our saving program, which at that time was CHF 1,800,000,000 with the ambition to take away this CHF 1,800,000,000 of our P and L by 2020.
We have reviewed that program upwards since then to between €2,000,000,000 and €2,500,000,000 for next year. And obviously, there are different momentum and dynamics between the 3 components. Procurement, we have already delivered 90% of it. This was expected because we started earlier. We will probably deliver as far as procurement is concerned probably even more than the original objective.
While in manufacturing, we indicated originally that this will be more backloaded given the complexity of some of these topics and the need that we need in order to address it. So there is no specific issue with the fact that we are at around 30%. Just want to mention as well that G and A includes distribution cost as well because we will probably talk about it with DSD. So overall, we are at around 50%. Just want to mention as well, the fact that this saving program does not necessarily stop in 2020.
We are already starting to work on certain number of initiatives, new initiatives that will impact our cost base as well post 2020. Our business model is not based on an aggressive cost cutting model. It's based on a combination of growth and cost discipline. This is what we have been doing over the last 2 years. If you look at 2017 2018 combined, we actually increased our reported sales even after foreign exchange by about 2%.
At the same time, we reduced our structural cost by 2%. This combination allowed us to increase our underlying trading operating profit by 100 basis points.
So it
looks relatively simple. But for example, to reduce our our cost is not always easy because we have inflation in some markets and we have the need to reinvest in some of the areas as well like digital that we mentioned earlier. We keep on building new plants. Laurent indicated, for example, shared with us the plan that he is investing upon. This model of the combination of growth and cost discipline is what we will continue to do as well for 2019 2020.
To get there, we need to invest in restructuring. That's what we did. We raised our restructuring spending over the last 2 years to around CHF 700,000,000 per annum. And this is the amount that we provided as a guidance for 2019. Just want to mention there that the €700,000,000 does include whatever we need to invest for DSD, this project that we announced this morning.
It has been mentioned by Steve this morning that this afternoon this morning that there were €500,000,000 of one off costs. So this €500,000,000 of one off costs includes €200,000,000 of restructuring, which are included in this €700,000,000 for 2019. So totally confirming the original guidance. And you have another CHF 200,000,000 which correspond to impairment of assets essentially around trucks and distribution centers that we have. And there is about €100,000,000 that corresponds as well to example, which are restructuring related expenses, but not booked under the line in the line restructuring per se.
Let me move now to my next topic, which is capital allocation. There, we are always trying to strike the right balance between deploying capital for profitable growth, beat organic growth or inorganic growth, M and A on the one hand or on the other hand, returning capital to shareholders either in the form of a progressive and sustainable dividend or in the form of share buyback. What I will do in the next couple of slides is to walk you through our thinking process and our review process whenever we review these matters and whenever we discuss these matters as well with the Board of Directors. Starting with the investment for profitable growth, which takes different shapes and form. Whenever we review individual projects, we always review the strategic merits of this project and we benchmark them and compare them against the risk and the return on an individual basis.
We have actually fairly clear views and expectation in terms of targeted payback as far as efficiency program and restructuring program is concerned and as far as CapEx program is concerned, which are indicated there. As far as R and D and marketing is concerned, it's a little bit more complicated. And I know that there was a question about it this morning. We are really focusing much more on reducing time to market as Stephane and Patrice explained this morning. The concept of payback is a little bit more complicated by the given the nature of this project, some of them will have a short return, some of them will have a long return.
But we are always reviewing once again the strategic merit, the risk and the return. But it's a little bit more complicated to measure for R and D. We have overall strengthened considerably the governance around this project. And we have managed to reduce as a consequence the average payback of this project. As far as M and A is concerned, we look at a certain number of KPIs.
The main one is ROIC, where we have fairly clear views of what we want to achieve over the medium term. Obviously, the timing of the return is longer, but it brings another dimension, which is a strategic dimension. And it gives us access to businesses and platform that we cannot necessarily develop internally. We have accelerated, as you know, the level of M and A transaction. Last year, we completed about CHF 14,000,000,000 of transaction.
And this year, we will probably do a sizable amount as well, essentially around the Nestle Skinnels and Erta for whatever we have disclosed for the time being. When we look at M and A, we are always looking at 3 main KPIs, the strategic fit, we are looking at financial returns, as I indicated earlier and we are looking as well at the cultural fit. Moving to dividend, which is another capital option. We do not have a dividend policy per se. We have a dividend practice for a sustainable and progressive dividend.
We have actually increased our dividend for 24 years in a row in Swiss francs. And just want to walk you through the thinking process there. When we review that and discuss it with the Board of Directors, we look at a certain number of KPIs, starting with underlying EPS growth, moving into comparables in our industry. I'm talking there of dividend yield or dividend payout practiced in our industry. We are looking at other external factors like foreign exchange and we are very much looking at the exchange rate of the Swiss francs given that there is an imbalance between the currency of payment of our dividend, Swiss francs and the main trading currencies that we have, which are more U.
S. Dollar and euro denominated. So we need to take that factor into account. We are also looking at strategic items like M and A flexibility as well as share buyback. Talking of share buyback, we have launched 6 programs since 2,005.
We have returned more than CHF60,000,000, CHF60 1,000,000,000 of value to our shareholders as a consequence of that. And we often have the question about the relevance conducting this program at a certain price point in terms of share price. You can see that at least historically, we created significant value through these share buyback programs. We started in 2,005 buying shares at CHF 36. The last program that we completed, we did it at CHF 71 on average.
Although in the current program, we are currently around 82 for what we have bought 2 third of the program to be compared with our current share price, which is around 97 or 98. So you can see that we have created value. Obviously, when we conduct these programs, we always look at our outlook and we are always positive. We have a positive outlook of the future of our business. Moving to my next topic, which is return on invested capital.
We know that shareholders have a significant interest for ROIC. So do we. It is now embedded into both our short term and long term incentive programs. So we have a vested interest in looking at it as well. We are actively working on it, looking at the numerator profitable growth and looking at the denominator or asset base.
If we look at the numerator profitable growth, I already covered most of it. This is about driving our high growth categories and geographies. This is about managing our cost base with discipline. Asset productivity, we are very much very careful as far as industrial asset is concerned. We are very careful as well about CapEx and I will show you some examples of the progress we have made.
We are looking very carefully at our real estate base as well reducing our working capital and I will show you some of the examples. We are very careful as well in terms of M and A. We know by the way the largest value that we have in our balance sheet is our goodwill and intangible, which is north of CHF 50,000,000,000. So we are very disciplined there. Just for your information, over the last 2 years, we looked at CHF 35,000,000,000 of transaction value, even that we discussed with the Board of Directors, it's not just about looking and that we decided not to pursue essentially by lack of financial return.
That did not prevent us though from doing €14,000,000,000 of deals. Just to answer one question that I heard today about the largest coffee asset that we bought, Was it too expensive? I just want to mention that we bought it at net debt at EBITDA multiple of 15 times, which in my opinion is very reasonable when we look at market transactions today. And I'm very especially for growth assets because we have large opportunities to grow outside of the original footprint of these assets. I'm very confident that we will deliver value there.
Just to come back to the denominator and through the example of CapEx, we have strengthened the governance there. We have been able to reduce the amount of CapEx without threatening at all our growth opportunities. We have focused the CapEx very much on our high growth categories, which focus where we have about 2 third of our CapEx now spent in these categories. And we have strengthened the governance, reducing significantly the payback over the last couple of quarters. To do that, what we did is we increased significantly the accountability, including at executive level.
We reduced the time of execution of these projects. And what we did as well is to make sure that we rightsize these projects and built reasonable assets and plants, for example, and equipment. So good progress there. You know the progress that we did on working capital. I'm sharing that with you on a regular basis.
We reduced our working capital very significantly. Last year, we ended up at 1.4% of sales. We have been able to free up around CHF 7,000,000,000 of cash. As a consequence, we are clearly trending towards 0. That's not a guidance.
That's an ambition that we have internally. I just want to mention that we have clearly identified the building blocks to get there. Most of what we have achieved over the last couple of years came from payables as well. Part of it is linked to the consolidation of our procurement activities above markets. As a activities above markets.
As a consequence of everything that I showed to you, so we are clearly ticking all boxes as far as the return of invested capital is concerned. Whatever had to go up went up. I'm talking of sales growth, margin improvement, for example. Whatever had to go down like working capital or CapEx went down. And you can see as a result of that, that we saw our return on invested capital increasing for each and every single of the last 4 years to 12.1%.
So we are reasonably happy with it. Now moving to my next topic, which is underlying EPS. We often talk of the action that we are taking to improve our underlying trading operating profit, but we do work as well on all the items that are below UTOP, starting with finance costs. We are managing our tax base in a responsible way. We are actively working on JVs and associates.
I would mention there the superb work that we have done jointly with our partner with Fronery where we have created significant value. And the development of our underlying EPS is actually quite nice. We see good progress there over the last couple of years. Just want to point to mention 2.0. The fact that it is large, partly influenced by foreign exchange, you see the negative value in 2015.
It is actually due the consequence of the revaluation of the Swiss francs at the beginning of 2015 by about 10% against most currencies. So that's the first thing that I want to mention, which you see illustrated by the fact that our underlying EPS grew 4% on average over the last couple of years. But if we take it at constant exchange rate, it was actually an increase of 7%. The other thing I want to mention is the fact that last year, our underlying EPS was positively impacted as well by the U. S.
Tax reform, which contributed 300 basis points out of the 13.1% in 2018. Moving now to capital structure. There we have done quite a lot of as well to build a more efficient capital structure, starting with lower share count. It's quite impressive to see that we have reduced the number of shares by about 25% since 2003, which is quite a significant decline. We have increased as well our debt, amount of debt.
We are I think close to €40,000,000,000 as we speak. With a net debt to EBITDA ratio that was at 1.6 times at the end of last year, we should probably be around that level. And we have also obviously reduced our rating. We used to be AAA. Now we are AA or even AA- with one of the rating agencies.
We did that by increasing our debt, taking the opportunity to increase the average maturity of our debt to north of 5 years and which is a good way as well to secure our liquidity. And we have been able to do that at a very reasonable cost of debt on average this last year, it was at 2.1%. It might be slightly higher this year, but still very reasonable. Just a couple of words on our 2019 guidance and 2020 targets, no change. As far as 2019 is concerned, no change versus what we said at the beginning of the year.
Once again, the EUR 700,000,000 of restructuring does include all the consideration that is required for the DSD project that we announced this morning. And as far as 2020 is concerned, so we confirm our target both on the top line and the bottom line. That includes as well the DSV exit that we announced earlier today. That includes as well the assumption that we are making of a likely disposal of the 2 businesses under strategic ratio, namely Nestle Skin Health and Herta. Just for your information, we don't disclose the individual impact of these three items DSD, Nestle Skin Health and ERTA.
Just for your information, these three items combined will have a slight negative impact on OG and will have a slight positive impact on Utop. But once again, this is factored in our 2020 target. Just to clarify as well what has been mentioned this morning for DSD, that's only for DSD. We will lose between 2019 2020, probably predominantly in 2020, between €400,000,000 €500,000,000 of sales essentially through the discount that we have to provide to retailers due to the fact that they are taking over some activities. That will largely not impact our organic growth because we are considering as per our APM or alternative performance measurement, we are resetting or resetting the previous year given that it is assimilated to a change of business model.
I don't want to go into the technical items and technicality of it, but if you have any further question, I'm happy to take them after the session. But just so be aware of the fact that it will not impact materially our organic growth this year or next year. So just to conclude my presentation. So we are confirming our 2020 targets. We have a clear very clear views and very policies as far as capital allocation is concerned.
We have increased significantly the focus on the governance around ROIC and EPS with already interesting results. And we have made some progress as well to arrive at a more optimized and efficient capital structure. That concludes my presentation. So now Marc and I will handle Q and A session for about 1 hour. That will be moderated and organized by Luca.
Thank you. So if you're suffering from PowerPoint fatigue, no more slides, okay? We're done for the day.
Okay. Let's open it up for questions.
Yes. We're going to start to have the buy side regain the questions here. Two questions. What amount of debt to EBITDA and or credit rating you would be comfortable going to at a situation where there's a large acquisition or a large share repurchase. So how high up on the debt and how low down on the credit rating?
And separately, sort of related to that, what do you think a business like Nestle should be generating in terms of return on capital? I saw the obviously, the improvement in the last few years, which is impressive. But what would you think should be a reasonable ROIC target that we should be expecting from that business? Thank you.
Maybe I'll start with the item on the net debt to EBITDA. So we said 2 years ago that we expected to have as a consequence, not a guidance, as a consequence of our action and mainly our share buyback that we expected to land around 1.5 times in terms of net debt to EBITDA ratio, which has been increased to 1.7 as a consequence of the reclassification of some debt items for IFRS 15 and 2017, sorry for the technicality. So we were at 1.6% last year. We should be around 1.6% at the end of this year as well. We don't provide any guidance there in terms of net debt to EBITDA ratio.
As far as rating is concerned, so as I said earlier, we are AA today, AA and AA- We have publicly said that we would be comfortable if the opportunity was arising to be in the single A space as a flow. But only the opportunity arises. And so it's not this is there is no target there. There is no ambition.
On the second question, look, we're not providing a target number, but it should be more than what you saw for last year. So the answer is more.
Thank you. On the DSD on the U. S. DSD exit, first, I know it's a relatively small number in the big scheme of things, but on a run rate basis about how much TOP are we talking about do you think in savings after 20 20 order of magnitude? How much savings from the move?
Clearly, there's some savings. Secondly, and maybe more importantly, your managers mentioned, I think made a lot of really good points about how the route to market has changed and how distribution relevance has really declined relative to innovation. And I wonder if that process yielded any other insights of other places developed market businesses where there's an opportunity to maybe reduce, reallocate from distribution and maybe marketing into innovation or some of the other things you've emphasized more today? Thank you.
Thanks. So look on that first question about the efficiencies and savings, we'd love to be helpful, but we wouldn't view we wouldn't be doing you a favor because the minute we talk about this, the minute we have a negotiation about how to share these savings with our retail partners. So we are generating savings here, but this is a fairly levered negotiation about how these are being shared and hence I think it's in everyone's interest that we keep this close to our chest. And then going forward, of course, country by country, we're looking for alternative and better routes to market. But let me also say that there's nothing near the kind of scale and the vastness of this particular decision.
And I also want to just reiterate to everyone here, this is not only in terms of the absolute numbers a pretty massive decision. This is also a fairly significant execution challenge for the U. S. Leadership team. I'm very glad that they took this on.
I think beyond what we talked about here for 2019, 2020, this will really position those businesses for better profitable growth and we'll be benefiting from this for a long time to come.
Any other questions? David?
Just in terms of the size of the business, you've seen some of your peers in FMCG looking to get smaller split the business, seemingly to shorten the process again on making decisions as you try and get more agility and so forth. Do you think the business is still far too big and those big decisions are still too slow going through the business? I guess related to that in terms of disposals, the Herta disposal, can you just talk about why that is the most recent brand that you're going to jettison from the business? What is it about that when you reviewed it that didn't tick the boxes that it needed to have to stay in the business? And then the third question, which I guess is again ticking the box in terms of questions, the L'Oreal stake, just wondered whether you can touch on whether you are with that.
I mean, I guess, in the context of the Skin Review, it seems like all the focus today has been on the food business, and this is a food entity much more than perhaps we talked or heard about a few years ago. So where does L'Oreal steak still sit in a business that no longer seems to be wanting to get into skin stroke cosmetics? Thank you.
Thanks. So when it comes to the first question, look, I mean, of course, you're always trying to improve. But as I look around, as I look at where the rest of the industry stands, I feel really good about the times to market that we've been talking to you about today. And don't just take my word for it. When you look at some of the things some of the products we talked about today and when and how they're hitting the market now.
So think about the plant based burger and what we said about this or think about Greg and the CBD product that you talked about. And if you look at the timing of some other key competitors and where they stand and how these products compare, I think it really shows we're there, okay? And this was never about beating other people by a week or so. It was simply about avoiding sometimes year long gaps where other people were building up a sizable business on the back of a product innovation that we were just not following on. And I think that has been stopped.
And in fact, in quite a few of these, we're leading now. And so we feel really strong about that. On Herta, look, clearly, you've heard us stress the importance of plant based alternatives. And I think plant based is one of these trends that is not only attractive mid term and short term, but also mid- to long term because this is not about people converting to veganism or something. This is about people just having a more flexible diet over time and putting some plant based alternatives into their meal plans.
And as that happens over time, you will have all the elements for long term megatrends here, whether it's on meat products or on dairy products. And I think with Herta, this is a business that, of course, had its core and its brand essence in cold cut and sandwich type meat products. And you're talking about industry fundamentals that have much lower growth that are also quite volatile because you're talking a lot of dependency on commodity pricing. The business has done wonderfully well in its segment. So in its segment, it's actually one of the leaders in Europe and its financial performance is wonderful.
So in its segment, it's very attractive. But the segment overall is not one that is either financially imperative to us or strategically getting us where we want to be from a nutrition, health and wellness point of view. And hence, I think it does make sense. And when it comes I mean, very often we face today questions about specific timing, for example, the DSD or the Herta or so. This is never just on the business and on the individual opportunity alone.
It's also keeping in mind all the other things that are on the plate of management. So how do you slot things so that management has enough time and energy left over to focus on what really matters, and that is building the business for the long term. And of course, when you look at Herta, this is going to be some carve out and deconsolidation burden, particularly to the French management team, to the German management team, to Belgium and to some extent also to the U. K. And so we just in all of these things, it's about what you want to do.
And then since you can't do everything at the same time, you have to balance this with what else is on the agenda and then you have to make choices. And this is what we've done. And then last but not least, on L'Oreal. Look, nothing new to say on this. And clearly, here again, it's in everyone's interest that while we, of course, pay a lot of attention to this investment, that we stay very discreet about what our future plans are.
Next question, Warren.
It's Warren at Barclays. Two questions for Mark. The first one, Mark, is we've heard a lot today about personalization of the portfolio, whether it's tails.com or what you're doing with Pure Life. My question is, how do you take that more broadly across the portfolio? And how do you conquer the extra costs of the last mile of doing it profitably?
And then the second one, you've also said recently in the last conference call that big companies can make a big difference. And that's obviously a bit of a fight back against all the small company share gains over the last few years. You gave the example of monitoring your customers on palm oil using drones, but that's obviously one small example. Are there any bigger examples that you can give us today where you think Nestle as a big company can make a really material difference?
Yes. And to start with the second one, let me just clarify. We're monitoring our suppliers, not our customers. So just in case anyone is worried. But yes, look, this is an example where we could deploy technology for, I think, a greater good purpose.
And it's one more example of moving things at scale that maybe a small to midsized company cannot do. And you may have noticed in most of our presentations today, this whole notion of creating shared value and business as a force for good really figured large. And I think it is very much in our mind. And this is a day and age where doing good and doing well, very often the consumer goods industry go hand in hand because I think most of the younger generation of consumers, millennials, they do not only care about what they're buying, they also care about how this is being made. They care about the business practices and the values of the companies that they buy from.
And it's no longer just good enough to be respected for the quality or the attributes of your products, but also you need to be liked about the way you go about your business. And so this is a big theme. And a lot of this has to do with style, but a lot of this has also to do with substance. So in my opinion, this whole notion of really making a dent when it comes to, for example, and then showing progress when it comes to improving on plastics waste or improving on the water consumption, improving on CO2 emissions and many of the other issues that we touched upon and really having impact, I think sooner or later people ask this question. It's no just being innocent about it is no longer good enough.
People will want to see results just like you want to see financial results. And I think we have the scale, we have the technologies to make it happen. If we move in this direction and take that satellite monitoring as an example, I'm totally convinced that when we started in Food and Beverage, we were the first ones. There's been several people following us now. This is going to be the de facto standard on how you track suppliers in that particular space in palm oil going forward.
And so we have that power pretty often as a result of our scale and hence let's use it. On personalization, I'm a big believer in this and I believe this is also one of these longer term themes that we can pursue. And this is not only limited to the pet space. This is, of course, also a big theme in many of our food and beverage categories. And so we'll be playing this.
We'll be using this. And in some cases, it's more about an assortment, but you can also take it on a science based basis all the way to the true medical needs of a consumer, whether that's in Nestle Health Science, in Nestle Nutrition or even in some of the mainstream food categories. So we're putting a lot of investments in place to position ourselves well for this. I think we have a lot of good projects going on, led of course by Stefan, but then in close collaboration with the Nutrition SBU and CRE with Greg and then also with some of our U. S.-based innovation outposts here and also even our U.
S. Food brands are involved in this. So I think there's a lot of work to be done there. It's also a way to stay digitally closer to the consumer because in order to do personalization, you need to get into direct touch with the consumer digitally. You need to have data, and they need to give it to you.
And in return for that, they get a personalized product. And so in this important effort not to get disintermediated, I think it's worthwhile to put that spending in place, and we're quite bullish about this opportunity. Now this is you will see occasional areas of progress. You will see, for example, the expansion of tails.com. You will see other things happen there.
But to me, this is a 5, 10, 15 year theme where brand after brand and category after category, you will see us try and
improve on that. It's not
like a 1 or 2 year kind of race.
Next question from Martin.
Thank you. It's Martin Deboo, Jefferies. The question is about how the organizational structure evolves medium and long term. 1 observes in the industry a move away from regional structures towards more direct management of large markets from the center. You're quite unusual in your zonal structure that you still have macro regional layers.
And I guess the question I have is what and I guess it's for you Mark is what value do you feel it creates for you to have North America and Latin America managed within one zone? What is the value of that? I note what you said about the matrix at the start and I completely get why there's value in having a creative tension between a global category and some sort of geographic construct. But my question is, is the geographic construct you've got too large, too unwieldy?
Look, if you approach something from a complete greenfield point of view, you could always debate about should this country or that country be included in this zone or the other one. And different companies may come to different conclusions. But we have something, of course, that has some historic track record here. And aside from this whole matrix question, which I addressed this morning, I would also just like to confirm these zone management structures do deliver, okay? So when it comes to these zone management structures, providing good counsel and guidance and value added to the country management teams that then do the work on the ground, This works, okay?
And you may have seen from the presentation, different zones here have come to different conclusions. So Marco, with his particular Western European challenge and these large immediately neighboring markets and some stronger need for category led harmonization. He has structured this inside his zone slightly differently from the solutions we have in zone AMS and zone AO, and that's fine. I think an organization our size needs to have some of that internal organizational flexibility. This is also one of the reasons why when people ask me about these 3 globally managed businesses, Waters and Nespresso and Nestle Health Science, after the move of Nestle Nutrition into the zones like what is going to be happening to them.
To me, it's absolutely no problem to have those managed globally. There's no pressure here to go one size fits all. A company our size can handle that. I insist on each and every one of those to be really super efficient and tightly managed. But just a one size fits all, the efficiency gains from that, I think, would quickly be outweighed and lost by some of the nuance that you're missing by having an organizational structure that doesn't do the business full justice.
So I think having some of that flexibility makes sense. We also reserve the right, not that I have anything to announce, but reserve the right as we look towards the future. If in the future, we need to make geographic adjustments to some of our zones, yes, we would, if needed, do that. We've done it in the past. But for now, it's important for me to point out these zone management structures do work.
And given the sheer size and since there's no real peer in the industry that has a size like this, any one of these zones could be a very, very large stock quoted food and beverage company in zone, right? I think it's important to bundle some of these country managements that report into the zones. Alan?
Yes. Just we've heard on a couple of occasions where you've find yourself capacity constrained in pet food, in infant nutrition. I just wanted to know that the circumstances that allowed that to happen and perhaps what you've going forward, what will prevent that happening again?
Look, let me start by reiterating something that came up in one of the breaks. And let me also praise Laurent for just very openly acknowledging the situation. There was no need for him to say this. And to be very open about the fact that, yes, in wet pet food, we have these capacity constraint issues. We've been doing something about this.
And now I think going forward, we're well positioned to fulfill that demand. To me, there is very open acknowledgment about something that did go wrong, together with the resolve to do better, I think, is an important part of improving the organization going forward. Stuff will continue to go wrong, okay? We're trying hard not to do it, but this is a large business, stuff will continue to go wrong. It's all about addressing it quickly, acknowledging it openly and then goddamn it, do something about it.
And that whole attitude, I think, just by talking about it very openly, I think it did shine through and I liked it. Now this all happened at a time I mean, keep in mind, we're talking about a 2 to 3 year lead time here on getting that capacity installed. So if you're forecasting demand, it's not always easy then to get it perfectly right. This also happened at a time when we were internally doing a lot of trials here to get our CapEx percentage down. And yes, things happen, okay?
We corrected it quickly. It's corrected now. We grabbed the opportunity.
I'm bullish about that part.
But look, there will be other things going wrong. To me, it's more about success in business is getting up one more time, dusting off the gloves and you march forward.
Just maybe to add something to this question. Even if you saw in my presentation that we reduced the amount of CapEx as a percentage of sales, there is no such objective. So we are driving the CapEx whenever and we're accepting any CapEx project, whenever it drives growth and returns. So maybe 1 year we can spend more than 4, maybe 1 year we'll spend less than 4. So there is no single objective of percentage of sales for CapEx.
Once again, it is driven by sales as a growth contribution and returns.
John?
John Ennis from Goldman. I have a question on private label. A lot of the presentations have sort of focused around the premiumization opportunity. And I wanted to get your view on the threat of private label as you essentially extend the price up better on the high side. Do you think that creates a great opportunity for private label to come in
and fill the void?
And then just a clarification question on the mid single digit growth target. I think you said that it includes the businesses already up for review, but does it also include any assumptions on further portfolio rationalization before 2020? Thanks.
Yes. Thanks. So look on the private label and premiumization, the circumstances are always slightly different depending on what specific category and situation you're talking about. But by and large, I think premiumization is a winning strategy. It does wonders for our top line and also for our bottom line.
And I think it also fulfills important function for our consumers. But premiumization needs to be built on tangible product advantage. And if you're just premiumizing without that, then you're talking a simple and straightforward price hikes. And yes, those at some point will create an umbrella for some people to come in underneath whether it's private label or whether it's some other brand that basically takes advantage of that more competitive offering and then tries to grab market share from you. So I think premiumization is wonderful.
But one of the reasons why all day long, and particularly this morning between Patrice and Stefan, we were stressing this whole notion of product innovation and product development so much is, at the end of the day, there needs to be tangible product performance advantage. And based on that, then you can build brands, you can keep brands interesting and you can do exciting things on pricing. Without that, it all comes to naught. So that's why the 2 are kind of related. And then secondly, on the OG tariff for 2020, yes, I mean, we'll take account basically at the end of 2020.
And whatever gets consolidated or deconsolidated until then, all of that is counted towards then that OG target for 2020.
Jonathan?
Mark, you talked about the success that the MENA region had had when in dealing with legacy issues as well as going for growth. Could I ask at your level, at the group level, what are the legacy issues that you're still grappling with?
Yes. And I wasn't only talking about the success. I was also just simply admiring the discipline that Marco and Besson I mean our leadership team are displaying in basically handling those because as you know, this is ongoing work and this will take several years to basically take us through this period. And look, for the group, I feel very good about the progress we've made. And obviously, as the world around us, as the market around us keeps changing, we'll need to adjust.
But frankly, I feel there's a lot of built in strength in what Nestle has to offer, and I think we're in the process of making the most of that.
Selina?
Yes. I have a few questions on cash return or capital deployment. So if I look into 2020 with the proceeds from some of the disposals, the continued cash generation, net debt to EBITDA will fall below one times. Is it something that you would be comfortable with? And if not, at which point there would be a decision about further either share buyback or whether you were holding on for M and A?
And then I have a follow-up on M and A. There has been you said I think 2 third of your CapEx is in high growth category. But if you look at M and A, we have had as well a discussion about growth in food. So would there be as well potential for you to look at or to focus your M and A outside of the top 4 high growth category? And then finally, should we assume that it's going to be small to midsize deals?
Or could there be potential for bigger acquisition?
So on the first one, I don't want to front run the outcome of our reviews on Skenev and Herta. But if we do have significant cash inflows, it is also understood within a reasonable time, in addition to telling you what the cash inflow is, we would need to tell you what we're going to be doing with that cash, which is either to find a meaningful way to deploy it or to find some meaningful way here to return it over time. It was certainly not the purpose of this exercise on the one hand to lever up slightly, only to lever down then with cash inflows coming in, okay? So I think give us some time here, complete the reviews, see what the outcome is. And then with any cash, I think within a reasonable time frame and allowing us some time here for internal discussion, we would certainly also give you some indication what we intend to do with any cash that comes in.
On food in particular and also acquisition opportunities outside of the top 4, I'm right things. And it's about being selective, and it's about being sure what we're buying there. And is this something that is only available in a short time frame through acquisition? Or is it something we can do on our own? And but so we have to be selective.
And I like very much what Francois was pointing out. We've screened so many deals. And in addition to what he said, which is the financial discipline that we exercised on quite a few of these potential deal opportunities, I also wanted to stress and underline the strategic discipline that we exercised. I mean, you've seen so many rumors floating around about potential transactions we would have been involved in, but you've seen us also deploy the capital in very disciplined manner along the lines of categories that really are a hand in glove fit to our business. You don't have you have not seen us do left field kind of moves here recently, and I think that is something that we're proud of and we intend to continue that.
But yes, we will not limit acquisition activity to the top four only. And in fact, even for the last 2 years, there are already quite a few examples here. Think about sweet earth in the U. S, which is part of the food category and the acquisition we're very proud of.
Tom?
Hi. Looking at the photograph from the coffee presentation of the products that are coming out through Yinlu that I think the mention was it was the number one RTD seller in the category. I'm curious as to the steps that you've taken to claw back from the early disappointment of both Yin Liu and Sufushi and to create the powerhouse that you're creating, how much has it to do with partnership with others and how much maybe with the use of e commerce and new channels that you have at your disposal. But it's been a remarkable turnaround at least thus far.
Yes. Thanks, Tom. And look, I mean, we also we're not trying to look back with rose colored spectacles here, okay? We didn't buy Yinlu to be a leading player in RTD coffee, okay? We have been truly surprised about how quickly that peanut milk category has been coming down.
And I mean, that has given us quite some pain in 2015 and 'sixteen. But then what are you going to do about it, okay? And it is true, and we did have long standing ambitious plans on scaling up in ready to drink coffee, which I think is a huge, huge, huge opportunity in Asia. And this kind of aseptic filling is a key technology to make that happen. And so here was a good way to kind of use that installed infrastructure and make good use of it and over time then return to growth.
And so I think under the circumstances, we make the best out of a situation that has given us a lot more scale in a very important emerging market, but yes, on a trend or on a category that came under pressure faster than we expected. So this is our pragmatic response to a situation that no one had foreseen at the time, of course, when we bought the business.
James?
Two questions. Firstly, just on the transactions that you've vetted over the last couple of years, the €35,000,000,000 Were those just acquisitions? Or do they include meaningful tangible disposals? And then secondly, just on looking at your digital investments. If you look at 1st party consumer data, in house digital capabilities, meet digital media spend generally, do you now feel you're ahead of peers here relative to your size?
Or still what's the catch up to do?
By the end of the 35, it's only on acquisitions. So especially so that it's anyway we are in the seller's market. So to dispose of any business today is not too much of an issue. So 35 was only on acquisition.
So think of all the money we could have tossed around and then we didn't, okay? So I hope that gives you some relief. Look, on digital, I feel very good about where we are. And I mean, obviously, by category, by market, you can always kind of come to different conclusions here. Sometimes you have had something a little behind and have areas of improvement.
But overall, across the board, I really applaud the team under Patrice's leadership about how much progress we have made here and how much more digitally inspired we are in our marketing efforts.
Pierre?
Pierre from Adore. Just a follow-up question on personalization. The question is, do you think that with all the progress Nestle has done in terms of velocity, innovation, agility, Do you think that the organization globally is ready to embrace more quickly the personalization because I suppose that there are many consequences in terms of supply chain manufacturing while you're doing business. Is it something you are able to put in place on the short, medium term? Or are we to wait for more years before this kind of switch?
Yes. Look, I think as we talk about personalization and especially across all these different categories where this may apply and also different markets where we would want to offer this. Don't think of it as one monolithic effort that kind of gets rolled out, okay? I mean, we're too large an organization for this and that would not really respect the kind of decentralized nature of who we are in different circumstances in different markets. So we have already several efforts underway.
So for example, Nestle Japan has been doing some very pioneering work on this in the healthy aging category. With tails.com, we have a majority stake in a business in Europe that I think in the pet space is doing fabulous work. Then we have some very interesting work going on as we mentioned in Nestle Health Science and in the nutrition space. But this is different efforts and there are different stages and also different degrees as to how granular you do the personalization. Over time, we'll be sure that we avoid unnecessary duplication.
We'll also be sure that to the largest extent possible that we try to harmonize data model, so that let's say, 10, 15 years from now, we're not sitting on totally incompatible pools of data from different parts of the world and different countries and different categories. But again, this will be a multipronged effort and coming from different parts of the organization. And yes, some of this will involve, for example, manufacturing and supply chain upgrades. But this is not one massive investment program and not something that you look at these discrete steps, they will all of a sudden lead to a step change here in CapEx. This is something that's getting phased in and will be part of our normal CapEx spend over time.
So if you have any concerns about the upfront spending here, I think we can alleviate that.
Any other questions? Please go ahead.
It's Guillaume Delmas from Bank of America. Two questions from me. The first one, Francois, in your presentation, you said that where you land in 2020 against your 17.5% to 18.5% margin target will be in part influenced by the need for reinvestment in your business. So my question on this is, how should we interpret this? Are you alluding to potential situations of under investments or increased cost of doing business in some of your sales?
Or as you might come across some additional opportunities,
you want
to maintain some P and L flexibility in order to accelerate the growth? And then my second question is on pricing. How should we think about pricing in your OG algorithm? Because as Marco said this morning, should we look at premiumization as being the new pricing for most categories and regions? Or is the lack of pricing in recent year more a function of lack of commodity cost inflation and relative FX stability?
Thank you.
For the first part of your question, the answer is the second option, so which is more about opportunities to reinvest behind innovation. So this is not linked to the fact that we would under invest. I think that clearly we invest at the right level. I think Patrice mentioned it this morning. We have increased the absolute amount of spending last year by about in marketing by about 1.2%.
This clearly for marketing and R and D, this is, I would say, less about spending more, it's about spending better, which is what has been down, which is about reaching efficiencies without necessarily cutting the amount of spending. As far as pricing is concerned, I think Marco said it very well this morning. Mix is a new form of pricing. But I mean pricing exists still. I mean if you look at the situation in Q1, we had 1.2% pricing component in our OG.
This is much more than last year. Last year, we were actually at 0.5%, which was made of 0.3% in H1 and 0.9% in H2. Pricing, we had moderate pricing over the last couple of years. It was largely the consequence of 2 factors. The fact that we were living worldwide predominantly in a deflationary environment in Japan to a certain extent in the U.
S. And certainly in Western Europe and especially in our categories. And this was jointly came with the fact that the commodity cycle was down. If you look at it 2 years ago, we were on average as far as our basket of commodities is concerned about 30% in 2016, 30% lower than where we were in 2011. So obviously, there was less need for pricing.
So part of the pricing that we get this year is partly coming from the fact that there is a little bit of increase in our basket of commodities. It has to be looked with a lot of care though. You have seen it last year, the basket of commodities can be very different from one zone to the other. So for example, last year, we had a significant increase in AMS, while we had a decrease of commodities in the other regions. So this year, I think that it's a little bit different as well.
It's largely coming from the mix of categories. For example, Hemena has a stronger component of coffee in their total business like Marco presented this morning. So obviously, as coffee goes down, the pressure as far as commodities is lesser for them.
Pinar Aragun, UBS. I have three quick questions. The first one is on M and A. Some of your competitors are focusing on doing a large number of small deals. So any thoughts on that would be appreciated.
The second one is on confectionery. How does how do you see confectionery contributing to your future plans on nutrition health and wellness, especially when it comes to your local brands rather than the global ones? And then the third one is on waters. Do you see any risk that consumer backlash against plastics may actually negatively impact your bullish views about the category growth in the future? Thank you.
Thanks. So on the first one, a very consistent message to what we were trying to tell you in London in 2017 and that is we will occasionally invest in small to midsize companies, but we're being very, very selective about this. And each and every time, there's a lot of internal questioning about what this new entity will bring to the table that we could not do on our own. When it comes to either a specific brand name, a technology or something that we could not easily replicate within a reasonable period of time. And the reason that we have to be selective on this, in my opinion, is simply that if you go for a very large number of transactions in this space and given that you have to give all of these entrepreneurial entities some degree of freedom, you will sooner or later end up basically as an investment fund in small to midsize food and beverage companies.
And this is not a space where we want to be. And so handling each and every one of these investments takes a lot of extra management time and attention. These are fragile relationships that need to be managed in a very flexible manner. And so you can do this in a number of deals, but you can't do it 20, 30, 40 times. And hence, we've been doing some of these deals, as you know, but we continue to be very, very selective on this.
And that point of view has not changed over the past several years. The ones we've done until now, I think, have worked out quite well for us.
The second question, could you help
me again? What was that again? Confection?
How does confectionery
Confectionery, yes. Okay. So
we are quite bullish about some of the progress we have seen in confectionery. As you recall, when we put the U. S. Confectionery business under review, we underlined very strongly our commitment to confectionery on a global scale. But since KitKat is really our only global brand here, we also made it clear that we retain that complete flexibility when it comes to reviewing some of these local brands.
So pulling out of one of them or several of them as we did with the U. S. Confectionery should not be seen as a lack of commitment to the category overall. The category overall, I think both in terms of nutrition, health and wellness when you think about healthy snacking, but also in terms of premiumization when it comes to just going to higher quality and higher price confectionery, I think it offers a whole lot of opportunity, especially connected to gifting where premiumization is a very good strategy. And there's also personalization opportunity.
And so I think there's a lot of promise here, and we have a lot of very strong, rich local brands with rich local history and lots of local relevance. And this is where I think Patricia's statement comes in. It's not about global or local. It's about how strong does how strongly does something resonate in this particular cash rent area with our consumers and where can you take this. And so we will be very selective here.
And on some of these, we'll invest a lot and others will do less. On others, we may even get out of them. But overall, confectionery is a business that we're very interested in.
And then you had
a question on water and plastics, right?
Water and plastic, look, I do think we do have several quite quite interesting container strategies in place that Maurizio described to you. We also then have those very interesting dispensing technologies in development that will hit the market extent that you can redirect a business in a short period of time to put that new environment into consideration, I think we're doing all of this. I'm not aware of anyone at scale being significantly ahead of us. And consumers need hydration. And so again, is the awareness of this plastics issue going to be on the rise?
Yes, absolutely. But I see us in a good space when it comes to addressing these challenges and coming up with solutions that actually meet consumers' expectations.
We have a few more minutes. Any more questions? Tom and then maybe Alain afterwards.
Two quick questions. One for Francois, which is you referred in your comments that ROIC is going to be increasingly woven into near term and long term compensation. I'm curious to hear how that's working. And then for Mark, so many people with whom we've met the last couple of days talk about their product launches as version 1.0, 2.0, followed by 3.0. I'm just curious how that thinking has made its way through the organization and what do you drive through that thought process?
So for the ROIC, I think it made a lot of sense that we introduced it in the long term incentive as well as in the short term, but it's the share of it is much larger in the long term incentive given that you remember that our return on invested capital went down quite significantly in for some time. So I think but it requires some understanding as well. So this is a KPI, which in my opinion is very well suited for the top management because you need to understand what the various components, it's a relatively complex KPI because of the numerator, denominator. And one large part is linked to M and A, which as you know most of these decisions are made at executive level. So whatever, but I mean at operating level, for example, in some of our markets, we are much more focused on some of its components like working capital, like CapEx.
I think it makes sense as well to make sure that people are incentivized on what they can influence directly. And ROIC from other consequences more relevant at executive level.
Tom, on the second question, look, you can always do better. But I think that new thinking has gotten very good traction inside the organization. And don't just take my words for it. I think you're also seeing already in the market now enough examples from Nestle where in a short order of time, we are coming out with version 2.0 and then believe us, there's going to be a 3.0 and a 4.0 and a 5.0. So it's happening.
One thing that was mentioned this morning that I just wanted to underline, all of this also gets facilitated and supported by this internal idea to launch process that was radically simplified and made much more flexible. Because as you can imagine, for an organization here that launches literally thousands of products every year, if you don't do this without some consistency when it comes to the internal process, you're all over the place. And hence, it was important here, while we wanted to lighten that process that we still need a process. And I think significant work has been done to that regard. That process was rolled out last year, and I think it's facilitating that whole approach.
And it doesn't put you into this perfectionism straightjacket, where if you follow all the discrete project steps of the past, it takes you literally 1 or 2 or 3 years to get something out the door. And now we have something that's much more attuned to the specific circumstance, and hence it kind of facilitates this rapid fire innovation kind of thinking.
Thank you, Marc. I'll now open the main first. Marc, I have a question regarding the JVs. We heard that you feel very well with Fronieri. But how do you feel with the other JVs, serial partners worldwide as well as with Luxalis?
Look, so Forneri, I think, is a bit of a different animal in that this is a joint venture with a private equity partner. And typically, as you know, given the time horizon of a private equity partner, these things are not forever. And so the whole joint venture is really designed on having a significant amount of impact within a short order of time, and I think they've done beautifully in that regard and really energized and rejuvenated that ice cream business. As you know, CPW is a 30 year partnership. And so that one when it was concluded, when it was started, it was done without a specific time horizon in mind.
And I think over the years, it's been a very strong partnership for us. But we're also pretty open by the fact that when you look at the cereal business around the world, we have missed out on some premiumization in nutrition and health and wellness opportunities opportunities and keeping that category as relevant as it could have been. And that's something that both partners are very much focusing on right now. And then Lactalis, again, is a different type of joint venture to the extent that it's not a fifty-fifty. And so Lactalis is in the lead here.
And we have contributed some of our brand names and there's some continued stewardship here, but it's clearly Lactalis that is in the lead when it comes to that partnership.
Two questions from me. So the first one is, can you talk maybe a bit more about the opportunities that you see in plant based? We heard a lot about it today. Wonder if you could possibly put some numbers on it. So in 3 to 5 years' time, how big could this business be for you?
What areas in plant based are you most interested in? Is it just meat alternatives? Is it dairy as well? Could we see you go into beverages? And maybe also talk a bit about the sustainability or maybe sourcing risk around that.
For example, if you start doing almond milk, for example, is that possibly a challenge? So that's the first question. And actually sorry, just on that as well, is private label specifically a threat? Because it seems like a lot of the retailers are launching their own vegan ranges, so at least in the retail channel. So that's the first question.
And then secondly, in terms of marketing as a percentage of sales, as you're pursuing these efficiencies or improvement in ROI, how should we think about that progressing over time? Should we see that continue to grow? And what's the mix between traditional and digital as part of that?
Maybe to start with the second question. It's important to me, especially in light of some of the numbers that Patrice outlined this morning. I don't look at marketing budget as a source of savings, okay? And I think it's a short lived strategy if you do. And so I love the efficiencies we're generating by being more pointed, more targeted than what have you.
But for God's sake, let's reinvest them and do more with that and really develop our business and go for future growth. And now is it always going to even out dollar for dollar? No. And so maybe some of that will also lead to net savings. But as we're approaching this, we're not approaching it with the goal of generating savings, just like we don't do it on R and D.
So really, for Bayer, it's more about the outcome and more about the things we can do with the spending that we put in place. On plant based, I don't have sort of a alternatives and also the dairy alternatives since we have lots of categories that touch both of those. And to me, it's not only about being in the basic article. So I think in dairy, it's even easier to understand. It's not about offering the almond milk.
It's more about then having those plant based components be in some of the higher value products that we offer, like, for example, our coffee creamers or premium ice cream. And I think that's also your best way to protect against that commoditization because I think in some of these very basic plant based ingredients just like the milk alternatives or so, you will see some commoditization. And so what's more important is to have those plant based ingredients then in higher value products that give the customer some additional added value, either a finished product or something that has convenience to it or what have you. And usually also premium offerings and with better nutritional values. And that's the direction we're going.
Hi, Glenn. Go ahead.
So I wonder if you could just speak a little bit to the performance of the coffee business in Europe. I think at the Q1, I think you alluded to the fact that maybe one of your competitors had decided to pass on the lower coffee price to grab some market share. But I think Marco also in his presentation that you were rapidly winning back market share. So maybe if you could just give a little bit more color on what played out there and where we are in that particular competitive battle? Thank you.
And look, as always with these things that are unfolding, there's a limit as to how much detail we can get into. But let me also put it in a wider context. These things will always happen, okay? Growth category or no. You always have the competitive back and forth in these categories.
And so some quarters will turn out better and some turn out worse. What's more important here is that when you look at the Q1 reporting, how we talked about it and how Marco talked about it, first of all, full transparency and openness about here is the situation and no sugarcoating. And then yes, inside, we are very, very focused on what we have to do about it and Marco is leading that charge. And that includes, of course, the normal short term competitive interaction. But then also longer term, if you want to be sure that you get away with better pricing, you have to have the differentiated and premiumized products that really justify that.
And it's important to work on both of these angles. Short term, the hand to hand combat about making sure that we come out of this okay. But then mid to longer term also, what's the flow of new and improved products that really make sure that we get away with very attractive pricing and premiumization.
Any other questions? Well, it seems that there are no more questions. I'll leave it to Marc. If that's
the case, let me really thank you for your patience and perseverance during the day. I know it's been a lot of data we've been throwing at you, quite a few PowerPoint slides and questions we answered. Also, to everyone out on the web, thanks for staying with us and following us through that day. I can tell you here on behalf of team Nestle that we've been looking forward to this day for quite a long time because we were eager to tell you about the progress we've been making and also share that excitement about where we'll take the business going forward, and I hope some of that came across. So thank you.
And we'd also again like to thank the NuStar team and Steve here for setting all of this up, including then the store visits tomorrow. And also, Luca, thanks to you and your Investor Relations team for setting up the day and organizing all of this, and we really appreciate it. And I think it was that day when it comes to sharing the fundamentals of the business and where the business is going was quite a success. So thanks a lot. We look forward to seeing those people who are in the room with us for dinner tonight and the store visits tomorrow.
And stay in touch with us, follow us. And I tell you, it's going to be an interesting journey that we're in together. Thanks.
Thanks, Mark. Just a final remark, just to remind you that you have the feedback form to leave in the box outside of