Good morning. Good afternoon to everyone. I am Luca Borlini, Head of the Nestlé Investor Relation Department. On behalf of our leadership team, I want to welcome you to the Nestlé 2019 Investor Conference. I would like to take a moment to thank the Nestlé USA 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&A sessions. The PDF presentation will be available on our website five 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. Mark Schneider, our Chief Executive Officer, will start with a strategic overview.
Patrice Bula, our Head of Strategic Business Units, and Stefan Palzer, our Chief Technology Officer, will talk about innovation at Nestlé, and how we are trying to make it faster and more relevant for our consumers. This will be followed by presentation related to the three Zones, Nestlé USA and the five high-growth categories. François Roger, our Chief Financial Officer, will provide a financial overview. We will have the usual final Q&A session with Mark and François. 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. Now I hand over to Mark, our Chief Executive Officer, for the first presentation of the day. Please welcome Mark.
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, we appreciate your interest in our company. Let me also add my thanks to the Nestlé USA team, led by Steve Presley, 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 two main conclusions. One is a true appreciation for what Team Nestlé has accomplished since the last conference in making good on our commitments towards 2020, because I think there's a lot of good progress, we hope we can drive that home with you today.
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 strongly growing decade for this company going forward. Now, here's a quick summary of some key messages from my perspective. We believe, 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. 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 Nestlé 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. 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 to basically give credibility to those targets, show you how those are being done. Today, it's much more about the granular detail. Not just the Zones, but also the categories, and hence there's a quarter 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.
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. I think it's very clear that we have started to accelerate our nutrition, health, and wellness strategy and have given it more focus. I think our decision to review the Nestlé Skin Health business going forward, that was a key 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 billion for the last two years. When it comes to organic growth, when we were presenting in London, we pointed out to you how important that is to us.
The truth was also we were still losing air speed when it comes to organic growth, and we hit a low point in the fourth quarter of 2017. It's important to note that starting from 2018, quarter after quarter, we've seen steady progress, and that momentum now carried into 2019. The third item, balancing growth and margin, in particular, the efficiency aspect of our strategy. I think we laid out a credible plan to you in London, and I hope you will see from François' 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. What we deliberately did not try to do is what would be a carpet 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. I think the results since have borne that out. 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, François 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, we're proud of that. Finally, driving speed and simplicity. The two keynote activities in that regards were clearly the transition of our nutrition business from a globally managed business to one that's organized by the three Zones geographically, then also that faster and leaner innovation model that Stefan's 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 beverage as a core. Let me also point out, just as I did in London, this whole aspect of convenience of our products for a modern time-constrained lifestyle.
It's not only about healthy and nutritious. When you think about Nestlé and the place that is made for Nestlé, 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-constrained, 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, hence, this is the kind of extra value that we're adding. The second part, when it comes to Nestlé Health Science, that focus on 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 the whole consumer OTC healthcare space, going from nutritional products all the way to suntan lotion. I think now what you're seeing is a much more stringent focus organized around the Nestlé Health Science business, the Nestlé Health Science CEO, Greg Behar, will present on that this afternoon. 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 are saying that you are in it for the long term, if you really mean that, sustainability day has to be part of that.
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 balanced 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. François, in his presentation, will focus very much on our efforts in improving margins and also the improved 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. The setup of the slide is not new, but we've updated it with the full year 2018 numbers.
You're seeing the relevance of pursuing that growth strategy around high growth categories and also high growth regions. Looking at the top row, the high growth categories, you see that based on full year 2018 numbers, the four key growth categories of coffee, Petcare, nutrition, and water with Nestlé Health Science, they stand for 57% of our revenue, and they generate 61% of our underlying trading operating profit. When it comes to geographies, the emerging markets stand for 42% of our revenue, and they stand for 45% of our underlying trading operating profit. Being strong and growing fast in emerging markets is not dilutive to our margins. 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 growth categories, and 1.6% versus 4.9% for developed markets versus emerging markets. We laid this out before, but let me also use this opportunity to correct two 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. That's no contradiction. 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 a 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.
It's 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. When it comes to geographies, think about Brazil, where I think we patiently did what we had to do over the past three or four 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. 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, you also see as you drill inside these categories, incredibly attractive high growth pockets, this slide lists some of them. Let me point out two. One is Patrice in 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 numbers, this is a wonderful premiumization story. The other one, Stefan Palzer will talk about that segment at the lower left-hand corner, 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. Here again, a very interesting development inside the food or culinary category that's really paying off very nicely.
Let me talk next about addressing underperformers. I've listed four examples here, Skin Health, Gerber, our US Frozen food business, and the Nestlé Waters business. Nestlé Skin Health, as you know, we have put this business under strategic review, it is important to point out what has been accomplished over the past two and a half years. This was nothing short of significant. If we had pursued options for this business 2.5 years ago, we would have found few takers. We did put it on a dramatically different and more competitive cost base with about one-quarter the workforce less than before. We gave it very defined, articulated strategies in its three core business segments. We also positioned the business for new growth.
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. That's paying off now. 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, it could 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've from the inside out, have redeveloped this product lineup, 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. We are also developing very, very nice international growth opportunities, such as, for example, a thriving cross-border e-commerce business with China. On US 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, I think we were right about the category fundamentals and the renewed interest that younger consumers have in this category. 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 first quarter of 2019. Last but not least, Nestlé Waters, we do see competitive pressure at the low end of the pricing scale, especially when it comes to case pack business. 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. Over time, those will carry the day. Quick update on portfolio management, François will elaborate on that in the afternoon. I think very busy period, in 2017 and 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. This portfolio management will go on, and I think 2019 is already shaping up to be another busy year. The purpose of the 10% number in 2017 was to show you that we meant business, and we were serious about portfolio change. At the time, if you remember, there were only two recent transactions known. One 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. 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. 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 Palzer. This is about speeding up science and consumer-driven innovation, brought to the market faster, and then being continuously updated in versions 2.0, 3.0, 4.0 to constantly resonate with consumers and bring excitement to the categories we're playing in. This whole notion, how that works, that's going to be the main content of the presentation that Patrice and Stefan are going to give to you. When it comes to driving organizational agility, again, the two headline grabbers for the last two years were clearly the migration of that nutrition business, which has been pulled off very successfully.
Also the whole reorganization that Stefan Palzer has led from the beginning of 2018 in our R&D area. 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. 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. What I would like to very strongly confirm is our strong allegiance to the core organizational model, which is the matrix between the three Zones, where the business is organized by region, and then the strategic guidance that comes from the SBUs.
That is the backbone of our business. It covers about 80% of our business volume, that matrix works. I know the word matrix these days is not exactly in fashion, but when a matrix works, it does beautiful things. When you think about what the alternatives would be, if you only organized by geography, you would end up with a sprawling conglomerate. If you only organized 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. 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 and March. That was done under this matrix.
This matrix can perform, it can perform really fast. 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, and 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, it's not a new thing for us. This is something that really, as a mindset of doing business, goes back to the foundation of this company more than 150 years ago. 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.
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, things over time do not work out. 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 and breathe it day by day. 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 three essential dimensions on how we apply this thought pattern. One is for individual and families. 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. Think about the several hundred locations we operate around the world and what we would want to give back and do with these communities to be sure that they see us as a welcome citizen. 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. Of course, any company will have to face those and have to show what it does to address those issues. Here, 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, especially with our Nestlé for Healthier Kids campaign that was kicked off last year and gets continued to be scaled up and rolled out this year. Second, we've put a lot of effort over the past year into contributing to a waste-free future, in particular, addressing the plastics waste issue. Again, under the leadership of Stefan, we started an Institute of Packaging Sciences to find novel solutions, novel materials. We're exploring new business models. 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 third 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 Nestlé can make a difference.
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. Last but not least, on the right-hand side, he has been a mainstay. This has been a mainstay of the business ever since it's 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. 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 the final slide on this Creating Shared Value mindset, let me talk about communicating that through our brands.
Patrice will elaborate on that later in his presentation. 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, be it a real shelf or a virtual shelf, winning out over some of the other products, and those products and brands telling the story in a convincing manner. This is something that we make a top priority in our marketing area. 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 recyclable packaging and avoiding plastics packaging in the future. 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, you'll get more information from Stefan Palzer on this later on, this is a product offering where we believe we have a very competitive product in the market. Our burgers these days are not only a 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. 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 a 10-year, five-year, three-year, or one-year time horizon, I think very consistently, the company beats out the relevant stocks food and beverage index.
On the right-hand side of the slide, you see 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 is targeted to be finished by the end of this year. This brings me to the end of the presentation. Again, this is the scorecard that I showed you at the beginning. The same bullet points, the same ones that I highlighted in London. The key message is a lot has happened, but there's a lot more to come. 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. Nestlé is very excited when it comes to making good of the 2020 commitments, but also then on the wider growth and earnings ambitions beyond into that new decade. With that completes my presentation. I have the job now to introduce the next two speakers, and that is Patrice Bula, our Executive Vice President of the Strategic Business Units, or SBUs, Marketing, Sales, and Nespresso to my right. And Stefan Palzer, 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.
These two 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 here with you again after the London meeting last time. A lot has changed, a lot has moved, it's my pleasure today to do a joint presentation with Stefan Palzer. It's a joint presentation because this is the way we work. This is the way we work every day, we work every day with one goal. Our goal in this matrix that Mark described is to provide winning gap, competitive gap, to our people on the front line. To develop, for our customers, the Zone and the market, winning strategies for our brands. A rich pipeline that allows them to convince consumer to stay with our brand and buy our brand with, behind it, a very strong R&D program.
Brands that are well-managed, brands that we steer and protect because sometimes 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. 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. 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 a new product. 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 segments of what today constitute the food industry. 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 old timeless consumer favorite. These are big categories in which we are present. We see an explosion of taste and explosion of different texture, of people trying new things, we want to be part of that because these categories, in some of these categories, our brands are leading, our brands are able to offer this to the consumer in a timely way. To do this, brands have also to evolve.
We have worked a lot continuously to make sure our brands stay relevant to this new demand. It means, first 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, 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 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. Finally, and very importantly, we believe, as Mark said, that every brand we have has to play a role on being authentic to itself, to this generation, and be a force for good in 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 that it's not because a brand is 100 years old that brand cannot continue to delight consumer yesterday, today, and tomorrow. To do that, you have to constantly nourish this brand.
We nourish this brand with innovation, with new way of communicating, of being part of life of our consumer. Sometimes we have to push the envelope and even disrupt this brand. I want to show you three example of Mark describe of high-growth brand in high-growth priority categories just to show what we do. Before that, we activate this with three 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. Of course, this is backed up with a leading R&D in the industry with extraordinary capability to continue to build a pipeline of product. 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 brand that are not new, brand that have been there for hundreds of years. Milo, a brand less known for some of you. A brand that is achieving close to CHF 2 billion today. A brand that we, in its core, activate every three to four years with new active ingredient coming from R&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 stomachs.
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 has been disrupted for the last 10 years to adjust it to the new reality of the consumer demand. This is a 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 market. 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. We have pushed the envelope today to come with a premiumized product. 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 enrobed 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 market. You see example here of the green tea that we have launched in Japan, but now today also in Europe and successfully. 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 bringing this very fast to our newly acquired company. This is Sweet Earth, where we brought our pizza technology, Cold Brew, where we brought our technology to lengthen the shelf life of our Chameleon product, and Starbucks will talk about it later on.
The framework we use with R&D, our market, all of us, is based on three pillars of innovation. The search for authenticity in our product, the search for healthy lifestyle, and the search for inspirational experience. This is also done in the context of developing socially responsible brand offer. 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, a breakthrough for the consumers. You know L'Atelier and of course, origin coffee, and origin for the coffee. Seeking healthy lifestyle, we divide this into two. 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. It's a lot, of course, in the infant formula market, but also in Nestlé Health Science and in the Petcare business. The other part has a lot to do with what I describe 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, this goes first into products where we provide new texture, surprise the sense with new taste, new texture. I think the iconic product here has been the Ruby KitKat , which we launched last year. We were the first to use this new cocoa variety to bring a completely different sensorial experience to a consumer. You see a cold brew Nescafé, first to launch a cold brew into China. Finally, providing other dimension is into retailing with, of course, an Nespresso boutique, where we have now close to 800 boutiques in the world, but also the KitKat Chocolatory, where consumer can come, experiment and taste and prepare, design for themself a new KitKat. Also the Project Loop, we'll talk about that, and our two direct delivery system of tails.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. This is not new to us. We have been creating value and selling brand with purpose for more than 150 years. 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 markets with our product, offering 185 billion servings of nutritional reinforcement in this country. Our commitment to packaging, also our commitment upstream to farmers with the Cocoa Plan, with Nespresso on buying higher quality product, but also recycling systems and Nescafé. This is to rapidly bring you to where Stefan will show you more concrete capabilities that we have built to allow R&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 - 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 revisited the effectiveness of our innovation partnerships. Finally, we are also piloting new approaches to lower capital investment required for market entrance. All that was enabled by much leaner and more agile R&D organization, and on top of that, we also simplified our project management process.
I would like to take you through all of those six areas and explain a bit more in detail what we actually did. Let me start with the lean and agile R&D organization. As you know, our R&D organization's composed of fundamental research and product and technology development. Fundamental research, we consolidated into three major research institutes. Initially, we had six units, now we have three major institutes. We added, like Mark 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.
We moved from a technology-focused organization to category-focused organization. Finally, we strengthened our regional innovation centers, which are placed here really in high-growth regions. Let me talk about our improvements in terms of ways of working. As mentioned before, we accelerated the translation of fundamental science into innovation. We shortened the timeline from project start until we see a first launch by 20%-30%. This was achieved by an earlier conceptualization of the findings of fundamental research, but it was also achieved by implementing generations of claims. 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, you move then 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 equipped now half of our centers with prototyping kitchens and prototyping specialists. 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. We started 40 new projects, and these are really enabled by a very pragmatic funding process. This works a bit like "Shark Tank." You have employees, you have your own workforce coming with ideas.
They pitch those ideas, we release here the required funding in the frame of one or two hours. 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, then hopefully we have launches. 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, 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 MassChallenge, now much more important. While we are talking, we are installing an accelerator in our major research center in Switzerland. 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 today an accelerator, I think we are the only one which has an accelerator which is really embedded in a 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. We will see how this is working, but we are quite excited about that.
Eventually, we will roll out this concept amongst all our major centers. We started cooperation with bloggers and influencers to identify trends like insect-based food, for instance, much earlier, to understand those trends much better. Finally, a focused co-development with suppliers provides various opportunities to accelerate key projects. Last but not least, we are also piloting new approaches to lower capital investment required for market entrance. We started to manufacture first batches in existing pilot plants. We are avoiding here CapEx. 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. 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 at Home. In only 24 months and in only six months, we developed 24 new products by leveraging our proprietary Nestlé technologies. You will be able to test those products in the product exhibition. We are leveraging here our capsule and systems expertise. We are using here also our booster technology to provide a creamy and outstanding cappuccino foam. Last but not 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.
Six months is really an aggressive timeline. We provided here ample prototypes which were validated together with the Starbucks team and which we brought then 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 oligosaccharides 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 Philardeau will go a bit more in detail, what 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 one year and launched in 10 markets by the end of 2019. I have the product here in front of me, and you will be able to test it also in the exhibition. 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 beet, so it's a natural color. Sizzling sound and color change during preparation. If you put it in a pan, it behaves like meat, and then you have also the 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 since the end of last month, this burger is now available in 1,400 McDonald's outlets across Germany. A big success for us. Now I would like to hand over to Patrice Bula, who will explain to you how we deliver engaging brand experiences.
Thank you.
Thank you very much.
This is 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. Second pillar, how we continue to nourish our brands with engaging brand experience. What I would like to do is to show you three examples 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 contacts you, usually it's to ask you millions to sponsor them. This time, Barcelona asked us how they could be part of what Milo does in the world and what Milo does as a grassroots movement. We have found a way, and of course, there was no way we would finance it the way they wanted it. In a very cost-efficient way for us to partner brings value to what Milo is all about, which is grassroots movement and teaching life value to children. The third one is a bit long. I am sorry, but the total is four minutes, if we could have this video, please. Three examples, 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 and so on, but of course, how it is shared and travels the world on the digital world. We do this, these are three maybe anecdotes, but we do this at scale, and we do this by monitoring also our performance. Again, in the Effie Awards in 2019, we come unfortunately this time second, and I have to say humbly, we have to accept that one great quick service restaurant was ahead of us. 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 three 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, we pursue this on already a very large base of more than 100 million first-party data that we own. 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, we have 20 of them in the world, from which the market can draw personalized, tailor-made advertising and what they think it's 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 a way to provide us at the lowest possible cost and the best quality possible.
We develop asset more centrally to be redistributed to market and tailor-made. 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 content studio. This will bring us to the third pillar, which is the strength of Nestlé in this fundamental R&D that is able to deliver a pipeline of new product today and of course tomorrow. I'll leave Stefan to give you a glimpse of this for the future.
Thank you very much, Patrice. Well, let's have a look at our nine 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, a 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 example is here our roasting technology, which we use to innovate for Nescafé, Nespresso, Blue Bottle, Chameleon, and now newly 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. We transform those using our proprietary fermentation separation technologies, micro-milling, homogenization, and also protein aggregation, where we have various patents into plant milks and dairy alternatives. This allows us to innovate in different categories. You see here the economies of scale at work in the R&D area. We can innovate for our beverage business, Nescafé Dolce Gusto plant-based you see here. For our dairy business, ready-to-drink products, creamer, and also plant-based ice cream. 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. It starts already with metabolic programming, starting actually with conception, so during a pregnancy.
Continues with breastfeeding, 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. 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. Finally, it turns out that many of our health-related conditions are linked to malfunction of mitochondria. Mitochondria are the power stations of the cells. If they are not working, we have a serious problem. We can address this mitochondria malfunction via natural bio-actives. 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. MCTs can be also very effective for improving cognition in elderly. 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 Nestlé Health Science business. Similar example, probiotics and microbiome. The microbiome has a huge impact on our immune defense and also gut and mental health. The findings we have here, we can deploy for our Purina business again, and we can leverage them for Nestlé Health Science and our infant nutrition business. Here, for instance, the recent launch by Purina is a probiotic.
This probiotic has been proven to be effective equally for humans, but also for pets. That brings me to the end. I hope that I could have shown you that we have an R&D powerhouse in place, and that we are leveraging those capabilities to fuel our brands. Patrice will show finally some billionaire brands and show how we drive those brands through innovation.
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&D capabilities we have allow our brands to continue to grow. If you look at last year, 29 out of 34 billionaire brands grew, and grew some significantly in the world. We added two new brands. 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 new business that is winning for us in Europe.
Another winning business that Chris will talk more about is Illuma, 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, Stefan 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 consumers, and having the R&D capabilities that really make a difference in the life of consumers. Thank you very much for your attention.
We can open it up now for the Q&A. I think we are perfectly on time. We have around 25, 30 minutes for Q&A. If you want to ask a question, please press on the voice button of your microphone. Please identify yourself by stating your name and the name of your organization. Limit yourself to two questions every time. Anyone wants to James?
Yeah. It's James Edwardes Jones from RBC. Stefan, you mentioned that R&D has moved to, sorry, to a category basis from a technology basis, then at the end there, you gave us examples of a technology that's relevant both in Petcare and nutrition. How does this process work if it's one category has 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&D structure is, we can describe as follows: we have a fundamental research backbone, which is going across categories.
Those examples, those technologies, these fundamental science results, they're all elaborated in this fundamental research organization, which is highly concentrated. Then we use that to innovate in different categories. Product and technology development is category focused, but fundamental research is going across categories. 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 Ennis 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? To what degree is the growth acceleration for the group getting back to mid-single digits reliant on those high growth businesses accelerating from the 4% they're delivering today? Or is it more a function of improving the low growth businesses that are kind of lagging behind the group? Thanks.
If I understand well, you are asking how much. Can I ask you to repeat the question? Sorry.
Yeah, sure. 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., do your innovations, are they 80% focused behind the high growth components of the business? 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. We, of course, you can imagine we have high growth categories, but whom we have specific effort 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 1,000 and 5,000 products a year because a big effort is renovation. When we do a Milo Hi-Protein, 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. 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?
These brands are absolutely critical for some part of the world, are equally important, and I think we try to show you here three brands that are not in the identified high growth categories but are providing us very, very nice growth. 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 U.S.A. You saw what results we can have at the heart of the U.S. food and beverage segment. 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.
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, John, in François' presentation this afternoon, we have a chart that shows that 63% of our CapEx goes into high growth categories. Maybe next question.
CapEx.
CapEx, correct. Yes. Eileen?
Hello. I'm Eileen Khoo, Morgan Stanley. I've got two questions. The first one is, how much of a competitive advantage are these innovations that you talk about? For example, patent protections, things like that. Or is it easily replicable by your competitors? That's the first question. Secondly, on the subject of patents, I guess you talked about the sugar breakthrough innovation a couple of years ago. I wonder where you are on that.
Is there any more opportunities to roll out that technology? Thanks.
Sure. 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 you 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. I showed you a number of examples where, in a remarkably short time, we covered a large number of markets, and here the competitive advantage was coming from speed. It depends always a bit on the category. 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. Here you need to protect a bit more via technology. What was the second part of your question?
Sugar.
Sugar. Yeah. The sugar technology, this hollow sugar. Now, we launched it 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 effective, if you have this one technology and you combine it with others, you can bring the product even to a much higher sensorial experience. We will roll it out, but in combination with other technology building blocks.
I think to complement what Stefan 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. 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 in the product. 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. Alain Oberhuber, MainFirst. I have a question regarding the billionaire brands. You said five brands didn't grow last year. Was it because you didn't do any product innovation? If so, if you did some product innovation, why did that fail?
No, yes, when you have all the children of the family, you hope that all of them will do well. Sometime you are slower, sometime you have not caught one trend. Sometime you have decided that you want to fix other part of the business, that you want to fix margins, and are doing other work than just grow. This, sometime we make that choice that it is more important for us to get back substance in the P&L than innovating. Yes, it's a combination of this. In this brand, you have seen some issues that we want to address, where we have been challenged, and we will be there. These brands, of course, benefit from innovation and R&D, but you don't win every time, but we win a lot of times if you look at our portfolio. We win a lot of times.
We cannot, unfortunately, expect all of them to do always well in such a broad portfolio and a broad geography like what we do.
Okay, we move to the next question.
Thanks. Jon Feeney at Consumer Edge. How do you measure the returns from your R&D organization, 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&D organization? Thanks.
Interestingly, I get this question quite frequently, huh? It's a question I'm used to. Now, what we measure is, on one hand, the spend in R&D and also marketing, and what we measure against it is the growth which we achieve. There, if you compare that, I think we are doing well. That's one of the measure. Then we compare ourself also in terms of R&D intensity with major competitors. How much of our turnover we spend for R&D. If you consider the mix, I think it's very comparable. That's the metrics which we measure. Then what I want to see is also how many launches we finally have. Let's talk about launches. In this world, in the 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.
We have to get a certain number of launches, and then we are tracking how those launches are doing .
Yep. Okay, maybe we move to Celine.
Celine Pannuti, JP Morgan. 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. My question is, how do you decide whether this is a category or subcategory worth going to, and how you balance the top-line opportunity versus the cost and the raw material 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 refer to, which have been quite defined in a framework. We do this, and we do this as a very dynamic process which involve the market. 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? Are we well-positioned? Do we have the innovation? It happened a lot when we do this. We also look at 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 outskirts of our categories. Then you have to decide, do we do this?
The extraordinary thing at Nestlé is usually we have the capabilities, the technology to do it. Then you have to decide that if part of what is the impulse chocolate categories is not growing as fast as before, it's because people want alternative grain based. We can do it under the YES! brand and do it fast, and we try in some market to really lead these categories. This is a concerted, of course, effort. What I describe as the role of the SBU is a very dynamic process of working with the market and the Zone and saying, well, if we do, are 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, the Zone at the end have to say, "This is my priority, and I will do it." This is why I think our metrics works very well. 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 Nestlé can take it. 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. I think when this customer sees very interesting breakthrough products 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. Hi there. Yes, James Targett from Berenberg. You mentioned the 6- 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 maybe regulation, but generally, where it's hardest to be so agile and so quick to respond to new trends. Thank you.
Yes. 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 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 front line in the market to do it or not, but we will not check it anymore. It's up to them to take the responsibility to cut some barrier and make sure the organization there has gone through regulatory QA process and so, and that it is not always done with a back and forth with Vevey 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 sci, and 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 product for Starbucks, of course, because there you have less constraint to the clinical trial or the benefit. You want to complement?
Yeah, in areas where you have safety considerations.
Yeah.
You go in certain sensitive product categories, you have to do much more studies to ensure that the product is safe. It's categories where we have regulatory and safety constraints. There, it's a bit tough to compress timelines, we shouldn't do it because it will put a lot at risk.
Next question, Alan. Alan Erskine.
Yes, Alan Erskine from Credit Suisse. Two questions. I just want to understand, if you could elaborate for us the movement of the greater responsibility into the categories. As I understood it, you always had that backbone in Lausanne, and you always had these product technology centers which were confectionery or cereal based, so were very specific to the category. Firstly, if you could just elaborate a bit more about what's different to the way you were organized, say, three years ago. Secondly, when you were asked about the metrics, you didn't mention the 60/40 test. Is that something that you still apply, and how are you performing on that? Thank you.
Yes. Let's first talk about the organization. Yes, it's true, we always had a fundamental research organization. Initially, this was comprising of six, you can even say seven subunits. We consolidated those into three major institutes. There was a consolidation which took place. Then, like I said, I explained that we added the packaging institute because this was a major gap. By the way, it's the only packaging institute you find in the entire industry. There's no others. When it comes to product and technology development, this product and technology development was pretty much centered around technologies. I had a center, a team, which was working on spray drying, for instance. We are focusing those centers much more around a certain category and certain brands. The collaboration with the SBU is now very close.
We have joint meetings nearly every week. We agree on innovation pipelines. The focus of those centers is now around categories and brands. Before, it was pretty much focused on technology, which is suboptimal for the innovation process. That's the changes which we did there. Second part of your question was on? Help me.
60/40 .
60/40. 60/40. Yes, exactly. 60/40 will still continue, specifically if we renovate major brands. We don't want to lose your product preference. If we do fast track innovation, sometimes we go also on more pragmatic tools, like preference mapping tools, for instance, but 60/40 is still there. We want to guard sensorial preference, specifically for our major SKUs in the marketplace.
Well, I think we still have the time for two more questions. Jean-Philippe?
Jean-Philippe Bertschy, Vontobel. To go back to the returns of your new innovation, are you not afraid to increase dramatically the complexity in the SKUs as well? I think François has been doing a great job with working capital. How is it disruptive to this target? The second one would be on pricing. How are you trying to price up those innovation?
I take the first part of the question and the second part I leave to Patrice. The first part, very clear. I explained to you that we are trying to build now and design much more flexible manufacturing lines. Complexity is an issue if you have a very rigid manufacturing base. If you have the right IT tools, flexible manufacturing setups, cobots I talked about, complexity is not such a big issue. 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. We have to accommodate for that, and that we do by having a bit more flexibility in manufacturers.
Okay.
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 cull them. 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. This is a dynamic process of adding on one hand, but also taking out on the other hand. On pricing, what I did not do well is to give credit to what has been done with the three example I showed. On the pricing we are getting in this journey into having new products and this.
The single finger volcano cocoa bean base that we're launching in Japan, the finger is three times the price of the four finger that you see on the left side of the product. It's the same with Coffee-mate. 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 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.
Thanks. 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&D capabilities going up year-on-year? If so, what's coming down? 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&D spend. Let me first cover that. Our R&D budgets are stable, but we are using those budgets differently. 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. The 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 spent. I think very importantly is we're living in a time of incredible disruptions and opportunities in the way new media, digital and beyond, allow us to get greater and greater efficiency. The whole drive of the marketing the future towards personalization, when done at scale and done very well, allow you through hyper targeting and so incredible efficiency for your dollar. We are on a journey to that. We are accelerating because we can see that how much benefit it brings.
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 growth 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. What I really credit Patrice and Stefan with, they have reinvigorated this collaboration between the two, because it has to be the two. If you spent CHF 1.7 billion on R&D, there needs to be some guidance from the SBUs about what you spend it about, what the consumer wants. Likewise, when SBUs come back with market insight, we need to have an innovation engine in R&D that really makes it happen fast. This needs to be really fluid.
I know it's very hard to describe this to you because these inner workings between these two groups, 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 strongly it resonates inside the company. Most of all, 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.
That whole mindset, that specific mindset, I think that is something that really has changed in R&D, and I think that also facilitated this collaboration with the strategic business units and ultimately with the Zones in the market. 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. For you, 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, "Wow, this was fast," or, "This is convincing." 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 Settembri. I'm leading Zone EMENA since the last three months. I'm a Nestlé veteran, 30+ year in Nestlé, and I'm an Italian baby boomer. The purpose of today in my presentation is to update you on the Zone EMENA transformational journey, and also to convey you how in the Zone we are profitably growing and how we can grow in a hectic and vibrant environment. What you should retain from the picture of Zone EMENA 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. Anyway, there are two key numbers that I would like to focus on, is one and nine.
It is a CHF 19 billion business that I am managing. It is 19% of profit that the Zone is doing, and 1.9% organic growth in 2018. In terms of geographic, it is 60/40, 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 devaluations happening in many of the markets of Central, Eastern Europe and Middle East and North Africa, in reality, there is a good balance geographically speaking. I have seven reporting units, P&L-responsible, that represent six main categories, in which the most important one is beverages. If we talk about the environment that I mentioned at the beginning, yes, it is 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 what we are going to tackle with the Brexit situation, but for people that come from London, you know that this is something that we continue to postpone to understand what is going to happen. What is clear is that the scenario is quite uncertain. If you take into account also the European election, what the European Parliament will be, what the commission will be, that influence a lot also regulation in Europe and then spill over to the rest of the Zone, is uncertain. Clearly, the balance equilibrium in the Parliament and the commission will change.
Also, if you take into account the tensions that we have in Eastern Europe, Russia, Ukraine, 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 the consumer. The consumer is shifting his preferences. How I eat, where I shop, how I connect is clearly changing the behaviors of the market in the Zone. However, having said that, Nestlé being embedded in every single country historically, very connected with the local communities and so on, can transform, and is transforming also this uncertainty in opportunities to grow the business in the future. The Nestlé operational model in the Zones is simple and effective, is our Nestlé Virtuous Circle.
In Zone EMENA, we are applying that Virtuous Circle since years. We are, first of all, achieving important efficiencies in operation, factory fixed overhead, distribution, most in destruction , in the overall company overhead. We are investing this efficiency 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 Petcare. 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.
Also in these two categories, we are seeing very good now trends, especially in the last six months in terms of market share. We are growing market share. We are also recovering very fast market share in coffee because of commodity and incompatible capsule. We lost some share in the last period or last year. We are now recovering very fast market share since the beginning of the years. We are improving the return. All seven 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. More specifically for Zone EMENA, how we are organized in Zone EMENA? In London, we made you known the fact that we were transforming Zone EMENA in terms of responsibility by creating seven regionally managed businesses, P&L responsible.
Clearly, what I can tell you that we really are getting the benefit of the focus organization around the category expertise, around the consumer insight. 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 Nestlé in the different countries, as I said before. 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.
By combining these metrics, as Marco 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 are a little bit the mantra of this organization that was category and market together. This approach is working. It's working, it's demonstrated, first of all, in achieving efficiencies as part of the Nestlé Virtuous Circle. In the left 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. More notably, in each category roadmap, we have clearly a roadmap 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. There was a fear also that we were proliferating SKUs and so on. This is exactly the opposite of what is happening. We are reducing complexity, we are reducing number of SKUs that are unnecessary. More importantly, specification, ingredients, and so on. I just put as an anecdote because some of the people ask 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%. Surprise, surprise, the business is growing. The Christmas campaign has been extremely strong. Now we are preparing quite innovative campaign for the next Christmas in confectionery.
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. for us, premiumization is the way to really get higher price, higher margin contribution at the end of the day, higher profitability. Mix means to grow over proportionally in the premium segments. We are growing in the premium segments four times the average of the growth in the Zone EMENA. Infant nutrition is a great demonstration that this model is working. Why? Because the category was already focused, was a globally managed business. it was already a category really focused since years in delivering great innovation.
Now by embedding the category in the Zone, this amazing harmonized, science-based innovation that also Thierry will explain in the afternoon, have been implemented in a faster way, share growth every month is impressive. If you see that every month we are growing, we are increasing the gap versus competition in infant nutrition, that shows the fact that the approach is working. Infant nutrition and Petcare share an important insight in the Zone and in the category approach. Parents, when obviously a baby cannot be breastfed, and pet owners are relying on the company, on us, on Nestlé 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 first regionally managed business established 25 years ago in the company, is a strong success story. We continue to win market share. We are very close to 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 of 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. category transformation, the Nestlé Virtuous Circle, the value extraction, clearly are critical enablers to perform in the Zone. to win, we really need to anticipate and to expand our journey. the expansion means to master what I call five extra pillars, that I will describe in the next five minutes, that is sustainability by design, consumer and shopper centricity, competitive gaps in the operation, digitalization, and inclusive teams. sustainability by design is a must, especially in Europe, but not only, as Mark said at the very beginning.
We will expand our product superiority, our 60/40 or 60/40 +, so taste and health connotation, towards a real sustainable competitive advantage. This sustainability concept must be embedded in each original concept that will allow in the future in each innovation project. Our plastic commitment in Europe especially is just a start, and Nestlé 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. Purina 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 Purina. This goes beyond the core anticipation, understanding new consumer trends. We are exploiting these new trends also through external opportunities.
I describe here three external opportunities that we grabbed since the last meeting in London. Terra Canis, the first one, German company in which we have invested, that is focused on human grade pet food quality. Tail, investing in personalization. Tail is providing. If you have a dog, you know that your dog is special. Your dog is at a certain age, certain life, certain lifestyle that is also depending on what you do. With Tail, we really give to every dog exactly what your dog needs, also with the product that has the name of the dog. Or we are partnering, 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 shopper in his purchase journey is a key opportunity also for us.
We do it by win with the winners. We know that e-commerce and discounters in Europe especially, but not only, and with Russia as well, are clearly the winners. We win with our historical market execution, also expanding to an omni-channel strategy, so to follow the purchaser, the shopper, in his experiences. 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. Having the right governance between, and 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, first of all, because I said at the very beginning, we need to extract more values from our operation. We can and we create gaps in our operational assets by modernize, digitalize production and distribution. We see terrific results now in our operation asset intensity. Cost reduction is improving substantially, and this will be another competitive asset for our future. Digitalization is also critical, we already seen with Patrice before. Exploiting enhanced connection system and power by the modern devices will allow to create for each category effective ecosystems. In instant 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 Nestlé, especially in Europe, but in EMEA, is and must be part of the solution and must be part of the better world creation, as Mark has already explained to you. Everything that you do in the Healthier Kids, that is reformulating products, educating kids. In Youth Initiative, the launch is already six years of the Youth Initiative. First on unemployment, now on apprenticeship schemes. Waste elimination in operation are only example on how we are impacting the society in all the different elements in the Zone. This transformation is paying back, first of all, in growth. In the last six years, the growth in the Zone EMENA has been around 2%. We see a strong acceleration now in real internal growth, especially in short term. In a low inflation, we really need to look also at real internal growth.
You know also that we put the mix in the real internal growth in Nestlé. Structural cost reduction, we have reduced in the last two years, 120 basis points our structural cost. Profitability, we have increased 300 basis points in the last four years and 200 basis points in the last two years in the Zone, reaching the 19% that I was describing. To conclude on the what, the Zone EMENA is delivering, and I would 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 a 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? Warren Ackerman at the end.
Hi, it's Warren Ackerman at Barclays. I have two questions. The first one's on the structural cost. You showed us that chart, 120 basis points improvement. Can you maybe elaborate where those structural costs are being taken out, and how much further do you think you can take that structural cost number down, with particular reference to your manufacturing footprints? What do you think the right optimal number of factories is in Zone EMENA? If you can answer that one first, thanks.
Okay. On this question structural cost, 120 basis points, I would say is quite balanced between the different elements of the structural cost. Factory fixed overhead, yes, has been the main part, but not only. Overhead, MOG, 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 structures that we have around the market. When you have this organization, you can also start carrying certain layers, a certain duplication of a structure, not only in the marketing and the generated demand, but also 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. Yes, manufacturing footprint has been one important element of reducing structural cost, especially in food and confectionery.
The journey is only started, I would say. We have plenty of 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, you take also some time to really see the results. But every two to three months, probably, you heard about factories or lines closure in the Zone.
Sorry. The second one, if I can, just quickly. On coffee, you told us before there's 100 compatible capsules for Nespresso, and you've been losing market share in coffee in Europe, particularly to JAB. I know that you've been launching aluminum, or they've been launching more aluminum capsules that have been a driver of that share gain. Can you just talk about, going forward, what you think about coffee, why that market share has improved, and why it can improve further with the Starbucks roll-outs as you put that into your machines? Thank you.
You will see probably lots of answer in the David presentation in the afternoon. Clearly, you have a quite technical element in which the moment the compatible capsule enter in 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 also we see that the share of compatible is quite stabilizing versus both system, Dolce Gusto and Nespresso. Now also we have the Starbucks opportunity. We have seen the first results of the launch. We have already launched in the first market in the Zone, Netherlands, Spain, Belgium, and so on. We see in the first weeks, quite amazing response from consumer in the retail for both compatible Dolce Gusto and Nespresso. We have not yet France, Germany, U.K., the biggest market.
I'm pretty sure that Starbucks, in addition to what we are doing on the rest of the range, on the Nescafé Dolce Gusto and Nescafé soluble, will be a fantastic addition 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. Should we conclude that 2% OG is a fair level for your Zone, or is your ambition to accelerate that growth further going forward? 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 higher level than the current 59%? Thank you.
You know quite well that your organic growth is also based on the prices and inflation. We have delivered 2% organic growth in periods in which there was basically no inflation or deflation in most of the Western European countries. That's already quite substantial. I'm pretty confident the 2% level will be confirmed also in the future. Obviously, I have an ambition to grow more, but really in terms of pricing effect, 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.
As a business guy, I more rely on mix premiumizing, really winning in the mix, then if I can only also increase prices if commodities and the market inflation will allow, we'll obviously do it. 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 first quarter, I'm quite confident this level for this year will be at least reached.
Okay, we have four minutes left for Q&A. Okay, Alain.
Thank you very much. Alain Oberhuber, MainFirst. 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?
It's a combination of elements. The discounters are changing a lot, we see the Russian discounter, the German discounter, the Polish discounters, are already changing the way they approach the market. Instead of being 100% focused on private label or what was the discounter of 20 years ago, now they are more open, they are becoming proximity supermarkets, present in every city and so on, with a good presence of leading brands. We are leading in many different categories. We compete in every single place, with every single retailer, discounters is part of the offer, is part of the consumer offer. We are now doing also in a very well-concerted way. Discounter, yes, is part also of our way to reach consumer in every moment of their purchasing life, it's paying back.
I would say that we have very good growth in many of them.
We have time for one more question. Yeah, go ahead.
Hi, it's Alicia Forry with Investec. On e-commerce, that seems to be clearly the fastest growth area across the industry, and you grew 12% in 2018, you said. Do you think that your legacy Nestlé brands are fully penetrated in that channel at this point, or is there more to go for there?
Yeah, I would say e-commerce in EMENA is not developed like in the 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 Zone EMENA. Our portfolio, I would say, is well designed to get the opportunities to grow. I would say infant nutrition and Petcare, for many different reasons, are two 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 also give you the sign 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 Nespresso that is 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. That concludes Marco's presentation.
Thanks. Thanks, Luca.
We open.
Thank you very much for your attention. I hand over now to Chris Johnson, Zone AOA CEO.
All right. Thanks, Marco, good morning. I'm Chris Johnson. This is my 36th year with the company. I've spent 12 years living and working in Asia, it's really great to be back. Also, it's really nice to be back with and reconnect with many of you as well. Luca showed a disclaimer at the beginning of this session. I'll make a little disclaimer myself. I started in January. I'm four months in the job. I'm still reacquainting myself with this very dynamic, diverse, and growing Zone. 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. You cluster those into, say, five geographic regions. ASEAN would be the largest, around 31%, Greater China 30%.
The developed markets, we say Japan, South Korea, Oceania at 14%, South Asia subcontinent at 13%, sub-Saharan Africa at 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. When you look at the types of categories, beverages is the largest. Coffee is around 75% of that 28%. We have dairy products, nutrition, food, confectionery, and Petcare with a 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. It's a driving factor for our business as consumers seek safety and quality and convenience.
Today, AOA is home to two-thirds of the city dwellers in the world. 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's rising. GDP, of course, across the Zone is around mid-single digit. Where we really see opportunities, of course, is when personal income per capita hits certain inflection points in certain markets. We want to make sure that we time that correctly 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.
Also we're seeing consumers demanding more and more of the types of health trends we're seeing in the developed world for organic and natural and so on. We're also seeing premiumization growing substantially. Digital absolutely transforming the way that we do business, the trade does business. 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. 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 save 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 points gain. We also will deliver profitable growth. We'll continue to do that, then creating shared value as well, both Nestlé and society, which I'll talk about later, as well as an important focus on safety and quality. We have six 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. Of course, largest single market for us is China. It's the largest in Zone AOA. It's the second largest in the group. Total sales in 2018 were around CHF 7 billion with mid-single digit growth. I think what's impressive about China is the sheer breadth of categories in which we compete in this market. As all of you know as well, data and how we handle this whole digital world in China is key. What we've done is go way beyond e-commerce. We're talking really here about e-business and starting with consumers.
Because we have this broad portfolio, we're able to collect 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 the leading e-commerce platforms across China. 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 one where we introduced. We are the leaders in ready-to-drink coffee in China, and this product has had great off-take. 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.
Stefan talked earlier about the R&D centers, one of which we have in Beijing. We have four across the Zone. Here we have it very close to the business, and we've launched an incubator team, which working closely with R&D, 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 - 18 months or so. What we're doing now is in 2019, looking to launch 170 new products in a timeframe of six to eight months. Here are a few examples. Many of these actually were ideas that were in the R&D organization and maybe had never been developed, but then very localized for Chinese taste.
We have some herbal soups, one-shot soups, that were produced on our Yinlu platform. We have some healthy nut snacks, which were produced in our Hsu 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 a CHF 1.5 billion 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 NESPLUS brand, which is designed also with not just standard Western ingredients, but also Indian ingredients with a special crunch.
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. Second, coffee. Big opportunity for us here in Zone AOA. It's about a third of the total, let's say, coffee opportunity globally. The category we estimate will grow around CHF 10 billion over five years. 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, both where we have leadership in soluble as well, where we have leadership, RTD, I should 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 Zone EMENA, which we've launched in ASEAN and Oceania, but also in business models. For example, again, in Japan, we've created the Nescafé Ambassador and Home Subscription program, and these continue to grow. We've created a network of more than 500,000 Nescafé Gold Barista and Nescafé Dolce Gusto machines in small offices and households across Japan with more than 500,000 active users.
These are kind of innovative direct-to-consumer business models enabled by e-commerce and direct marketing in small offices. 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. 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, 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 a yearly average annual growth from 2015-2018 of 9%. That's primarily driven by infant nutrition, there's clearly opportunities in other categories as well.
A good example of this is, of course, what has happened in China with Illuma. Illuma 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 has completely transformed that we have primarily into the super premium plus. We launched super premium as the base in 2011, now launched in 2017 with the organic range, in 2018 with A2 Milk. As mentioned earlier, this brand is already at around the CHF 1 billion mark. Also we can look at, let's say, more basic products.
Maggi noodles has recovered very nicely since the 2015 crisis, 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, some examples are listed there, whether it be in portable cup of noodles format or the new Maggi Special Masala with 20 finely ground herbs and spices, which we launched in 2018 on Flipkart then moved into retail. We have a sweet corn variety, which sweet corn is actually baked into the noodle strands, also oats and atta varieties as well, which provide basically a fiber of a bowl of oats 15% of the RDA of protein. It's really moving Maggi from just being a noodle snacking brand into really more of a cooking 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 100-year presence. Sub-Saharan Africa is 48 countries, 9,200 employees, 17 factories, we have around sales of CHF 2.5 billion mid-single-digit growth. The population, of course, is around 1.2 billion, it will grow around 2% a year in the coming years. It's also home to around half of the world's extreme poor. This context requires a very different type of strategy. We need to expand penetration, not just in Nigeria, 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.
If we talk about the types of products then, the bouillon cube, which of interest, we sell about 100 million 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 are products which are sold by coin and not necessarily by note. These are, we call them popular position products, like this Nido Milo or the Golden Maize product. Golden Maize sold in Nigeria. These type of products today already account for 70% of our sales in Central and West Africa. Southeast Asia also provides opportunities. Myanmar is a country with a population of around 53 million 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 packing facility in Myanmar, and this is showing good results. 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, there are three areas which are sizable in which we participate today and we see good opportunities. Leveraging, for example, Bear Brand in both childhood offerings as we see here with the Vietnam product that we sell in Tetra Pak, as well as a product for seniors that we're selling in Indonesia. In Petcare, we have a number two 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 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 around 9% of the group's sales. What's very important here is that we're not just liquefying our powders, maybe in the past we sort of did that sort of thing. 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.
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 the Nescafé Cafe Mocha Cup, which we're launching in the Q2 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 CHF 1 billion 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. Of course, there are opportunities in a number of markets where we expect even faster growth potential. A big key is adapting our business to succeed in this new retail. 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. Of course, we're seeing mobile-first markets such as Nigeria, India, and South Africa. We have the online channels as well. End-to-end business models are doing well. One of the more dramatic examples, I guess, is in China, where we had the 11.11 Singles' Day, where we increased our sales in Tmall by 56% and JD.com by 36%. We really exceeded the growth on the overall platforms themselves. 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 senior citizens to help follow that last mile of delivery.
We're using R&D social listening platform for, again, I talked about the innovation we're looking for in that market. In Singapore, customized gift packs. Creating shared value, absolutely key as part of the heart of what we do in Zone AOA. Rural development, starting with nutrition. We have 120 billion servings of fortified foods, 66 billion in Central West Africa alone. We're also helping markets with rural development. We have long relationships with the farmers, not just here in Indonesia, but also very much in Pakistan and India as well. We're also actively supporting the Nescafé Plan, the Cocoa Plan, and agripreneurship through the Global Youth Initiative. 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, 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 Nestlé 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 system, such as Project STOP you see here.
We're working in the Philippines to improve recycling infrastructure, we're trying to also, let's say, promote extended producer responsibility schemes in India, for example, is one where we're doing this. Another very interesting example we're doing in India, we have had a promotion last year where we gave away one Maggi noodle pack for every 10 empty wrappers that were collected. This resulted in 115,000 wrappers collected last year. There's no simple solution, of course, we have to explore multiple approaches. Since the last investor seminar, our growth has been steady and profitable. Our financials are healthy, we're committed to strengthening the momentum moving ahead. 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, Petcare, R&D, and build capabilities and deepen partnerships with e-commerce.
With that.
Okay. Well, great. Thanks, Chris. Opening it up for question and answers. Jonathan?
Thanks very much.
Okay.
You mentioned it a couple of times, but I didn't hear a lot systematically.
Yeah.
About local market competition.
Right.
That's something that development, especially when you get into these common products.
Yes.
The barrier to entry isn't enormously high and local forms do exist.
Right.
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?
Yeah. I think probably Nestlé has been the pioneer in this particular area. 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. It's hard work, though. It's not easy work. It's not just putting a different package, but it's actually a whole business model and route to market. It's something that we will continue and probably emphasize more moving ahead. What's changed a bit, though, is the ability now for digitization to help, in these particular, let's say, delivery systems that are going to these small stores or these sari-sari stores or mom and pop shops.
We're also connecting then to make sure that we're part of that digital ecosystem so that we can ensure delivery. We talk about premiumization, and I talked about that a lot. Clearly, PPP, as we call it, is one of the key growth areas for us. 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. You have to make sure that you reformulate, package the right way, distribute the right way. You do this. 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.
Yeah.
Because it's obviously highly material to your business.
Yes.
How are you thinking about that medium long term? Are you confident that Increased consumption, particularly increased premiumization, can overcome the falling birth rate. Also, how you're feeling about local competition in China infant since the regulation change?
Yeah.
Do you feel that's reinforced local competition or not? Just value your perspectives.
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. Yes, we do feel, as we've seen so far, that a combination of, let's say, factors will help, and that we believe continue to see growth in this particular area. One is premiumization, clearly, but it's not just premiumization for premiumization's 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. 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 looked 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 two. The third-tier area where there's interesting growth potential still are in those second-tier and third-tier cities, where maybe in the past, we thought that premiumization was not as much an option, that you needed to go more into, let's say, the economy area. We are seeing, though, that those premium segments are really increasing even in second tier and third-tier cities, and that's also facilitated by e-commerce. Overall, yes, we think there will be growth. It's clearly an important area for us. I think we're well-positioned, but we have to be very vigilant and we cannot be complacent.
I see. Go ahead.
Hi, it's David Hayes from SocGen. M&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've liked. You've not mentioned deals really here, Horlicks you walked away from as well. The question is: Is this an organic strategy now in terms of white space, et cetera, for the next few years? Or do you think M&A is doable, but it's just complicated and difficult in certain cases? Thank you.
We are constantly investigating, and clearly, in many of these markets, the way that you, let's say, follow up on M&A is often through developing relationships with the local companies which are based locally. That's one of the strengths that we have, is that being there for so long and developing those close contacts. 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.
Warren Ackerman at the end there.
Hey, Chris. It's Warren Ackerman 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%-2% of your group sales. For Unilever, it's 8%-9% of their group sales, and they've been buying Horlicks, for example. Just interested, when Wan Ling came in, she was trying to fix India with the Maggi issue.
How do you actually go about trying to make India a bigger part of the overall portfolio, given the massive opportunity in India? Going back to David's question, is it M&A, or can you actually expand the portfolio into new areas and maybe premiumize the geography overall?
Yeah. 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 seven 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 Petcare now in China, reentered. We're back now with cereals. Again, these are very small, we're planting the seeds for the future. 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. Coffee is sort of a special beverage at the moment. 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. 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. Yeah, for me, India is one of the, and nutrition as well, one of the key potential growth areas for us.
Well, great. We still have one last question. Maybe Eileen?
Okay.
Can you hear me?
Yeah.
Okay. Quick question, actually, it's more of a clarification, really. I think you mentioned that, did you say ready-to-drink is 9% of sales?
Yeah.
I wonder if that was group sales or AOA sales?
Sorry, AOA sales.
AOA sales. That would be about CHF 2 billion, right? Then on one of the slides, I think you quantified the total market as CHF 206 billion. That seems to be less than 1% penetration, which seems extremely low. My question is, why is it so low? Are there barriers to entry here? Because you obviously mentioned ready-to-drink as a key opportunity.
Yeah.
How easy is it to roll out outside of China, where you are the number one?
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. Yes, it is a huge category. It's a growing category. It is where the future is. I think uniquely in AOA, we're positioned to go after this, but it's 9% of AOAs, to be clear.
That concludes the Q&A.
Okay. All right. First, I introduce Laurent Freixe, who's head of Zone AMS. Laurent.
Good morning, welcome to Zone Americas. I will share the session with Steve, who will give you an update on the Nestlé U.S. growth model. With CHF 31 billion in sales, Zone Americas is the largest business unit for Nestlé and has something to do, obviously, with the sheer size of our U.S. business footprint with NUSA and PetCare North America in particular. Bear in mind that we got as well a tremendous footprint in LATAM. 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 CHF 10 billion in sales. PetCare, contrary to the other Zones where liquid and powdered beverages is number one category PetCare, and we are very happy about that, is our number one category.
The numbers that you see on powdered and liquid beverages are the 2018 numbers, they do not reflect the impact of the Starbucks Consumer Packaged Goods acquisitions. Once fully integrated, Vision 2019, obviously, coffee and beverages will be a very strong second pillar next to PetCare. What is the environment? It is challenging. It is a competitive environment, obviously. The topic of the trade war impact is very timely and very topical, impacts sentiment, but impacts as well input costs. We see a rise in aluminum prices, for instance, in the U.S. This in a context where input costs have been adverse last year, will be adverse as well this year. On top, we got transportation costs on the rise, this is a sheer product of the imbalance between supply and demand, that's structural.
We got the impact of the Latin American currencies, which have devalued significantly in the last years. Record being the Argentinian 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 digitally empowered consumers. 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. Clearly, we want to accelerate growth, we want to grow in that environment, there are challenges, but there are opportunities. The very first thing, of course, in the spirit of the Strategy to Grow cycle, is to focus on achieving efficiencies.
We got, we continue to have ambitious end-to-end efficiency plans. There is not one stone that we leave unturned across the value chain, this brings CHF 300 million annual savings annually. That will be the magnitude for 2019 and beyond. This is giving, obviously, room to invest, 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 three years with CHF 300 million additional CapEx being put on the table to support growth, all those investments are now coming to fruition and will support growth going forward. 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.
Of course, investing behind the brands, investing in innovation, investing to support growth, drives category growth, drives market share gains, which brings sustainable and profitable growth. Growth, as you know, of course, is one of the main levers of margin expansion and brings the sustainability in the 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 on board new capabilities. We got this new head office in the U.S., more open, more connected, digitally enabled.
On the same model, we have moved recently our Brazilian operations to a new, similar environment, connected. We continue redesigning our PetCare 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. I would like to highlight as well that Starbucks is being integrated flawlessly. There is a second project that Moussa 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 cost in the spirit of efficiencies that is already with Nestlé Virtuous Circle.
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. 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 one single IT organization in the U.S. last year.
We are moving this year to one 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 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. Last but not least, our 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 is also some room for improvement in the inventories area. We put the focus leveraging those efficiencies behind growth categories, high growth, high margin categories, Petcare, coffee, and infant nutrition. I would like to highlight that in all three, we got R&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 Petcare, CHF 8.8 billion of sales in the Americas. That's a real powerhouse. We are growing in North America. We are growing double digits in Latin America. E-commerce, which has been, of course, a priority in the last years, is booming, is growing 50% as we speak.
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 play, of course, for us. CHF 4 billion in sales in 2018 in retail. If we include out-of-home, Nestlé Professional is CHF 4.5 billion. Once we have the full impact of the Starbucks integration, that will be CHF 6 billion in sales. 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 second largest market in the world, which is Brazil.
Leveraging the U.S. parts and making sure that it keeps the momentum while deploying in Latin America, which we are 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. Of course, out of home is a massive opportunity in the Zone, both for Nescafé and for Starbucks. Infant nutrition, not as big as in Zone A, 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 a very, very strong presence across the portfolio of options, meals and drinks, infant formula, supplementalization, supplements in the spirit of the 1,000 days, and personalized consumer engagement is also of the essence. 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, it's about improving the relevance of the core recipes, product quality, formats. There again, there is not one stone that is left unturned, we are really encouraged to see the business responding. 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, we have been constrained for a while because of shortage of capacity, we'll be capable also to support the development in Latin America.
Pet litter is also an area where we are doing wonders, where we are limited by capacity, we'll have more capacity coming on stream 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 Nantli factory to develop infant formula in LATAM, also we use the platform to supply Africa. We'll use this investment for roasted and ground coffee in Uruguay to supply R&G 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 Terrafertil, where we see an opportunity with this Nature's Heart brand way beyond Latin America that has global grasp, that has global potential. We are reviewing also the Brazilian portfolio as we speak, 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, it's about superior nutrition, life-changing nutrition, 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, of course, we got the origin, access to the best origins.
RTD convenience is another opportunity, premiumization, we see it across the board as a 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 chilled, 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 CHF 1.1 billion in the Zone. That's excluding Nespresso, this is growing at 50%.
We are gaining share in the core categories, we want to keep, of course, investing in this area in the core categories, in the core platforms, Petcare, nutrition, coffee, and in the core markets. 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. It's important as well to connect the enterprise end to end, 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 Nestlé Virtuous Circle.
I'd like to highlight the progress we've been making in diversity, I'd like to highlight as well the progress we are making in our journey towards zero 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. Of course, we want to do that while creating shared value for society as well as value for Nestlé. The focus areas are around nutrition, Nestlé for Healthier Kids, youth, plastic, and environment. As a video is better than a long speech, let me show you what are the key initiatives that we have in the pipeline in the Zone. We can play the video, please. Momentum is back in the business. That's the big news and the big message.
North America and Latin America both are accelerating, the growth is coming both from volume mix and from pricing. Brazil is back to growth after a couple of years of decline in a context of economic recession. E-commerce is booming, we got many areas of excellence, markets, categories, brand platforms, where we are growing double digits. 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 improvements in working capital. Yeah, growth momentum is back, it's accelerating. Margin is on track to contribute to the group ambition or target by 2020. We do that while reshaping the organization for the future, adding new capabilities, investing in innovation, investing for the future, and improving the portfolio for the new reality. Thank you very much.
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., really a very focused conversation today around enabling profitable growth on our pizza and ice cream business. Before I start that, I just want a quick refresher on the U.S. It's CHF 28 billion of sales for the market, 30% of the overall Nestlé group. You saw in maybe CAGNY or some other previous presentations, the growth returned in 2018. We didn't just talk about, we did it in the U.S., the momentum continued in Q1. Good Q1 performance overall for the business in the market. From a margin standpoint, we're in line with the overall kind of 2020 guidance for our business. It's really focused around accelerating growth in this market.
As though 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, it's focusing on growth. It's absolutely everything we do is around accelerating growth in this marketplace, there's a bunch of different levers, but the two 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. 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. We do that with pride, we try to build a culture that allows them to succeed and thrive. We're really focused on those levers, if we do those well, we know we'll continue to accelerate our growth in the market. 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.
For mostly, I think you guys know, direct store delivery today, we have a frozen model that delivers our pizza and ice cream direct to store from our warehouses, we'll move it into our network. It's a win-win for both us and our retail partners, that's great. It enables key reinvestment behind these businesses that we haven't been able to unlock because of the route to market. It really optimizes an existing best-in-class frozen network. 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 1,400 trucks. We have 2,000 routes, over three million deliveries annually. A very complex organization. It's incredibly high cost to serve our businesses, and in these categories, it's just not sustainable.
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? For us, there were some historical benefits that DSD had that just no longer exist 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 DSD. The reality today is, as the retail environment's consolidated and the retailers have come more sophisticated in terms of controlling their space, they have really gotten very tight around planograms. There's no incremental space for display.
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 a display. You can't just build displays around the store. It's very hard to gain some of these advantage in the space. Ultimately, when you look at our company-owned network, it's from our warehouse to big box retailer today. 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. We can no longer have that in the total value chain between us and our retail partners. We look, we have a perfect analog. We have a very big frozen warehouse business, and we have a frozen DSD business.
We can see, we don't see material differences in the performance on shelf of a warehouse delivery model versus DSD for these. It's really driven us to this decision. For us, it's around simplifying our business model. If you focus on the left, today, we really have four core route to markets. Our frozen DSD that we're talking about today, our frozen warehouse that we take our meals business through, our chilled warehouse, which is about a CHF 3 billion business for us today, which is Coffee-mate, Cookie Dough, some of our other businesses that go through that, and then our ambient warehouse or traditional ambient warehouse. We'll move from the four systems to three, and we'll leverage our existing frozen warehouse system. 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. We'll simplify the business from four route to markets to three, and we'll move over our pizza and ice cream businesses into this. 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 Nestlé and for our retail partners in migrating these total value chain share. It's a far less capital-intensive model if you move away from DSD. 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. Unlocks the resources.
Both of these categories are highly responsive to investment from demand generation standpoint. This unlocks some of those, and it simplifies the business ultimately. 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&L. It will have a one-time sales impact. There's about a CHF 450 million reduction in sales when you adjust the business models. Not all of that is organic growth. You'll see from François later that it doesn't change the overall group guidance. He'll address that later. You'll see kind of a step change to the new business model, that won't really overall affect the guidance. It does come with roughly CHF 500 million of restructuring costs. Really, it's around the assets and most importantly, the people. We don't take this decision lightly.
We took it very, very seriously. In the end, like always with Nestlé, we will treat our employees with the utmost respect and care and concern as we exit out of this business model. We'll invest to make sure we do that well. 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. Now we start the final transition planning for the next Q2. Then we'll really go live Q3, where we start to do the flip from DSD to warehouse. The reality is 2019 is the transition year. Think of this year, it'll take us that year to migrate from one model to the next. Then 2020 is really when you start to see the value capture in that year.
Why are we doing this? Why, right? This is a big, complex, challenging project that I think the market has proven, whether it's with headquarter relocation, divestitures, acquisitions, the ability to handle these complex mark projects. It's to unlock growth. These are good growth businesses for us. Pizza's grown over 3%, ice cream has grown 3.5%. We've innovated very effectively on both of these businesses. We've got over CHF 350 million of new item launches in the last 36 months. We know there's more growth here. We just need more investment to drive these. They're attractive categories that will change this route to market and invest there. Just to close, look, it's really around how do we evolve our foundation to drive future growth? If you remember, just the kind of five key things, right?
We've got leading positions in these two categories. 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 one, so simplifying the business. It is a win-win for us and our retail partners. We're doing it to drive and accelerate growth in this market. You'll see the transition as 2019 and 2020 for the value capture. 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. This is just one of the projects that we do to do that. That's it for this transition.
I'll leave it at that, then I'll open it up to Q&A for both Laurent and I on either subject. Thank you.
Well, thanks a lot. We have 20 minutes Q&A before going to lunch.
Jonathan?
Yeah, go ahead.
Thanks very much. 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? It would occur to me they're going to the same place, and you can change that conversation with retailers. Secondly, does having an inherently more agile network, you'll have less cost and a lower quantum of fixed costs allow you to premiumize and maybe emphasize your DiGiorno's and Häagen-Dazs at the expense of maybe some less premium offerings? Thanks.
Yeah, sure. I'll take the first part of the question. Really, you compete category by category. 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. Each battle is category by category. We really focus on driving the right SKU and the right assortment at that category level. 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. The second thing is clearly a simplified, more agile structure in our ability to serve our customers is required and necessary.
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 attached to the businesses today. We think we can use these new resources to accelerate that growth, not just in premiumization.
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. 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 Berenber. Two questions on the U.S. Could you give us some color on how your share momentum is between the channels, e-commerce, club, discounters, more traditional retailers, give us an idea of where the pressures are or where you're outperforming. I guess related to that, where you're seeing the biggest pressure from private label on the category basis as well.
That's great. Steve?
Let me take. Actually, if you look across the last 12 months, our share has moved pretty materially favorable almost across every category. 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, if you go to the e-commerce, we're actually accelerating our e-commerce growth.
You saw with Laurent at 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. We're over-indexing e-commerce. When you look across the retailer landscape, I had a lot of conversations about discounters in the breaks. Look, they're growing, and we play a role with them. Their model's 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, yeah.
John.
Hi, John Ennis from Goldman. I had a question on the North American Petcare business. 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.
We have a session dedicated to Petcare 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. We were just not capable to supply the demand. 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. 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., I'm confident that this will be occupied at a good level very rapidly.
We have built up capacity in Latin America, at the time when we are building up the first line in the Leon factory in Mexico, we are building up the second line because we saw the demand. We are supplying from the U.S. We saw the demand booming. In pet litter, we have been also under constrained demand for a long period of time. We could have sold a lot more. On those, we are absolutely confident that we will be able to leverage the CapEx. LATAM is booming, growing double digits, we are adding capacity where we see the potential to grow. 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 Petcare.
Where clearly Zone Americas has a strong role to play next to Zone EMENA.
Thanks.
Next question from Alan.
Yeah. 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 of some of the distribution to the retailer. Is there a volume impact as well? I thought one of the advantages of a DSD system was it was getting you not just to the big box retailers, but to 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?
Yeah, 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. 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. We use third-party DSD to do that today, and we'll continue to service those customers in that same way. We don't expect a volume impact in the non-traditional mass channels from that. It's predominantly price because of that.
Great. Any more questions? Guillaume.
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. 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, and it favors large multinationals with great R&D capacities and a strong sustainability agenda? 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. You are absolutely right that Nestlé 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. The fact that we adjusted very quickly and very well to the Ecuadorian first, they were the first to move, then the Chilean model, has created an experience that is shared now among all our operations. We are ready to face Peru, we are ready to face, potentially, Mexico. We are contributing to the framing of the regulations. Obviously, our position, our credibility, in each and every country of Latin America gives us the speaking opportunity and to be listened to. We are absolutely well prepared for that new environment.
The level playing field that it creates actually is playing in our favor. I fully agree with that point. The second one was related to the DSD impact. 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 Häagen-Dazs, but that doesn't change the 2020 margin guidance. That's part of the 2020 guidance.
We still have a few minutes. David?
Hi. David Hayes from SocGen. Just three questions. Just on the DSD change, is it fair to say that taking those brands out of that own system makes them easier to sell to other parties? 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 changes in that over the next couple of years? Thank you.
I'll take the first one, and 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. On the second one?
Yeah, SNAP continues to be a bit of a political football as it passes between administrations. For us, you took the big step down a few years ago in terms of reduction of the 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. For us, as we look across it, we have some businesses that over-index with SNAP households and most of our businesses don't. To be honest, our overall exposure is not extremely high on our predominant food and beverage business. It's very few of our brands that actually over-index there.
Next question from Celine. Did you have one?
Yeah. 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? If you could comment on that. 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?
Yeah.
On the individual margin of the businesses, we don't really comment at that level in the market. 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. We don't really comment specifically on the margin structure on those. For us on frozen food, look, it's a primary focus. If you look at the performance, there's no such thing as frozen food, it's a segmentation of individual businesses. You look at ice cream, we're growing over 3%. You look at pizza, we're growing over 3%. Hot Pockets is actually growing a growing share, over 3%. Stouffer's, we've returned to growth in Q1. Still lots to do on Stouffer's. I don't want to give any indication that the fight is done on Stouffer's. We have a lot to do there.
Good, strong performance and turnaround on that business. Where we still continue to struggle is on the diet segment on Lean Cuisine, right? 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. 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 predominantly on nutritional meals, that we've got to address to fix. Overall, we're pleased with the momentum.
I'd say 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. We've changed the way we innovate, we change the way we work with our R&D partners. We're able to go from idea to launch in a matter of months to actually get it onto the shelf in a matter of months, instead of a one to two year cycle like we were in the past. 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's one more question before I hand over to Mark. Warren, at the end.
I'm going to ask a question on Brazil. I think in Q1, Brazil was up double-digit organic sales growth. Given it's your fourth 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.
Yeah. The positive thing is that we got volume mix growth and pricing growth. It's clear that after a period of decline in pricing is coming back on the back of the dairy business. Volumes are also well-oriented. We are playing efficiently in a market which is also resuming, which is recovering after years of decline, years of recession. This is a very timely turnaround that the market is back to growth, and we are back to growth in a market back to growth. There is a market share component into the equation, obviously.
Thanks, Laurent and Steve. As we close out this section on the Zones, I just wanted to share three quick comments with you. One is, I'm sure the presentations bore that out, I can't 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. To use a good baseball term, we have the bases loaded here for success in the major markets going forward. 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? This is a major news item for today.
I can tell you, 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 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. 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 changed times.
The time has come to make that move. I applaud Steve, I applaud the U.S. leadership team for not shying away from this, because it would be easy to kind of kick the can down the road and kind of not face that change. That change has happened in the marketplace, as he pointed out, we take that opportunity and now make the best of it. The third comment I would like to make specifically refers to Zone EMENA. I know some of the questions were focusing on the OG, it's important for me to highlight one thing that we also highlighted in London. That is, as you compare all three Zones, of course, we're doing a wonderful job in all three of them.
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 refer to Zone EMENA. We're doing this in massive markets like Germany, France, the U.K. 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 these markets for a long time. Now we're trying 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 business in a low growth environment, lots of pricing pressure, also lots of pressure, as you can imagine, from our employee representatives and union partners. This is not an easy environment.
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 larger share of legacy issues while basically then also positioning the business for the future. I can't tell you how impressed I am with that balance. Finding that balance here is particularly tricky in Western Europe, 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. On the other hand, positioning the business for the future, making sure we're not missing out on future trends that give us this growth that ultimately also energizes that part of the organization, that geography.
Fantastic job, 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. 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. Those are just three comments I wanted to make. Hope you enjoyed that section. Hope you enjoyed the morning, hope you also look forward to the lunch break and more of our products.
[Break]
Good afternoon. Are we on time? Yeah, we start. I hope you all had a very nice lunch, and you enjoyed the varieties of food. I saw the queue for the plant-based burger and a few other things. I'm very pleased if you had the 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 three high-growth categories, and have a Q&A about these three categories. It's my pleasure to introduce to you David Rennie, who is the head of our beverage strategic business unit, which of course encompass coffee, and he will focus this afternoon on coffee. Afterwards, we will present to you our Purina, our Petcare strategy.
We'll have Joe Sivew right, CEO of Purina Americas, working through the whole continent, and Nina Leigh Krueger, who is President of Purina North America, to cover Pet care. Finally, Thierry Philardeau, head of the SBU Nutrition, will cover that category. Without further ado, I invite David to come and start the presentation.
Thank you. Thank you, Patrice. 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. 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 three years, the category has been growing at over 5%, and you see that growth is coming from both out of home and CPG retail. 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. 70% of the cups.
Importantly, as I say, both out-of-home and CPG growing in the past five years. We see both growing into the future. 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. Very close behind coffee shops is the emerging growth area of workspace or offices, and that's essentially driven by two 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. Also, cheap workplace coffee is increasingly being replaced by solutions offered by better brands and better experiences. 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.
As people are spending more time on leisure, you are 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. Also we see a lot of growth coming on soluble, which is a very traditional category, one of our heartland categories. 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 are 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. I will talk a bit more about our plans in Asia later in the presentation.
The last area of CPG growth, which is growing, but not quite as fast, we see this emerging, is in premium and super premium roasted 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. As I said, looking forward, we are seeing that growth continuing, and on the right-hand side of the chart as you look at it, we have identified these six big areas of growth, which I will refer to as we go through the presentation as the key focus areas for us to grow. It is also important to note that with the three brands we now have in our portfolio, we believe we are incredibly well placed to delight consumers and our customers with these brands.
Nescafé is the world's favorite coffee brand. A statistic which staggered me when I first heard it, but is absolutely true, is that one out of every seven cups of coffee drunk globally, in home or out of home, is a Nescafé. Nescafé as our biggest and leading coffee brand is still very much at the heart of our growth strategy going forward. To complement that, we have in Nespresso the premium single serve portion system, which is still growing incredibly fast, and you will see some of the innovation that we are bringing to this platform, and delivers a luxury and quality every time in every cup through that capsule system. Then the most recent brand that we have in our portfolio, of course, being Starbucks. That is a brand that really defines the coffee shop experience and coffee shop credentials for an entire generation.
With these three brands, I think we are very well set up to capture that growth. Coffee for us is approaching a CHF 20 billion business, about CHF 19 billion with the Starbucks acquisition coming in this year. It is the biggest business for Nestlé in the portfolio. It is about 19% of our total portfolio. Now in the U.S. with Starbucks, we are very clearly the number two in the U.S. market. That means that we have an unsurpassed global footprint as well as these three great global brands to go out and capture the growth. With that as background, how are we going to set about capturing the growth? We have identified these five strategic priorities. Chris, Laurent referred to some of these this morning.
First is strengthen the core. I want to focus on some examples of how we're strengthening the core, adding value to our brands and to the consumer proposition against the trends that were highlighted this morning. First is in authenticity and origins. Single sourced coffee is something that consumers are increasingly interested in and 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 Nescafé 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, importantly, they're all retailing at about 20% premium versus their base variants. We will continue to drive and value up through using origins and authenticity as a lever. Next area that we talked about this morning, just again to give you a flavor 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. Innovation that you see in the front, which is our Nescafé Gold non-dairy cappuccinos and lattes, is a product that will be rolled out this year, first of all, in the U.K., and then all the way through EMENA and LATAM. That's the first ever at-scale quality product that offers dairy-free alternatives in cappuccinos and lattes.
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. They're designed for cappuccinos and lattes and macchiatos, they are now on sale. 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. Last, more mainstream, but still very important on our Nescafé Dolce Gusto brand. For those of you not too familiar with this platform, it's a well over a CHF 1.5 billion platform, which is particularly important in our European business, our Latin American business, and in Asia.
Flat white coffee shop experience now brought into Nescafé Dolce Gusto. 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. Next area I'd like to talk about is sustainability. Really important for us, 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. First 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. What Nespresso's been able to do through its AA A program, which is a premium sustainability program that runs on Nespresso, 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 Nescafé Plan onto our Nescafé brand. This is the largest sustainability program of its type in the industry.
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. Last year, for the first time, we really connected our Mexican consumers with our Mexican farmers by celebrating 1,000 individual farmers on Nescafé jars in the market. That was an amazing piece of connectivity. The pictures of farmers visiting stores and seeing themselves for the first time in 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. 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.
On aluminum recycling, we are 90%+ ready for recycling those aluminum capsules. This is an example of a premium pen, a Caran d'Ache pen from Switzerland, which we made entirely from recycled Nespresso capsules and was a big hit last year. 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 three 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.
One of the successes of our cold brew initiatives is that we're able to take that formulation through our proprietary knowhow and expand it very quickly into different markets at scale. The next example on healthy eating is a range of cappuccinos and lattes again that we've developed, which have significantly less sugar and fat with no loss in taste. Again, for health-conscious consumers, that has become a very important initiative. 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.
These are just three examples of some of the work that we're doing. The first and most significant is the Vertuo 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 variety of cups, from very small espressos all the way to mugs. We're rolling that out very aggressively. We'll be in 22 markets by the end of this year. You also see here an Esperta system, which is the new machine from Nescafé Dolce Gusto, which is going to add real value in Nescafé Dolce Gusto by allowing us to have Bluetooth-enabled connectivity, providing great solutions for consumers as and when they want it at the touch of an app button. The last example here is a small example.
It's a test that we did. 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 Nescafé, 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 six months. Very interesting results so far, and just an example of how we continue to innovate in systems. Embracing the cold opportunity, very important as well. We've talked a lot about that. Let me just say, in China and ASEAN, 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. We also have a strategy in the U.S. to take our Nescafé brand and the Chameleon brand into many new areas to make sure that we capture specific growth in these new trends. You see on Nescafé a couple of examples of a whipped latte and also a coffee protein drink. Again, you'll have the chance to sample that over the course of today. Let me talk about accelerating in out-of-home, the second last of our areas. We see about a 50 billion cup opportunity in this area, 70% of which is going to come from the workplace and hotel space.
Those are the two 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 Nespresso coming in the top end. Over the last three years, we've done a lot of work to make sure that we can capture more of the value through the chain by offering roast and ground and more complex solutions. Now with Starbucks, we're able to take that to a whole new level with three brands that will really allow us to compete in that space. I've got three 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-size 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 it has a payment system built in. Complicated telemetry that allows us to be right there at the right point of contact with our machine 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 two minutes on the background of the deal.
With Starbucks, we have acquired roughly CHF 2 billion worth of sales, the vast majority of that in the U.S., but also some other markets in food service. Also the rights to perpetually license the Starbucks brand, Starbucks and a number of their other brands, in every CPG category with the exception of ready-to-drink and in all out-of-home environments. That's the deal. As you've heard already, we moved very fast to capitalize on this deal, and within six 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 eight Starbucks by Nespresso, we have eight Starbucks by Nescafé Dolce Gusto, and we have eight roast and ground and whole bean varieties available.
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. Really, Starbucks is coming home. We're live in 10 markets already. We will be live in over 30 markets by the end of the year. Initial indications of consumer uptake and customer excitement are very encouraging. Early days, but we're well on track to see this opportunity realized. 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 four key takeaways.
First of all, Nestlé is the number one global coffee company, and we have the three 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. Last but not least, we are committed to moving with speed to capture those opportunities. Thank you very much. I'd like to hand over now to Joe to take you through the world of Petcare. Thank you, Joe.
Thank you. Thank you, David. Good afternoon. It's my pleasure to be here today and talk about our Petc are 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 Petc are, I'll be referring to dog food and cat food only. In Nina Leigh'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 Nina Leigh will follow with a deep dive, if you will, on the U.S. business. Globally, the pet category is large and growing, right? An CHF 82.5 billion category with a strong track record of growth.
In fact, from 2016 - 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 EMENA, excuse me, roughly 75% of the category. From a competitive standpoint, the category really is highly fragmented. You have two 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 faction, if you will, of smaller players, local players, most of which are probably CHF 100 million or smaller. All right? 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. 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. For example, in Brazil, where dog ownership is higher than in the U.S., commercial coverage is still less than half, right? 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. In fact, 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 Nestlé, this translates, excuse me, 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 CHF 13 billion and a profit of over 20%. The global nature of this category allows us to have global brands. We boast that we have CHF 7 billion 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 consumer's needs worldwide. Globally, Purina is a critical contributor to Nestlé. We take that very seriously.
Purina contributed 14% of Nestlé 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 Nestlé's purpose and values. That's what I wanted to share with you today. I'm going to turn it over to Nina Leigh so we can get to the meat of the business matter, so there you go.
Thank you, Joe. The U.S. is the largest Petcare market in the world at CHF 32 billion, 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 two trip driver behind prescription drugs and is the second highest spend per household, just behind tobacco. As Joe mentioned, the global Petc are 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%+ by 2023. Similar to other Nestlé 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 positions 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 Petcare category in the U.S. It is delivering over 80% of the growth in the last three years.
Purina has a commitment to innovation and premiumization across our entire portfolio. Take a look at our Castor & 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 it home. 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 filets, 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 six 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 Beneful Superfoods with quinoa and kale.
Purina drives leading-edge innovation through our unsurpassed knowledge of pet nutrition and our world-class R&D. We've recently established the state-of-the-art Purina Institute, which provides a voice to more than 500 Purina scientists and Petcare 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 Supplements Calming Care is one of our new introductions that we've had. We've also introduced formulas like Purina Pro Plan Bright Mind. Purina is the fastest-growing manufacturer among science-focused brands, growing at twice the rate of our competition in 2018. 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 Beneful Main Line 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 store-based. 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 Petcare partner, fostering a lifetime relationship that drives sales and 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 Petfinder 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 Wamiz to leverage their expertise to accelerate our business models in the U.S.
We understand how important open innovation is. We have to continue to keep our pulse on innovative business models to rapidly learn, adapt, and activate. For instance, Nestlé Ventures and 9 Square Ventures are two vehicles through which we invest in early-stage entrepreneurial companies. The Petc are Innovation Prize provides resources to startups in the Petcare space. 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 RedRover, 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 Petcare through our portfolio of brands built on deep consumer insights, our unsurpassed knowledge of pet nutrition and world-class R&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 Thierry to talk infant nutrition.
It's not because I follow that I will not lead. Before we start, I'd like to stay a few seconds with you on three 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 five 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 30%, but you can see a lot of, let's say, competitors behind us. So we lead, and they follow.
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 OPTIPRO rollout. We have also a lot of opportunities in the naturalization fields and the new food beliefs through A2, organic, goat, et cetera. Last but not least, also by expanding the usage of our brands 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 EMENA, AMS well-balanced. We have seven power brands, seven billionaire brands, representing 86% of the business.
We have support, and you could see that this morning with Stefan's presentation, unsurpassed scientific expertise. We do this business since the beginning, 160 years of experience. You don't build that in one second. You can see 233 patents in the last five years. We have 33 clinical studies at the moment. We have also an engaged structure behind that. That is this organization we discussed this morning, this winning matrix, SBU 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 one strategic business unit with authority and embedded R&D with the three Zones, three regions reporting to the Zone heads and the markets which are now fully aligned with Zone heads to implement the strategy locally.
We reduced above market cost by 16% without disturbing anything. We were able to roll out rapidly our HMO innovation in 44 markets. 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 330 basis points to 3.8% and also growth of our UTOP. 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 first 1,000 days of life. The first 1,000 days of life being pregnancy and the first two years of the child. We have three 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 first 1,000 days. All moms should feel respected and at peace with their decision on how to feed their baby. That is important. We are committed to two things: deliver cutting-edge innovation and services to all parents and babies. When I say all parents and babies, it is also including breastfeeding parents. 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 six months to one year. So it is an important responsibility. We feed every year 15 million babies, so we have, if you want, the responsibility to feed a country like the Netherlands per year. We do not take that not seriously.
Our portfolio, both of products and services, is unique across this 1,000-day, from maternal nutrition to, let us say, growing up milks and later stages. We have services to mothers and parents with Baby & Me and to doctors and healthcare professionals with the Nestlé Nutrition Institute. So a unique position in that 1,000-day window. Four key strategic priorities for the infant nutrition business. First, continue to build our leadership in Greater China. Two, strengthen our infant formula leadership globally outside of China. Three, turn around Gerber in the U.S. Four, realize the Cerelac full potential. The Chinese market is key to this category leadership. Why? Because it is 1/3, 1/8 of the birth, 1/3 of the sales, and 60% of the growth. 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 is also very competitive market, as you can see, where we lead, but there are still 250 brands and maybe, let us say in the regions in the West. So we can seize new opportunity to really strengthen our leadership there. We have three power brands, Illuma, S-26, and NAN, brand and sub-brand. We can win and execute also a move to the West, a move to the big China to third and fourth 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. We are actually partnering with Ali and JD, launching cross-border innovations. We have now a dedicated structure for cross-border, in China, coming from different countries in AOA and in the U.S. Last but not least, an important pillar is also to expand our baby food with organic. We became leader in the last two months at China level in baby food. Second pillar is to strengthen further our infant formula global leadership. As you can see, AOA, AMS, and EMENA out of Greater China are quite well-balanced. We enjoy good market position with 60% of our markets where we are number one and 22% where we are number two. So strong positions which delivered profitable growth accretive to the category. Oh, sorry. 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 launch in five markets and lactose, our more affordable formula, and our NAN 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 healthcare professionals and mothers 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 up milks and later on. Number three, of course, is to solve and turn around Gerber U.S.. We have executed the relaunch. I hope you had the occasion to see our new products on the exhibition today and test some of them.
We have restaged the core. We have accelerated on organic. You can see we are starting to move the needle on organic, but we still need to reinvent the core. We will execute a profound transformation of our business. First, bringing naturally key 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 an infant nutrition or baby food category, counseling and being behind the parents is important. We will lead with best-in-class services with our 24/7 service. Last but not least, we want to fully realize the potential of infant cereals.
This is the base of this company. The first product that was launched by Henri Nestlé was infant cereals. We are clear leaders in that category. We are leader number one in eight 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. We will really push between Sub-Saharan Africa and Brazil. There is a lot of possible opportunities in terms of consumption occasions, diversification, and bringing the right nutrition to those consumers. A few examples. We have rolled out in 20 markets our no added sugar and zero sucrose solutions. We are now driving the new cereal ideology with a launch of organic nature selection and ancient grain varieties. We will drive affordability, especially in Africa, with 12 markets with single sachet.
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. Even a few months ago, we were in London with stakeholders convening together with Mark, and we really engaged with the civil society. We are committed to be the leaders in implementing those breast milk substitute policies responsibly. We are serious about it, so we have external and internal auditing for that. Last year, 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 at Nestlé. With this, I can conclude that we are well-positioned to continue to win. Seven billion-year brands 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 milks. With this, I would like just to conclude with a new baby, our latest communication for NAN, that will be on air in two weeks' time. Please.
Thank you.
Okay. Well, thanks for listening. We have abundant time for question and answers until 10 minutes past three. Here we have the five speakers. Who wants to start with the first question? John?
Hi, John Ennis from Goldman. I've got two, actually. The first is on the Starbucks K-Cups business. I wondered if you could comment on the growth delivered by the K-Cups relative to the rest of the Starbucks portfolio, and then maybe detail how the margin profile differs for Nestlé, i.e., 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? My second question is, when you go through the three presentations, the category growth for pet, I think was around seven, coffee was at five, nutrition was at three. 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 one. Thanks.
Okay. Thank you. On the question on K-Cup, the way the Starbucks business divides up is roughly one third is out of home, one third is K-Cup, and one third is traditional roast and ground. When we look at the Starbucks business we have, that's the sort of shape of the business. K-Cup is an important part of that portfolio. Starbucks' share of K-Cup is about 20% of that K-Cup system. Starbucks continues to be a major driver of the K-Cup business. It's an important business for us. It's about a third of the business we've acquired. I'm not going into specifics on the margin on your spec, it's an important part of the business, it's not a disproportionate part of where we see the growth. Important, not disproportionate.
We'll continue to drive all the elements of the business that we've bought going forward.
Okay.
On the second question, could you just repeat the back end of the second question?
Was on category growth or planning to gain market share.
Yeah.
Category growth would be on average claimed.
That's.
Exactly. It was for the nutrition business, really.
Okay. Thank you.
That was the category where.
Yeah.
Growth was below 4%, it was therefore implying market share gains.
Yeah, we know, Joe, because you remember Marco, when we were 30 years ago in Italy both, Helmut Maucher came to the market, he made a comment at the time, and everyone was laughing, but not so much, was, "There are no mature markets, there are only mature managers," he used to say. 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, 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. In those parts, by the way, of China, birth rates are higher.
We can kill two pigeons with one stone. 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. 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 fast in China. We can play also on the duration in which consumers are entering into a category. I'm convinced that yes, we'll have a sort of stabilization to 135 million 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 one child as much as a French consumer with 2.4.
That means premiumization is an opportunity for us, and we have solutions, top-notch factories, and great solutions to cater the needs of all those demanding consumers. I'm convinced the category growth is one thing, but we have the means to win share in this category.
Okay, any other questions? Well, I see that Warren?
Hi. Question on China Baby. You said that you've got three brands, Illuma, S-26, and NAN. On Illuma, 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 Illuma can go and what share it's already got. Then secondly, if I look at the other brands, S-26 and NAN, if you strip out the growth of Illuma, it doesn't look like those other brands have been growing very fast. I was just wondering whether you can maybe talk to us about S-26 and NAN in China and whether those brands are growing or what your plans are to try and get them to grow. Thanks.
Yeah. 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 S-26. We are in the middle of relaunch of S-26, with our two pillars, Gold and Ultima. What has happened, somewhere we tend to prioritize in the past Illuma only. Now we are back with a strong proposition on brain with S-26, and we will push forward. These are the kind of categories where we were discussing means behind growth. Clearly, management has given us the means for the coming years to push those two brands forward simultaneously. NAN is a more specific proposition on hypoallergenic conditions and a bit less, let's say, mainstream.
Even NAN has also plans to grow distribution in Internal China. I think, let's say, in the past, we might have put too much emphasis on Illuma only. Now we have an allocation of resources that allows for growth on all the portfolio, as you have seen with latest NAN communication, but also on S-26 on brain development, and Illuma will continue to thrive for sure.
Any more questions maybe on Petcare?
Not.
I see that the sell side are actually having the monopoly of questions, but okay. Go ahead.
Thank you. Well, I hope it will be my interest. I don't have a question on Petcare, but on infant formula.
Thank you.
I'm sorry. The question is regarding China and the indirect and direct sales. Obviously, you are 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?
First of all, you have to know that our share in e-commerce is superior to our share in offline. That's important. We are category captain at Alibaba, so we are really highly engaged with our key e-commerce partners. That's important that we win there. 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 two big factories where we produce locally. We have a brand like Illuma that is imported from Ireland, so exclusively from outside. We have baby food imported, we have baby food produced locally. We have different feet, different pillars to build on. 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.
We can win with different solutions. 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. I think we have a great advantage to play on all these different pillars, cards to win the game.
Towards the bottom. Yep. Go ahead. Nadeem.
This is a buy side question, and it's on Petc are. Maybe just talking about e-commerce, this is Nadim Rizk at Fiera Capital. Just talking about e-commerce, can you maybe comment on the margins. I know you won't maybe give specific numbers, but how do margins compare on the pet side between e-com and the traditional channels?
Right now excuse me, trade spend is a little higher on the e-com side, right? 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. At this point, there is a little bit of a disadvantage.
This is a question of just the scale. I didn't get the scale or this is just a question of investing in e-com capabilities today?
This is a question of balance of power, and the pure plays have the balance of power right now.
Thank you.
Very precise answer. Any more questions? We go back to the sell side, Celine.
Well, thank you. I'm afraid . So yeah. I'll start with the Petc are. Three questions. Why is the growth going to accelerate globally? Second, you didn't mention pet health. I know in terms of nutrition, going into more OTC type for pet, is it an area of interest and of growth? My third question was on D2C, how big that could be as an opportunity? I think you bought PetCom and could you elaborate a bit more of what you do in terms of D2C in pet? I have a few more questions on coffee and nutrition. Thank you.
Globally, I think what we're looking for is you see a lot of emerging markets
As I pointed out, excuse me, in China where you have household penetration that's so low with pet ownership and in Brazil where, what I call caloric coverage, commercial coverage is still so low. I think we're seeing a lot of signposts for an emerging market as an emerging middle class. We're seeing that more and more around the world, right? We're also seeing our portfolio becoming sharper and sharper, and with the advantage of the digital world, et cetera, much more efficient and effective in terms of us getting there. For me, in terms of true growth, 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 being translated into pet food, I think that's going to justify 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. 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, that area.
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.
Last one was on B2C in Petcare, sorry. B2C, if you could elaborate.
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 have a brand, Just Right, which is direct to consumer, and we're partnering with our colleagues in M&A with tails.com to determine how do we best bring personalized nutrition to the U.S. market. We will be revamping and launching something near and dear here in the next few months.
Okay. Alan, go ahead.
Perfect. There's two questions on coffee, one micro and one big picture. The micro one is, outside of the U.S., how do you expect your Starbucks sales to split between Nespresso, Dolce Gusto and the roast and grind variants? My big-picture question is, if I look at what you paid for Starbucks and I do an MPV of what the likely royalty payments are going to be over the next X number of years, that's a lot of money. 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 exploit that opportunity that you see Starbucks filling? Thank you.
Let me start with the macro. 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 Nescafé, Nespresso, and Starbucks, you can see they're very complementary brand propositions. Nescafé has a unique role within our coffee portfolio. Nespresso has. Starbucks is 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. Would it have been possible for us to create a Nescafé version of Starbucks? Honestly, probably not, because it starts from the coffee shop and allows us to bring the coffee shop in home. 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.
We're going to have this brand and develop this brand for forever. This was the right move to allow us to complete that portfolio of the three leading global brands. That 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 Nescafé 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 roast and ground in whole bean in that first launch. We will definitely be launching that across the world. 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, to 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. We see this as the beginning of a portfolio, certainly not the end. There's many more places we can take that Starbucks proposition.
Eileen, your turn.
Can you hear me?
Yes.
Yes.
Great. I thought I'd ask more questions on pet, just to round things a bit.
Yes.
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. Also more broadly, what the percentage of your sales is now in the U.S. market that's from the premium segment. Because I think you've underperformed the category in the last few years, maybe because of under-indexing in that segment. That's the first question. Then the second one, in the annual report, I noticed that the Petcare 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.
Okay.
The Merrick question. In terms of expansion on Merrick, 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. Again, this comes back to our consumer segmentation. Our consumer segmentation is so tightly defined and really gets to how we optimize brands and products to consumers. We don't need to take Merrick cross-channel. The other expansion, 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.
Can do premium.
Go premium.
I mentioned in the presentation that for us, the premium business represents about a third of our business, whereas it's about 25% of the category. We have had declines in there in the past. The good news is, when you look at that in the first quarter, we've increased our sales, and we believe that's because increasing the relevancy of our core is starting to pay off. We expect those trends to turn as we move into the rest of this year. Margin.
No. There's no deterioration of margin that I'm aware of. No.
We can follow up later on that specific question. Jamie?
Jamie Isenwater from Ash Park. A question on nutrition and one on coffee as well. Does the BabyNes business still exist? If so, would that not have a big opportunity in China given the premiumization of that market? 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.
On the BabyNes, I think you are right. We have actually decided last year to focus on China. 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. 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%. Higher proportion of people that are what we call uncompromising pioneers. They relate to the BabyNes brand very well. 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.
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. 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. It's in our interest as well as Starbucks interest to make sure that this brand continues to grow, be a premium brand, and add value. 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. It really is a business of partnership.
One of the reasons we were able to move so quickly was that ourselves 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 four to five-week period. 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 both businesses.
We still have time for one. Guillaume? Yeah.
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. Do you think you've got the right product offering in place at the moment? What could be the incremental cost associated with that in terms of, be it nutritional consultants or infrastructures? In other words, how are you planning on balancing organic growth and continued growth and operating margin expansion?
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, Alibaba, JD, et cetera, to find ways of reaching those 10 additional 10,000 baby stores with a new route to market, if you want, with the right supply chain setup and without sacrificing margins. We have the brands and sub-brands, I would say, to attack that part of the market. No sacrifice on margin, just innovation into the way we go there.
Any other questions? Otherwise, we can conclude the Q&A session, and I open the break.
Thank you.
Thank you.
Thank you.
Good afternoon. Good afternoon. My name is Maurizio Patarnello, and I am the CEO of Nestlé Waters since January 2017. 26 years of Nestlé, of which over 16 dedicated to the water business. I am happy to be here today and to show what we are doing to improve the profitable growth of Nestlé Waters. Let me first of all introduce the category. Between 2016 and 2018, the category continued to grow at 7% 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 five years a growth of 6%. Nestlé Waters is the global leader. 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 four consumer trends. Number one is innovation. That last year accounted for more than 30% of the total growth of the category. Healthier drinks, that for the categories means essentially low calories or no sugar or low sugar, but also a premiumization in the premium still segment, especially in the U.S., that had a very good growth, especially in the last two, three years, and a comeback of the growth in the last two, three years of sparkling, especially in the U.S. More than 50% of Nestlé Waters' 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 end, to the competition with the private label. We have 4% of our portfolio which is represented by premium still and functional flavored water, and we are planning to catch up there in these two promising segments. We have six 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.
We intend t o fund this growth through a reduction of our structural cost and active management of our portfolio, which we have done already in the past. We have taken a certain number of actions. 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. Then, especially for water, it is extremely important to have as a strategic priority, the sustainability that for us is water and plastic. I'll come back to these points. Let me first of all focus on the international brands that had also last year a good growth, as also in the previous years. For us, the two 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, especially in what we call taste with no calories. I would like to signal the very promising launch of San Pellegrino Essenza that was launched at the end of last year and is very promising. Also in the area of what we call pleasure with low calories, I would like to outline two very promising launches, Perrier & Juice that has been launched last year and now is with a roll-out global. Momenti, which is a sparkling beverage, fruit beverage, under San Pellegrino brand with low calories. We want to associate to these two iconic brands also Acqua Panna and enter in the retail in the premium still. Acqua Panna is being present in the market together with San Pellegrino in the HoReCa, very successful.
Now we intend to take advantage of the strong growth in the premium still and take our position in the retail by launching a full range of the Panna brand, especially in the U.S., for the home and out-of-home consumption. We have just launched nationally in the U.S. with the range that you see there, and with the positioning 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 Acqua Panna. 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 Nestlé 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 two examples, Poland 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. 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., now we intend to launch it nationwide. You can see here that we just launched the first SKU, which is made of 100% of recycled PET at nationwide level. We launch it, first 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 Poland Spring at nationwide level. We are going to invest in media behind this brand. I would like to share with you the video, which is the advertise. This is the advertisement that has been just aired in the U.S. Continuing 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 a flavor water under the regional spring water brand, that's been a quite successful launch. However, we also want to enter in the functional water, there are a few examples where we already launched in the course of 2018 under the infused water, infused with flavor with fruits and also infused with a tea base, leveraging and capitalizing quite good European brands such as Vittel, Contrex, and Levissima. We just launched in emerging markets, Nestlé Pure Life with electrolytes to give an enhanced hydration, what we call the next generation of hydration, and based on two concept, active and balance, and we're going to roll out this in the rest of the world. The third priority in growth is to differentiate through technologies and services. You may know that we have a business of about CHF 1 billion, which is direct to consumer.
Most of it is in the U.S. under ReadyRefresh. We serve more than 1.3 million family directly in the U.S., and we are re-engineering 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. I'm also happy to announce you that we're going to enter in the water dispenser.
As Q1 2020, we're going to launch our first water dispenser, Refill+, under Nestlé Pure 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 this premiumization? First of all, through a reduction of our cost and primarily structural cost. In the 2017 and 2018, we have 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, first of all, to put some of it in the profit, but most importantly, to invest behind our brands.
I've given here a couple of examples where we have invest especially in the U.S. in our brands, being in the regional waters, being in the premium brands. Most importantly is our sustainability strategy, which is made of two 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 the fence of our factories, focusing on reducing the water consumption, and we have achieved very good results. In the last 10 years, we've reduced by nearly 30% the water consumption, and we've been focusing in protecting our water wells and our catchments. We decided to open up, as these watersheds are mostly shared with the communities. 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. 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. Plastic, of course. We follow the same framework of the group and, of course, adapting it to Nestlé Waters. This is made, first 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. At same time, to develop new kind of packagings, 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+ water dispenser is one of them. All together, they ensure that we can tackle, through recycled PET, 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 2030, 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 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 PET. We have taken the commitment to reach at least 35% of recycled PET by 2025. Here you have some example of brands where we're going to go higher than 35%, up to 50%. At the same time, we've been able to introduce a few SKUs where we are among the first in the world that we can produce bottles with 100% recycled PET. Here you have a few examples. We have some alliances and partnership to develop bioplastic or biodegradable plastic.
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 Nestlé Waters. We have been strongly affected by a sudden increase of the cost of the PET 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 330 basis points and through reduction of our cost and price increase. At the same time, this had an impact on our volumes.
This obviously is something that, let's say, happened in 2018, although also the price of the PET continued to be challenging also in 2019. Just to summarize, our strategy is based on drive the growth, fund the growth, and enable a sustainable growth. I mentioned, first of all, that to drive the growth, we intend to premiumize, to innovate, to enter more aggressively in functional and flavor water, to differentiate through technologies and services, but at the same time, also to protect our core. Fund 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. I am happy to answer to your questions.
Thanks, Maurizio.
Thank you.
We open it up for questions. Any further Pierre?
Hello. Pierre from ODDO. I have a question on portfolio management. You have driven over the last three to four 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 a big exposure to North America. 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. On the very long term, what's the plan?
Well, first of all, let me tell you that most of our growth today comes from emerging markets. Organically we are addressing the portfolio. Most importantly, our portfolio is very much exposed, especially to the case pack in the U.S. This is a part that we are continually reviewing to see what are the opportunities there, and this to ensure that we can be in the part of the portfolio where we have a good ability to win. 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?
Hi, 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 Fever-Tree, for instance, in the mixer. I'm happy to tell you that we are reintroducing San Pellegrino Tonica in the course of 2019 under a renewed packaging image. We are aware that there is a good opportunity in mixers, and San Pellegrino clearly can play an important role there.
Any other questions? Madame?
Thank you very much. Regarding DSD in waters, obviously you exited now in other categories. Do you still think it's vital, the DSD in the water business?
The DSD as it was described this morning, 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. It's true that still the DSD in the beverage plays a role to get to the customers, and we actually have, today in Nestlé Waters North America, we have a mixed model. We reach through a DSD, through wholesalers. They have a DSD, and we go direct to the large customer. We have a mixed model. It's quite different compared to the frozen food.
Well, we would still have time for one more question.
Hi, it's Anubhav Malhotra from Liberum. I just wanted to ask about the emerging market growth. Could you break that up for me into three components, the volume, mix, and pricing? 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. Does that have an impact on your margin in the emerging markets? 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 Nestlé 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. We have, in emerging markets, in most of them, a dual brand strategy. We have Nestlé Pure Life. We have a local brand. Most of the time, the volumes are split equally between both of them. It's not comparable. I mean, the case of the U.S., 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. Jean-Philippe.
I have a question on the plastic, as it is a huge concern nowadays. I wonder whether you're exploring some new packaging. I think some new startups, companies are exploring like aseptic cardboard , for instance. Are you exploring such options?
Look, I showed before, we have signed three 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 say it in the category, in 2020, and then we have to scale it up. We have an alliance with Danimer Scientific to develop biodegradable PET, which still has to deliver its result, and we recently have joined a consortium with Carbios, who is going to develop a chemical PET based on enzyme technology. We are into the development of this new plastic, and we will continue this direction because the recycled PET 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 tried to take pricing in Pure Life. Private label didn't follow. You lost a load of market share. Just seems to be a brand that's really struggling to differentiate. I know you're doing a new Pure Life into offices. Is that going to be something that will differentiate the brand?
Well, these are two 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 that 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. 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 Nestlé Pure Life is number one concern for us versus private label.
Thanks, Maurizio.
Okay, let me now hand over to Greg, who will introduce you Health Science. Thank you.
Thank you very much, Maurizio. Good afternoon, everybody. It's a pleasure to be here, let me take you through the exciting business of Nestlé Health Science. First of all, let me start by just saying what employees at Nestlé Health Science are passionate about, this is about empowering healthier lives through nutrition. Very often, this is impacted by personal and family experiences. I will take you through our business, then we'll deep dive in our strategy creating shared value, last but not least, a few numbers on our business. First, just a few numbers. Nestlé Health Science is a CHF 2.7 billion business. Our underlying top number is 55. We're investing for growth and driving scale. Then last but not least, we're focusing on two 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 two categories. First, Consumer Care is a large and attractive category. We define this category as nutritional supplements, vitamins, minerals, and supplements. It excludes drugs, OTC. It is a fragmented category. There are few global players, we're a strong number three in that category. The growth is driven by underlying trends, I'll take you through those trends afterwards. Private label is very low at below 10% rate, 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 two global players.
The other players are really regional or local, we're a strong number two. The channel here is evenly split between what we call institutional, hospital, nursing home care, and about 50% in pharmacy. The key trends in both categories can be summarized as you can see here. First of all, about health consciousness, prevention and self pay, driven by this Dr. Google. One in 20 Google searches today are related to health information. Over half of U.S. health purchases are driven by digital. 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. A significant growth in both categories is specific conditions.
These specialty conditions, that drives about a 5x growth versus the general nutrition. 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. If you look at the number of high-quality publications and studies that relate nutrition and health in the last two decades, that number has been multiplied by 20 times. One more last slide on our business. Let me just highlight some of our key brands, leading brands. On the consumer care side first, 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 Encapsulations as a leading brand in VMS for professionals, healthcare practitioners.
Here, this brand is about innovative leadership in high quality, free-from movement, nothing but pure. We have leading brands with Boost and Nutren Senior, for example. These are nutritional brands, nutritional supplements allowing the 60+ to achieve and maintain healthy nutrition and achieve complete nutrition. 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 Alfamino, 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. Last but not least, leading brands in tube feeding and oral nutrition, in surgery, cancer, and for example, gastrointestinal malabsorption. Let's talk a little bit about strategy, we'll start very high level, then I'll deep dive.
With this unique portfolio I just described, we have really an amazing opportunity to go from prevention 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. 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 healthcare providers. We reach more than 300,000 healthcare providers across the world, we provide them high-quality content and education. We focus on reimbursement and market access for patients. At the same time, we have significant capability on consumers from consumer insights, DTC, retail, also we manage more than 1,000 ambassadors, giving us access and coverage for 100 million+ followers.
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're investing significantly in China, where we're growing more than 40%. We're focusing on delivering new growth. I will deep dive on some examples, where we're focusing on leading innovation 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 terms of reliable and efficient supply chain and manufacturing capability, R&D and clinical evidence building, excellence in quality, regulatory, and medical.
This is key to the success of our business. Let me just deep dive in six areas where we are focusing to take advantage of the trends I highlighted before and deliver this accelerated growth. First 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&D capability that we have at Nestlé 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. 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&D in microbiome, and this is another significant opportunity we're focusing on. I would say the microbiome is responsible for 80% of your immune system. I call this the launchpad of your health, and we see significant opportunity. Nutrition also plays a significant role in weight management, diabetes. We focus on specific formulation impacting blood glucose level, for example. 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. Starting with e-commerce, it is already a significant platform for Nestlé Health Science. CHF 300 million in sales with significant growth, focusing on the two largest opportunities for us, U.S. and China, growing significantly with leading brands, Garden of Life and Pure Encapsulations.
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 examples moving forward. Driving growth and differentiation through our pipeline using exactly the same framework that Patrice Bula 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, Compleat was the first to 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 five, six months after launch. We also are active in the vegan category. Stefan talked about the alternative protein technology in our R&D framework. 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. 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 their treatment. Moving fast on trends, that's also core to our business.
Let me just highlight very proudly that we are launching 19 SKUs in the CBD. We launched those 19 SKUs two weeks ago with Garden of Life, softgels, oils, and sprays. This is the first true national brand launch in a health food store. We're setting the right standard with Garden of Life, a well-known trusted brand. It is THC-free, third-party certified on purity and potency, organic, traceable, solvent-free extraction. 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 launch 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. 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, we basically focus on three pillars. First 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.
We launched, at the beginning of this year, the ModuLife platform for Crohn's 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. This combination diet has been studied in clinical trials and published with a significant reduction of inflammation. We achieved a 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. 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 are very excited about the acquisition of Atrium Innovations with their two leading brands, Atrium Garden of Life and Pure Encapsulations. Both brands represent 70% of the business of Atrium Innovations. We are confident about our ability to deliver on the acquisition plan. Innovation is great. Execution is key, too, and let me just highlight how we think. It is a fail fast, move forward mindset. We are leading to success stories like the two highlighted here.
We launched a woman vitamin brand, mykind, first gummy to deliver a full organic, non-GMO certified product. We use apple pectin instead of gelatin from porcine 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. 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 are 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 is on a sole nutrition, on one of her product called Peptamen.
We met her, we met her parents. We have 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. It was an amazing experience also for our employees to meet and see the impact we are having on this girl's life and her parents.
The same applies to cancer patients, where with our products, we reach more than 400,000 patients globally. We can make their life a little bit better every day by giving them access to nutritional support they deserve. Impacting individuals and society is core to our focus. We are focusing on three 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 million straws from our business in 2019. We will remove another 100 million next year in the U.S., and basically, by the end of 2020, we will have removed all the straws from our products. 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.
A few numbers on our business. We are focusing on delivering profitable growth. In terms of continued acceleration, we have a sound business. We are 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. 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 us take questions.
Thanks, Gregor. We have 15 minutes for questions. Getting tired, it seems.
He was very convincing.
Yeah. It was a very comprehensive presentation, no?
Pierre, go ahead. Yeah.
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 clearly the case because I think that the leader has less than 3% share worldwide. Do you think that there are the long-term characteristic for this market to be a bit more concentrated? Or do you 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.
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 acquisitions around that category, and I think it will continue. Having said that, acquisition of a vast source of many brands across the world may not be the solution. Careful assessment of that fragmentation and of clear opportunities is key to do the right thing in terms of consolidation. I would say, I'm expecting this fragmentation to stay for a long time.
Tristan, yeah.
Tristan van Strien from Redburn 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 Nestlé 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 a similar product in terms of the formulation, and it's the same channel. Right now, that's one SKU, but I think there is more opportunity for sure.
Yeah, Jamie, go ahead.
Thanks. I think it was the 2011 seminar with Luis. He 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? There were various investments, I remember. You mentioned Vitaflo 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, what I'd term, more left field programs, how they have panned out? Thanks.
Right. Thank you. 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. I think some of the acquisitions, for example, that were made, were part of that learning process. Vitaflo is a huge success story. That business has multiplied by three 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 one, and we are currently reviewing the Prometheus business, which was one of the acquisitions back in 2011.
Any other questions? Tom? Fine.
There was someone raising their hand in the back. Right there. No, seems that Okay, James.
Hi there. Just trying to think about how we should think about the split of the portfolio in the future between, are there products which are bought at retail, products which are prescribed by healthcare professionals versus administered on premise by healthcare professionals? At the moment, obviously, I guess, your retail team's quite a small part, although bigger after the Atrium acquisition. In particular, how big does that part of the portfolio, how big is that likely to grow?
Yeah. Good question. Thank you. 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 reason for opportunities in the acquisition. 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. We're executing, leveraging the big Nestlé and the capabilities that we have. That's where we are. We're one 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 four-week basis, we are the number one absolute growth driver in that category in food, drug, mass.
Okay. I don't see any other questions. We can reconvene at 20 - 5 with the last presentation by François in the Q&A session. Thanks, Greg.
Thank you very much.
[Break]
Good afternoon.
Good afternoon to all. My name is François Roger, CFO, joined Nestlé four years ago. My presentation is the last one of the day before we move to the Q&A. Just to avoid any expectation, my presentation does not contain any photo or any video, only numbers and good numbers. I will cover five topics today. I will start with an update on our progress towards our 2020 targets. I will cover in-depth capital allocation and return on invested capital. I will cover briefly earnings per share and capital structure. Two 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 our organic growth last year and further progress in the first quarter of 2019, where we landed at 3.4%. As far as the bottom line is concerned, we improved our underlying trading operating profit by 100 basis points over the last two years. There are still some factors that could influence the exact landing for next year, starting with commodity pricing and potentially need for reinvestment in our own business. We have laid the foundation over the last two years in order to get to our 2020 targets, and everything that we have done over the last two years will also contribute to our profitable growth agenda for 2019 and 2020. 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 three main ones are high growth categories, emerging markets and premium products. High growth categories, you know them, coffee, Petcare, water, infant nutrition, and consumer healthcare. 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 digits, or I could mention as well Russia, which was double digits in Q1, and India as well, just to name a few. Premium products, it accounts for 22% of our sales. It grows at more than two times the average of the group in terms of organic growth. Premium products account for 22% of our sales today. It was 11% six 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 one 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 two years ago to 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. Our gross margin has increased in five out of the last six years. We are acting on all levers. 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 two 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%, this means that we increased in terms of productivity in one single year, we increased our productivity on the industrial side by about 5%.
Three years ago, we shared with you our selling program, which at that time was CHF 1.8 billion, with the ambition to take away this CHF 1.8 billion of our P&L by 2020. We have reviewed that program upwards since then to between CHF 2 billion and CHF 2.5 billion for next year. Obviously, there are different momentum and dynamics between the three 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 back-loaded given the complexity of some of these topics and the need that we need in order to address it. There is no specific issue with the fact that we are at around 30%.
Just want to mention as well that G&A includes distribution costs as well, because we will probably talk about it with DSD. 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 a 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 two years. If you look at 2017 and 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. It looks relatively simple, but, for example, to reduce our structural cost is not always easy because we have inflation in some markets and we have the need to reinvest in some other 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's investing upon. This model of the combination of growth and cost discipline is what we will continue to do as well for 2019 and 2020. To get there, we need to invest in restructuring. That's what we did. We raised our restructuring spending over the last two years to around CHF 700 million per annum, and this is the amount that we provided as a guidance for 2019.
Just want to mention there that the CHF 700 million does include whatever we need to invest for DSD, this project that we announced this morning. It has been mentioned by Steve this morning, this afternoon or this morning, that there were CHF 500 million of one-off costs. This CHF 500 million of one-off costs includes CHF 200 million of restructuring, which are included in this CHF 700 million for 2019. Totally confirming the original guidance. You have another CHF 200 million, which correspond to impairment of assets, essentially around trucks and distribution centers that we have. There is about CHF 100 million that corresponds as well to onerous contract, for 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, be it organic growth or inorganic growth, M&A on the one hand, or on the other hand, returning capital to shareholders, either in the form of a progressive and a 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&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 Stefan and Patrice explained this morning. The concept of payback is a little bit more complicated 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&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&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&A transaction. Last year, we completed about CHF 14 billion of transaction, and this year we will probably do a sizable amount as well, essentially around Nestlé Skin Health and Herta for whatever we have disclosed for the time being.
When we look at M&A, we are always looking at three 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 . 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 US dollar and Euro denominated. We need to take that factor into account. We are also looking at strategic items like M&A flexibility, as well as share buyback. Talking of share buyback, we have launched six programs since 2005. We have returned more than CHF 60 billion of value to our shareholders as a consequence of that. We often have the question about the relevance of 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 2005, buying shares at CHF 36. The last program that we completed, we did it at CHF 71 on average. In the current program, we are currently around CHF 82, for we have bought two-third of the program, to be compared with our current share price, which is around CHF 97 or CHF 98. You can see that we have created value. Obviously, when we conduct these programs, we always look at our outlook. 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 program. We have a vested interest in looking at it as well. We are actively working on it, looking at the numerator, profitable growth, looking at the denominator, our asset base. If we look at the numerator, profitable growth 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 careful as far as industrial asset is concerned. We are very careful as well about CapEx. 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. I will show you some of the examples. We are very careful as well in terms of M&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 billion. We are very disciplined there. Just for your information, over the last two years, we looked at CHF 35 billion of transaction value. Even that we discussed with the board of directors, it's not just about looking. We decided not to pursue essentially by lack of financial return. That did not prevent us, though, from doing CHF 14 billion 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 EBITDA multiple of 15 x, which in my opinion, is very reasonable when we look at market transactions today.
Especially for growth assets, because we have large opportunities to grow outside of the original footprint of this asset. I'm very confident that we will deliver value there. Just to come back to the denominator 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, where we have about 2/3 of our CapEx now spent in these categories. 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 this project.
What we did as well is to make sure that we right-sized these projects and built reasonable assets and plants, for example, and equipment. 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 billion of cash as a consequence. We are clearly trending towards zero. 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 consequence of everything that I showed to you, we are clearly ticking all boxes as far as 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. You can see as a result of that we saw our return on invested capital increasing for each and every single of the last four years to 12.1%. We are reasonably happy with it. 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 Froneri, where we have created significant value. The development of our underlying EPS is actually quite nice. We see a good progress there over the last couple of years. Just want to mention 2.0, the fact that it is partly influenced by foreign exchange. You see the negative value in 2015. It is actually due, the consequence of the revaluation of the Swiss franc at the beginning of 2015 by about 10% against most currencies. 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. 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 US tax reform, which contributed 300 basis points out of the 13.1% in 2018. Moving to capital structure. There we have done quite a lot of work as well to build a more efficient capital structure, starting with the 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 amount of debt. We are, I think, close to CHF 40 billion as we speak, with a net debt to EBITDA ratio that was at 1.6 x at the end of last year. We should probably be around that level. 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 five years, which is a good way as well to secure liquidity. We have been able to do that at a very reasonable cost of debt on average this last year. It was at 2.1%. 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 CHF 700 million of restructuring does include all the consideration that is required for the DSD project that we announced this morning.
As far as 2020 is concerned, we confirm our target both on the top line and the bottom line. That includes as well the DSD exit that we announced earlier today. That includes as well the assumption that we are making of a likely disposal of the two businesses under strategic review, namely Nestlé Skin Health and Herta. Just for your information, we don't disclose the individual impact of these three items, DSD, Nestlé Skin Health, and Herta. 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. 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 and 2020, probably predominantly in 2020, between CHF 400 million and CHF 500 million 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 the previous year, given that it is assimilated to a change of business model. Don't want to go into the technical items and technicality of it, if you have any further question, I'm happy to take them after the session. Just to be aware of the fact that it will not impact materially our organic growth this year or next year. Just to conclude my presentation.
We are confirming our 2020 targets. We have very clear views and very disciplined 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. We have made some progress as well to arrive at a more optimized and efficient capital structure. That concludes my presentation. Now Mark and I will handle a Q&A session for about one hour. That will be moderated and organized by Luca. Thank you.
if you're suffering from PowerPoint fatigue, no more slides, okay? We're done for the day.
Let's open it up for questions. Nadim, in the middle.
We're going to try to have the buy side regain the questions here. Two questions. One, 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? How high up on the debt and how low down on the credit rating? Separately sort of related to that, what do you think a business like Nestlé should be generating in terms of return on capital? I saw 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. We said two 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 x in terms of net debt to EBITDA ratio, which has been increased to 1.7x as a consequence of the reclassification of some debt items for IFRS 15 and 17. Sorry for the technicality. We were at 1.6x last year. We should be around 1.6x 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, as I said earlier, we are A A today, A A and A A -.
We have publicly said that we would be comfortable if the opportunity was arising to be in the single A space as a floor. Only if the opportunity arises. There is no target 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. The answer is more.
Jonathan.
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 2020, order of magnitude? How much savings from the move? Clearly, there's some savings. Secondly, 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. I wonder if that process yielded any other insights of other places in your 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. Look, on that first question about the efficiencies and savings, we'd love to be helpful, but we wouldn't be doing you a favor, because the minute we talk about this, the minute we'll have a negotiation about how to share these savings with our retail partners. We are generating savings here, but this is a fairly level 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. Then going forward, of course, country by country, we're looking for alternative and better routes to market. Let me also say that there's nothing near the kind of scale and the vastness of this particular decision.
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 for this for a long time to come.
Any other questions? David?
Hi. 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 that 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? Then the third question, which I guess is again, ticking the box in terms of questions, the L'Oréal stake.
Just wondered whether you can touch on where you are with that. 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. Where does L'Oréal stake still sit in a business that no longer seems to be wanting to get into skin/cosmetics? Thank you.
Thanks. When it comes to the first question, look, 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. Don't just take my word for it. When you look at some of the products we talked about today and when and how they're hitting the market now. Think about the plant-based burger and what we said about this. Think about Greg and the CBD product that he talked about. 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. 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. I think that has been stopped. In fact, in quite a few of these, we're leading now. We feel really strong about that. On Herta, look, clearly, you've heard us stress the importance of plant-based alternatives. I think plant-based is one of these trends that is not only attractive midterm 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.
As that happens over time, you will have all the elements for long-term mega trends here, whether it's on meat products or on dairy products. 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. You're talking about industry fundamentals that have much lower growth. They're also quite volatile because you're talking a lot of dependency on commodity pricing. The business has done wonderfully well in its segment. In its segment, it's actually one of the leaders in Europe, and its financial performance is wonderful. In its segment, it's very attractive. 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.
Hence, I think it does make sense. I mean, very often we face today questions about specific timing, for example, the DSD or the Herta. 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. 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. 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. We just, in all of these things, it's about what you want to do.
Since you can't do everything at the same time, you have to balance this with what else is on the agenda, you have to make choices, this is what we've done. Last but not least, on L'Oréal. Look, nothing new to say on this. 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?
Hi, sir, 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? 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, that's obviously one small example.
Are there any bigger examples that you can give us today where you think Nestlé, as a big company, can make a really material difference?
To start with the second one, let me just verify. We're monitoring our suppliers, not our customers. Just in case anyone is worried. Yes, look, this is an example where we could deploy technology, for, I think, a greater good purpose. It's one more example of moving things at scale that maybe a small to mid-size company cannot do. 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. I think it is very much on our mind.
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. 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. 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.
In my opinion, this whole notion of really making a dent when it comes to, for example, and 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. Just being innocent about it is no longer good enough. People will want to see results, just like you want to see financial results. 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. 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. 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. We'll be playing with this. We'll be using this. 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 Nestlé Health Science, in Nestlé Nutrition, or even in some of the mainstream food categories.
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 . In close collaboration with the nutrition SBU and TRE, with Greg, and also with some of our U.S.-based innovation outposts here, and also even our U.S. food brands are involved in this. 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.
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. You will see occasional areas of progress. You will see, for example, the expansion of tails.com. You will see other things happen there. To me, this is a five, 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 one or two year kind of race.
Next question from Martin.
Thank you. Martin Deboo, Jefferies. The question is about how the organizational structure evolves medium and long term. One 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. 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 American, 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. My question 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. Different companies may come to different conclusions. We have something of course, that has some historic track record here. 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. 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. You may have seen from the presentation different Zones here have come to different conclusions.
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 AOA, 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 three globally managed businesses, Waters and Nespresso and Nestlé Health Science, after the move of Nestlé 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.
Just the 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. I think having some of that flexibility makes sense. We also reserve the right, not that I have anything to announce, we reserve the right as we look towards the future, if in the future we need to make geographic adjustments to some of our Zones, yeah, we would if needed, do that. We've done it in the past. For now, it's important for me to point out these Zone management structures do work.
Given the sheer size, since there's no real peer in the industry that has a size like this, any one of these Zones could be a very large stock quoted food and beverage company in its own right. I think it's important to bundle some of these country managements that report into the Zones.
Alan?
Yeah. Just we've heard on a couple of occasions where you've found yourself capacity constrained in pet food and infant nutrition. I'm just interested to know the circumstances that allowed that to happen and perhaps going forward, what will prevent that happening again?
Look, let me start by reiterating something that came up in one of the breaks, let me also praise Laurent for just very openly acknowledging the situation. There was no need for him to say this. To be very open about the fact that, yes, in wet pet food, we had these capacity constraint issues. We've been doing something about it. Now I think going forward, we're well-positioned to fulfill that demand. To me, that 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 goddammit do something about it.
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 two to three-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 tries here to get our CapEx percentage down. Yeah, things happen, okay? We corrected it quickly. It's corrected now. We grabbed the opportunity, I'm bullish about that part. 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 your 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. We are driving the CapEx, we are accepting any CapEx project whenever it drives growth and returns. Maybe one year we can spend more than four. Maybe one year we'll spend less than four. There is no single objective of percentage of sales for CapEx. Once again, it is driven by sales growth contribution and returns.
John?
Hi, John Ennis from Goldman. I have a question on private label. A lot of the presentations have sort of focused around the premiumization opportunity. I wanted to get your view on the threat of private label as you essentially extend the price umbrella on the high side. Do you think that creates a great opportunity for private label to come in and fill the void? Just a clarification question on the mid-single digit growth target. I think you said that it includes the businesses already up for review, does it also include any assumptions on further portfolio rationalization before 2020? Thanks.
Yeah, thanks. Look, on the private label and premiumization, the circumstances are always slightly different depending on what specific category and situation you're talking about. By and large, I think premiumization is a winning strategy. It does wonders for our top line and also for our bottom line. I think it also fulfills an important function for our consumers. Premiumization needs to be built on tangible product advantage. If you're just premiumizing without that, then you're talking a simple and straightforward price hikes. 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.
I think premiumization is wonderful, one of the reasons why all day long, in particular 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. Based on that, you can build brands, you can keep brands interesting, and you can do exciting things on pricing. Without that, it all comes to naught. That's why the two are kind of related. Secondly, on the OG target for 2020, yes. We'll take account basically at the end of 2020 and whatever gets consolidated or deconsolidated until then, all of that is counted towards that OG target for 2020. Jonathan.
Mark, you talked about the success that the EMENA region had had 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?
I wasn't only talking about the success. I was also just simply admiring the discipline that Marco and his EMENA leadership team are displaying in basically handling those. As you know, this is ongoing work, and this will take several years to basically take us through this period. 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. Frankly, I feel there's a lot of built-in strength in what Nestlé has to offer, and I think we're in the process of making the most of that.
Celine?
Yes. I have a few questions on cash return or capital deployment. If I look into 2020, with the proceeds from some of the disposals, the continued cash generation, net debt to EBITDA will fall below 1x. Is it something that you would be comfortable with? If not, at which point there would be a decision about further either share buyback or whether you are holding on for M&A? I have a follow-up on M&A. You said, I think 2/3 of your CapEx is in high growth category. If you look at M&A, we have had as well a lot of discussion about growth in food. Would there be as well potential for you to look at or to focus your M&A outside of the top four high growth category?
Finally, should we assume that it's going to be small to mid-size deals, or could there be a potential for bigger acquisition?
On the first one, I don't want to front run the outcome of our reviews on skin health and hair health. 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.
I think give us some time here, complete the reviews, see what the outcome is. Then with any cash, I think within a reasonable timeframe, and allowing us some time 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 four, I'm absolutely in favor for reasonable, good, meaningful acquisition opportunities, and I think we confirmed that many, many times. It's all about the right things. It's about being selective and it's about being sure what we're buying there. Is this something that is only available in a short timeframe through acquisition, or is it something we can do on our own? We have to be selective, and I like very much what François was pointing out.
We've screened so many deals. 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. You've seen so many rumors floating around about potential transactions we would've been involved in. 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 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. Yes, we will not limit acquisition activity to the top four only. In fact, even for the last two years, there are already quite a few examples here.
Think about Sweet Earth in the U.S., which is part of the food category, an 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, 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 Yinlu and Hsu Fu Chi, 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? It's been a remarkable turnaround, at least thus far.
Yeah, thanks, Tom. Look, 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've been truly surprised about how quickly that peanut milk category has been coming down, and that has given us quite some pain in 2015 and 2016. What are you going to do about it? It is true, and we did have longstanding ambitious plans on scaling up in ready-to-drink coffee, which I think is a huge opportunity in Asia. This kind of aseptic filling is a key technology to make that happen. Here was a good way to use that installed infrastructure and make good use of it, and over time then, return to growth.
I think under the circumstances, we made the best out of a situation that has given us a lot more scale in a very important emerging market. Yeah, on a trend or on a category that came under pressure faster than we expected. This is our pragmatic response to a situation that no one had foreseen at the time, of course, when we bought the business.
James?
Hi there. Two questions. Firstly, just on the transactions that you've vetted over the last couple of years, the CHF 35 billion. Were those just acquisitions or do they include meaningful potential disposals? Secondly, just on looking at your digital investments. If you look at your first-party consumer data, in-house digital capabilities, digital media spend generally, do you now feel you're ahead of peers here relative to your size, or still got some catch up to do?
Why don't you take the first one?
On the CHF 35 billion , it's only on acquisitions. Especially so that it's anyway, we are in a seller's market, to dispose of any business today is not too much of an issue. CHF 35 billion was only on acquisition.
Think of all the money we could have tossed around, and then we didn't. Okay? I hope that gives you some relief. Look, on digital, I feel very good about where we are. Obviously by category, by market, you can always come to different conclusions here. Sometimes you're ahead, sometimes a little behind, and have areas of improvement. 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?
Yeah. Pierre from ODDO. Just a follow-up question on personalization. The question is: Do you think that with all the progress Nestlé has done in term 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 term of supply chain manufacturing, where you're doing business. Is it something you are able to put in place on the short, medium term, or-Have we to wait for more years before this kind of switch?
I think as we talk about personalization, especially across all these different categories where this may apply, different markets where we would want to offer this, don't think of it as one monolithic effort that kind of gets rolled out. We're too large an organization for this. That would not really respect the kind of decentralized nature of who we are in different circumstances and different markets. We have already several efforts underway. For example, Nestlé 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. We have some very interesting work going on, as we mentioned, in Nestlé Health Science and in the nutrition space.
This is different efforts. They're at different stages. 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 drive a harmonized 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. Again, this will be a multi-pronged effort and coming from different parts of the organization. Some of this will involve, for example, manufacturing and supply chain upgrades, this is not one massive investment program and not something that when 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. 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 for me. The first one, François, in your presentation, you said that where you land in 2020 against your 17.5%-18.5% margin target will be in part influenced by the need for reinvestment in your business. My question on this is, how should we interpret this? Are you alluding to potential situations of underinvestments 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&L flexibility in order to accelerate the growth? My second question is on pricing. How should we think about pricing in your OG algorithm?
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, which is more about opportunities to reinvest behind innovation. This is not linked to the fact that we would underinvest. 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 in marketing by about 1.2%. This clearly for marketing and R&D. This is, I would say, less about spending more, it's about spending better, which is what has been done, 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 the new form of pricing, but pricing exists still. 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 two 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. This jointly came with the fact that the commodity cycle was down. If you look at it two 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. Obviously, there was less need for pricing.
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. For example, last year, we had a significant increase in AMS, while we had a decrease of commodities in the other regions. This year, I think that it's a little bit different as well. It's largely coming from the mix of categories. For example, EMENA has a stronger component of coffee in their total business, like Marco presented this morning. Obviously, as coffee goes down, the pressure as far as commodities is lesser for them.
Oh, Pinar.
Thanks. Pinar Ergun, UBS. I have three quick questions. The first one's on M&A. Some of your competitors are focusing on doing a large number of small deals. Any thoughts on that would be appreciated. The second one is on confectionery. 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? 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. 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 mid-size companies, but we're being very selective about this. 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.
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, 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 or mid-sized food and beverage companies. This is not a space where we want to be. 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. You can do this on a number of deals, but you can't do it 20, 30, 40 times.
Hence, we've been doing some of these deals, as you know, but we continue to be very selective on this. 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?
Confectionery.
How does confectionery fit.
Confectionery. Yes. Okay
With your health and wellness?
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. 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. Pulling out of one of them or several of them, as we did with 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. There's also personalization opportunity. 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. This is where I think Patrice's statement comes in. It's not about global or local. It's about how strongly does something resonate in this particular catchment area with our consumers, and where can you take this?
We will be very selective here, and on some of these, we'll invest a lot, and others we'll do less. On others, we may even get out of them. Overall, confectionery is a business that we're very interested in.
You had a question on water and plastics, right?
Water and plastic. Look, I do think we do have several 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 very shortly. We're talking about basically a year's time. I think to the 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. Consumers need hydration. Again, is the awareness of this plastics issue going to be on the rise? Yes, absolutely. I see us in a good space when it comes to addressing these challenges and coming up with solutions that actually meet consumers' expectations.
Well, we have a few more minutes. Any more questions? Tom, and then maybe Alain afterwards.
Two quick questions. One for François, 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. 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?
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 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 for some time. It requires some understanding as well. 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 or denominator, and one large part is linked to M&A, which, as you know, most of these decisions are made at executive level.
At operating level, for example, in some of our markets, we are much more focused on some of its component, like working capital, like CapEx. It makes sense as well to make sure that people are incentivized on what they can influence directly. ROIC from other consequences more relevant at executive level.
Tom, on the second question, you can always do better, but I think that new thinking has gotten very good traction inside the organization. Don't just take my word for it. You're also seeing already in the market now enough examples from Nestlé, where in a short order of time, we are coming out with version 2.0. Believe us, there's going to be a 3.0, a 4.0, and a 5.0. 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.
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. It was important here, but we wanted to lighten that process, that we still need a process. 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 straitjacket, where if you follow all the discrete project steps of the past, it takes you literally one, two, or three years to get something out the door. 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.
Alain?
Thank you very much, Alain Oberhuber MainFirst. Mark, I have a question regarding the JVs. We heard that you feel very well with Froneri, but how do you feel with the other JV Cereal Partners Worldwide as well as with Lactalis?
Look, Froneri, I think is a bit of a different animal in that this is a joint venture with a private equity partner. Typically, as you know, given the time horizon of a private equity partner, these things are not forever. The whole joint venture is really designed on having a significant amount of impact within a short order of time. 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. That one, when it was concluded, when it was started, it was done without a specific time horizon in mind. I think over the years it's been a very strong partnership for us.
We're also pretty open about the fact that when you look at the cereal business around the world, we have missed out on some premiumization and nutrition, health, and wellness opportunities, and keeping that category as relevant as it could have been. That's something that both partners are very much focusing on right now. Lactalis again, is a different type of joint venture to the extent that it's not a 50/50. Lactalis is in the lead here, and we have contributed some of our plant names, and there's some continuous stewardship here, but it's clearly Lactalis that is in the lead when it comes to that partnership.
Eileen, yeah.
Hi, two questions from me. The first one is can you talk maybe a bit more about the opportunities that you see in plant-based? We've heard a lot about it today. I wonder if you could possibly put some numbers on it. In three to five 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? 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? That's the first question. Actually, sorry, just on that as well. Is private label specifically a threat?
It seems like a lot of the retailers are launching their own vegan ranges, at least in the retail channel. That's the first question. Secondly, in terms of marketing as a percentage of sales, as you're pursuing these efficiencies, improvement in ROI, how should we think about that progressing over time? Should we see that continue to grow? 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 that marketing budget as a source of savings, okay? I think it's a short-lived strategy if you do. I love the efficiencies we're generating by being more pointed, more targeted, and what have you. For God's sake, let's reinvest them and do more with that and really develop our business and go for future growth. Now, is it always going to even out dollar for dollar? No. Maybe some of that will also lead to net savings. 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&D.
Really for bear, 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 global number for you. I would like to confirm that it, of course, includes the meat alternatives and also the dairy alternatives, since we have lots of categories that touch both of those. To me, it's not only about being in the basic article. I think dairy is 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 our premium ice cream.
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. What's more important is to have those plant-based ingredients than 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. Usually also premium offerings with better nutritional values. That's the direction we're going.
Alan? Go ahead.
I wonder if you 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. I think Marco also in his presentation that you were rapidly winning back market share. 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.
Look, as always with these things that are unfolding, there's a limit as to how much detail we can get into. Let me also put it in a wider context. These things will always happen, okay? Growth category or no. You will always have the competitive back and forth in these categories, 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. Then yes, inside, we are very focused on what we have to do about it, and Marco is leading that charge.
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. 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 makes sure that we get away with very attractive pricing and premiumization.
Any other questions? It seems that there are no more questions. I leave it to Mark.
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 on behalf of Team Nestlé 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. Thank you, and would also again like to thank the NUSA team and Steve here for setting all of this up, including then the store visits tomorrow.
Also Luca, thanks to you and your investor relations team for setting up the day and organizing all of this. We really appreciate it. I think that day, when it comes to just sharing the fundamentals of the business and where the business is going, was quite a success. 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. Stay in touch with us, follow us, I can tell you it's going to be interesting journey that we're in together. Thanks.
Well, thanks Mark. Just a final remark, just to remind you that you have the feedback form to leave in the box outside of the.