Nestle

Last edited by Phil Mattera on April 17, 2010 - 2:25pm

Company Snapshot:

Nestlé, the world's largest food company, is one of the most multinational of companies. With more than 450 manufacturing facilities in over 80 countries spread over six continents, the company seems determined to feed the entire human race. It likes to call itself the “world’s leading nutrition, health and wellness company.” It is also one of the world’s most controversial corporations. For more than two decades the Nestlé name was widely associated with a controversy, including a longstanding boycott, over its marketing of infant formula in poor countries. More recently, the company has been one of the primary targets of the global movement against the bottled water industry.

Profile editor:

Phil Mattera

Ownership status:

Publicly traded

Number of employees worldwide:

283,000

Chief executive officer:

Paul Bulcke

Website:

http://www.nestle.com/

Global Fortune 500 rank:

Tel:

+41 21 924 2111

Net Income:

US$17 billion

Total revenue:

US$104 billion

Corporate accountability

Accountability overview:

The battle over Nestlé’s marketing of infant formula was central to the development of the modern corporate accountability movement, and the issue lingers today, thirty years later. Over the past decade, the company has also faced growing criticism for its aggressive role in the bottled water industry. Nestlé has had to contend with a series of local battles in the United States in those locations where it has sought permits to pump ground water. The company’s hard-line labor relations practices in poor countries have made it a villain in the eyes of the international union movement.

Infant Formula Controversy

During the mid-1970s Nestlé, then expanding steadily throughout the third world, was made the target of a campaign protesting the marketing of infant formula in poor countries. Activists from organizations such as INFACT and progressive religious groups charged that the aggressive marketing of formula by companies like Nestlé was causing health problems, in that poor mothers often had to combine the powder with unclean water and frequently diluted the expensive formula so much that babies remained malnourished.

Nestlé initially responded to the boycott of its products with a counter-campaign, which included donating money to a research center that funded Herman Nickel, a writer for Fortune magazine, to produce a critical report on the boycott campaign. That report was never written, but Nickel published an article in Fortune that served the same purpose. The piece, entitled “The Corporation Haters,” referred to the religious groups involved in the boycott as “Marxists marching under the banner of Christ.” Nickel was later pushed off the Fortune staff, but he was rewarded by the Reagan Administration by being named ambassador to apartheid South Africa.

Nestlé later changed its posture, agreeing to comply with a marketing code issued by the World Health Organization. As a result, the boycott was suspended in 1984. The protest campaign was, however, resumed in 1988 because of evidence that Nestlé was violating the WHO code by continuing to distribute large quantities of free samples to hospitals. In 1997 the Interagency Group on Breastfeeding Monitoring issued a report providing more evidence that Nestlé (and other companies) were violating the code.

In May 2007, the 30th anniversary of the original Nestlé boycott, the London Guardian published an investigation focusing on Bangladesh that found evidence companies such as Nestlé were still engaging in questionable infant-formula marketing practices.

Labor:

Nestlé has traditionally had good relations with unions representing its relatively small domestic workforce, but its foreign labor record is mixed. The company has had conflicts with unions in various countries, especially in the global South and the United States.

For example, during the late 1970s Nestlé's U.S. subsidiary Libby, McNeil, Libby was one of the targets of a campaign by migrant farmworkers in the Midwest. The workers, organized by the Farm Labor Organizing Committee (FLOC), were trying to win increased wages and improved working conditions from tomato growers operating under contract with companies like Libby and Campbell Soup. After conducting a campaign that ended up focusing mainly on Campbell Soup, FLOC managed to pressure the big food companies to be signatories to a set of unusual three-way collective bargaining agreements, thus putting significant pressure on the growers to treat the workers fairly.

Over the past decade, Nestlé has come under increasing criticism for its labor relations practices by the International Union of Food workers (IUF), a global federation of food-sector unions. In 2003 the IUF took the company to task for not observing consistently high standards in its labor practices around the world and accused it of taking advantage of countries with less rigorous regulations: “Where weak legislation sanctions union busting, Nestlé is not averse to busting unions.”

In 2006 the IUF charged that Nestlé was engaged in a “de-unionization” campaign in the Asia-Pacific region, through means such as increasing use of contingent labor and the “artificial promotion of workers into supervisory jobs that are classified as managerial positions and thereby excluded from union membership.” The IUF also accused the company of violating the OECD Guidelines for Multinational Enterprises in places such as South Korea and Britain by using the threat of moving plants offshore to intimidate unions during collective bargaining. In 2004 Nestlé sought to pressure French workers into accepting a downsizing plan by threatening to sell its Perrier water business or move it out of the country.

At a 2007 event sponsored by the International Labor Organization, IUF General Secretary Ron Oswald confronted Nestlé CEO Peter Brabeck over the company’s refusal to engage in a “structured relationship” with the federation, as other transnational companies have done.

Over the past few years, there have been disputes between Nestlé management and unions in various countries. For example, in 2008 Nestlé workers in Russia protested for months over the company’s effort (which was ultimately unsuccessful) to limit the ability of their union to negotiate wage increases.

Also in 2008, workers at a Nestlé ice cream operation in Hong Kong staged a three-day strike to protest the company’s use of contingent labor.

During the same period, workers at a Nestlé coffee plant in Indonesia held public protests in response to the company’s refusal to bargain over wages.

In January 2009 Nestlé India went to court to get a ban on union meetings and rallies at or near its four unionized plants in the country. It took the step in response to union protests over the company’s policy of not negotiating wage increases.

In December 2009 Nestlé workers in Tunisia went on strike to protest the company’s decision to close an ice cream plant without informing or negotiating with the union ahead of time.

The International Labor Rights Forum named Nestlé one of the “five worst companies for the right to associate” because of its abuses in countries such as the Philippines, Colombia, Peru, Russia and Pakistan.

Overtime Pay

In 2006 Nestlé agreed to pay $4 million in back pay and $400,000 in penalties to employees at its bottled water operation in New Jersey who had improperly been denied overtime pay.

Environment and product safety:

Water Controversies

After entering the bottled water business by acquiring upscale brands such as Perrier and San Pellegrino, Nestlé began selling less expensive water in poor countries in the late 1990s. From the start, critics charged that the ready availability of bottled water, which the company sold under the name Nestlé Pure Life, would make the governments of those countries less inclined to invest in the infrastructure needed for reliable public water systems. A 2005 report published by the Swiss Coalition of Development Organisations and ActionAid raised questions about the purity of the Pure Life water sold by the company in Pakistan.

The company also faced challenges to its operations in the United States, including the Poland Spring, Arrowhead and Zephyrhills brands it acquired as part of the 1992 Perrier deal and the Deer Park brand it bought a year later.

For example, when Nestlé’s Ozarka subsidiary sought permission to extract water from Rohr Springs in the east Texas town of Eustace in 1995, local residents raised a stink. Eventually the company got permission from state agencies to proceed, but landowner Bart Sipriano, who charged that his well dried up after Ozarka began pumping nearby, took the company to court. The case went all the way to the state supreme court, which in 1999 ruled for Nestlé.

In 1998 the company found itself facing protests and a legal battle when it sought to increase the amount of water it was allowed to extract daily from the Crystal Springs Recreational Preserve in Florida (the source of Zephryhills) from 310,000 gallons to 2.6 million. Even after Nestlé sharply reduced the size of the increase, the local water district rejected the demand. Nestlé appealed but lost in court.

Nestlé again faced opposition when it sought a new water source in central Wisconsin. Residents of Coloma protested a plan to extract water from the Mecan River, and voters in two communities near an alternative location the company was considering voted overwhelmingly in 2000 against making their water available. When the opposition did not die down, the company finally announced in 2001 that it was giving up on the state.

The pattern repeated in 2001 when Nestlé sought permission to pump water and build a large bottling plant for its Ice Mountain brand in the central Michigan city of Big Rapids. The company got permission for the plant but opponents led by Michigan Citizens for Water Conservation mounted a legal battle over the water rights. In 2003 a county judge ruled against Nestlé and ordered that the operation be shut down, finding that it was causing environmental harm. The company appealed. As in Texas, the case went all the way to the state supreme court, which in 2007 ruled in favor of the company.

In 2003, Nestlé quietly negotiated a contract to extract water from three springs in the northern California town of McCloud near Mount Shasta. The company also planned to build the country’s largest water bottling plant in the area. The project was met with strong opposition which dragged on for years. In 2008 Nestlé offered to scale back it plans, but when that did not satisfy critics the company announced in 2009 that it was abandoning the project. An alternative site in Sacramento also faces active resistance.

The same is true in the Colorado town of Salida, where Nestlé proposed in 2007 to extract 65 million gallons of water per year to send to a bottling plant in Denver. In response to strong local resistance, the company took the unusual step of promising to replace the water extracted from Salida with water the company would obtain from the Denver suburb of Aurora. Chaffee County commissioners approved the Salida plan in 2009 but attached 44 conditions to the permit. Opponents vowed to keep up the fight.

Nestlé’s water controversies have not all been at the local level. In 2003 a series of class-action lawsuits were filed against the company, charging it with false advertising for calling its Poland Spring brand natural spring water. Nestlé, apparently not eager to defend the integrity of its brand under oath, settled the disputes out of court for $12 million.

Nestlé has also been one of the prime targets of the Think Outside the Bottle Campaign launched in 2006 by Corporate Accountability International (which previously tangled with Nestlé on the infant formula issue when the group was known as INFACT).

Nestlé is so touchy about criticism of its water business in the United States that in 2008 it threatened to sue when Florida’s Miami-Dade County ran radio ads claiming that its tap water was cheaper, purer and safer than bottled water.

Product Safety

In June 2009 an outbreak of E.coli food poisoning in the United States was linked to Toll House refrigerated cookie dough produced by Nestlé at a plant in Danville, Virginia. The company recalled all Toll House products in the country, but it came to light that the plant had previously refused to give inspectors from the federal Food and Drug Administration (FDA) access to internal records relating to matters such as pest control and consumer complaints.

In December 2009 the FDA sent a warning letter to Nestlé alleging that the labels on some of the company's children's beverages contained unauthorized nutritional claims. In March 2010 Nestlé received another warning letter from the FDA.

Palm Oil and Global Warming

In 2010 Greenpeace International began a campaign against Nestlé over the company's use of palm oil, the production of which the group linked to rainforest destruction in Indonesia and thus to the exacerbation of global warming. Greenpeace targeted Nestlé products such as Kit Kat bars (outside the U.S.).

Human rights:

In 2005 the International Labor Rights Fund (ILRF) brought suit against Nestlé and several other companies in U.S. federal court under the Alien Tort Claims Act, charging that they were involved in the abuse and forced labor of child workers in the West African cocoa supply chain. (In December 2009 Nestlé announced that its Kit Kat chocolate products in Britain would start to be sold with certification from the Fairtrade Foundation.)

In 2006 ILRF sued Nestlé again in U.S. court, accusing the company with complicity in the torture and murder of a Colombian trade union leader by paramilitary forces with which it allegedly had a long-standing relationship.

Spying on Critics:

In 2008 a Swiss investigative news program reported that five years earlier Nestlé had used a private security company to infiltrate the anti-globalization group Attac. The undercover agent reportedly monitored the group’s research work on the company that led to the 2004 publication of a critical book entitled Attac Contre L’Empire Nestlé.

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History

The multinational giant that is Nestlé grew out of the separate endeavors in Switzerland of a chemist and two American brothers in the 1860s. The chemist was Henri Nestlé, who in 1867 developed a form of sweetened cow's milk for infants who could not be breast fed. Working in the town of Vevey, near Lausanne, Nestlé gained fame when his preparation saved the life of a baby who was dying of malnutrition because of an inability to digest his mother's breast milk. His small operation, Farine Lactée Nestlé, was soon deluged with orders.

The brothers were Charles and George Page. While serving as the U.S. consul in Zurich, Charles decided that Switzerland would be an ideal location for a factory to produce condensed milk, which had been invented a decade earlier by Gail Borden. In 1866 he and George acted on that idea by establishing an operation with the grandiose name Anglo-Swiss Condensed Milk Co. In truth there was no link with Britain; the brothers anticipated—correctly, as it turned out—that the name would make it easier to sell to the English market.

The company prospered as condensed milk became a staple of European diets. In 1872 Anglo-Swiss opened a factory in Chippenham, England, and two years later purchased the London-based English Condensed Milk Co. Now the leading manufacturer of condensed milk in Europe, Anglo-Swiss broadened its product line to include cheese and infant formula.

Threatened by this challenge to its dominance, Nestlé, which had been purchased by a group of Swiss industrialists, retaliated by entering the condensed milk business. While battling one another, the two companies also expanded their operations abroad. Anglo-Swiss set up an American plant in upstate New York (later sold to Borden), while Nestlé bought a Norwegian condensed milk maker and opened facilities in the United States, Britain, Germany and Spain. In the first years of the new century Nestlé also got into the chocolate business by investing in the Swiss General Chocolate Co., manufacturer of the Peter and Kohler brands—to which was soon added Nestlé-brand milk chocolate.

In 1905 Nestlé and Anglo-Swiss decided to wed rather than go on fighting. The combined firm, called Nestlé & Anglo-Swiss Milk, enjoyed a strong position in the food industry. The First World War disrupted operations, but the company used Swiss neutrality to expand outside of Europe, especially in Latin America. Nestlé resumed its international expansion in spite of the Depression, opening facilities in such countries as Argentina, Chile, Cuba, Mexico, Denmark, and Czechoslovakia. The company tried to counteract poor economic conditions by introducing new products such as hot cocoa mix, the Nestlé Crunch candy bar, and a pioneering instant coffee called Nescafé.

Many of the company's operations and sources of raw materials were disrupted by the Second World War, but Nestlé sold large quantities of Nescafé, powdered milk and chocolate bars to the U.S. military. Shortly after the end of the war Nestlé merged with Alimentana S.A., producer of Maggi dehydrated soup, bouillon, and seasonings.

Nestlé continued to expand both by setting up operations in more countries and by purchasing a variety of food companies. Among the latter were the purchases of Crosse and Blackwell, a British maker of preserves and canned foods, in 1960; Locatelli, an Italian cheese producer, in 1961; Findus, a Scandinavian frozen food company, in 1962; Libby, a U.S. fruit juice bottler, in 1970; Stouffer, a U.S. frozen food producer that also had interests in hotels and restaurants, in 1973; and Beech-Nut, the U.S. baby food manufacturer, in 1979. Venturing entirely outside the food business, Nestlé bought a minority interest in the French cosmetics company L'Oréal. The company also introduced new products such as Taster's Choice freeze-dried coffee.

In the 1980s Nestlé continued its buying spree, most notably with the $3 billion acquisition of the U.S. food company Carnation in 1985. Taking on Carnation, a pioneer in the production of evaporated milk and later non-dairy creamers for coffee, also put Nestlé in the pet food business. Subsequent purchases included Hills Brothers, the third largest U.S. coffee company; Buitoni-Perugina, the Italian producer of pasta and candy; and Rowntree, the large British chocolatier. Beech-Nut was dumped in 1989 after several executives of the company were found guilty of intentionally selling adulterated apple juice. Nestlé scored with the Lean Cuisine line of low-calorie frozen dinners introduced by its Stouffer subsidiary.

In 1990 Nestlé formed an alliance with the Coca-Cola Co. to market ready-to-drink coffees and teas under the Nescafé and Nestea brand names. That same year Nestlé bought the Curtiss Brands chocolate division of RJR Nabisco, maker of Butterfinger and Baby Ruth candy bars.

Nestlé then turned its attention to the bottled water business, beginning with a successful hostile bid for Source Perrier in 1992. In addition to the flagship Perrier brand, the company owned U.S. brands such as Poland Spring, Arrowhead and Zephyrhills. That same year Nestlé boosted its holding in mineral water company Vittel from 30 percent to 96 percent. In 1993 Nestlé purchased the U.S. bottled water company Deer Park, and in 1998 it acquired the parent company of Italy’s well known mineral water brand San Pellegrino.

While selling off some food businesses such as Contadina canned tomato products in the United States and Locatelli cheeses in Italy, Nestlé purchased new food companies in various countries and expanded its pet food operations with the acquisition of the U.S. brand Alpo and later Ralston Purina. In the United States it also bought Chef America, a producer of microwaveable snacks, and acquired full ownership of the Ice Cream Partners USA joint venture it had formed with General Mills. Nestlé moved to control more of the U.S. ice cream market by seeking to acquire Dreyer’s, but it had to agree to sell off some assets to get approval from antitrust regulators.

Nestlé then purchased the Jenny Craig weight-loss business in 2006 and Gerber baby foods in 2007. In his final months before stepping down, chief executive Peter Brabeck began eliminating weak brands and underperforming subsidiaries. In 2009 the company opened what it called the world’s largest bouillon factory in Shanghai, China.

Financial information

Stock ticker symbol:

NESN (SIX Swiss Exchange)

Fiscal year:

2008

Fiscal year:

2008

Major lines of business/segments:

Beverages (26 percent of 2008 revenues) – Includes Nescafé instant coffee, Nesquik hot cocoa mix, and Nestlé bottled water brands such as Pure Life, Perrier and many others. In the United States these include Arrowhead, Calistoga, Deer Park, Ice Mountain, Ozarka, Poland Spring, and Zephyrhills.

Milk Products, Nutrition and Ice Cream (28 percent) – Includes Nido powdered milk; Gerber baby food; PowerBar energy bars; Jenny Craig diet foods; Nestlé, Dreyer’s and Edy’s ice cream.

Prepared Dishes and Cooking Aids (16 percent) – Includes brands such as Maggi, Buitoni, Stouffer’s and Lean Cuisine.

Confectionery (11 percent) – Includes Nestlé Crunch, Butterfinger and Kit Kat bars (in the United States the latter is made and sold under license by Hershey).

PetCare (11 percent) – Includes pet food brands such as Alpo, Fancy Feast and Friskies.

Pharmaceutical products (7 percent) – Includes Alcon eyecare products.