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Nestle laid out plans this week to become the world's largest provider of "extreme nutrition", saying its build-up in high-tech health foods would continue at a rapid pace.
Nestle, which has doubled annual income from its Nutrition division in less than two years to 10 billion Swiss francs
($11.1 billion) through an acquisition spree, said it expects to double that again in the next seven years without takeovers.
"In a very brief period of time we have essentially doubled the size of our business and dramatically increased the complexity of our business," Richard Laube, head of Nestle Nutrition, said at a company presentation.
"This is good news and bad news," he added.
Takeovers, which included Gerber baby foods and Novartis Medical Nutrition, helped catapult Nestle from a mass-producer of milk powder and breakfast cereal into the number two food spot for babies, hospitals and "pro-active health seekers".
The division accounted for slightly over 7 per cent of the group's 78.7 billion Swiss francs posted for the first nine months of 2007.
Nestle, the world's largest food company, has shunned snack foods for probiotic yoghurts, for example, and turned its nose up at sweetened carbonated drinks in favour of mineral waters like Henniez, San Pellegrino and Perrier.
It now provides nutrition to patients leaving the operating room and to cancer patients whose bodies wither under both disease and treatment.
The company is also addressing the rising incidence of diabetes and obesity - the "diabesity" problems that plague rich countries and, increasingly, developing countries.
Nestle is also targeting clients who seek healthy foods that enhance athletic performance or prevent other maladies.
"We deal with consumers at the extreme: extremely old, extremely young, extremely frail, or extremely fit," Laube said.
But digesting the recent takeovers and integrating them into the group is posing unprecedented challenges that will keep the division busy if it aims to reach its medium-term profitability goal in another two to three years, Laube said.
The Nutrition division aims to lift its operating profit margin to 20 per cent in the medium term from the 16.9 per cent reported at end 2006.
The build-up has introduced new levels of complexity and blurred the line between food and pharmaceuticals.
Changing formulas, for example, in medical foods is much more complicated than changing the recipes of some of Nestle's famous foods.
"It's much easier to reformulate Buitoni sauces. You can change the tomatoes or the basil," he said. "But when you're changing probiotics or protein levels or protein sources, it's a much longer process."
In the US$10 billion ($12.9 billion) healthcare market, Nestle aims to overtake leader Abbott Laboratories' 30 per cent market share. Nestle now boasts a 25 per cent share growing at 7 per cent annually.
"Our objective will be to become number one," he said.
But Nestle has put takeovers on the back burner, budgeting around 2 billion Swiss francs per year in targeted acquisitions. Nestle outweighs Numico with its 16 per cent market share and Fresenius with 8 per cent.
- Reuters