Nestle has announced a deal to sell-off the bulk of its Jenny Craig weight management business for an undisclosed sum. The move comes as the Swiss food giant looks to become a “more agile” organisation and it seems likely that further disposals could be on the horizon. Katy Askew reports.
Nestle has entered into an agreement that will see it sell its weight management business, Jenny Craig, to private equity firm North Castle Partners. North Castle will take control of Jenny Craig operations in North America, Australia and New Zealand and the firm will merge Jenny Craig with its Curves fitness business. The Jenny Craig business in France was not included in the disposal.
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The financial details of the transaction were not disclosed. However, the general consensus suggests it is unlikely Nestle will have received the US$600m it paid for Jenny Craig in 2006. While Nestle does not strip out the numbers for its individual business units, North Castle’s focus is on small- to mid-cap enterprises with revenues of $10-200m.
From the get-go, Jenny Craig does not seem to have been a natural fit for the world’s largest food company.
Certainly, as Nestle has sought pockets of growth in developed markets, it has increased its focus on improving the nutritional profile of its products. The maker of Lean Cuisine ready meals and Kit Kat chocolate bars believes that nutritional arguments can be used to drive demand in its mainstream categories, as well as growing the functional nutrition category itself.
However, Jenny Craig is an entirely different kettle of fish. Jenny Craig sells more than portion-controlled diet food: it offers diet solutions, with nutrition consultants helping dieters develop action plans. Much of the firm’s appeal lies in its telephone and in-store consultants, who offer advice at weight-loss centres located throughout its markets.
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By GlobalDataManufacturing and marketing nutritional and weight-loss foods is one thing. Operating a bricks-and-mortar consumer business is a distinct proposition with a unique set of challenges that, arguably, do not play to Nestle’s strengths.
In recent years, the business has come under top-line pressure in the face of a declining – and increasingly competitive – weight management market. Jenny Craig has been squeezed on two fronts. Consumers, feeling the pinch of the economic downturn, are turning in their droves to online weight management tools. Meanwhile, chief rival WeightWatchers has stepped up its competitive activity in the arena.
The business has also struggled with declining margins. When Nestle announced its first-half results in August, the company said margins from its Nestle Nutrition business had fallen by 60 basis points, in part due to the performance of its weight management operations.
Nestle has done some work to turn the tide at Jenny Craig. The firm closed its Jenny Craig operations in the UK and closed diet centres around the US as it shifts the focus of the business to the online channel.
Nonetheless, according to some industry watchers, Jenny Craig has under-performed for around five years. The ongoing nature of Jenny Craig’s woes was confirmed when CFO Wan Ling Martello said Jenny Craig had been “very much below our expectations” in the first half of 2013 and in 2012.
“Overall [the disposal] should help margin and growth dynamics of the group,” Kepler Cheuvreux analyst Jon Cox tells just-food.
According to Cox, the sale can be viewed almost as a statement of intent. “I think Nestle is serious about weeding out the duds in its portfolio – you are not going to see whole categories disposed but you will see more of this small scale disposals around the edges,” he predicts.
Last month, the company revealed details of its “lean enterprise” initiative that, it said, aimed to use portfolio management to create a “more flexible, more agile, crisp” organisation.
Speaking at the company’s investor conference in Switzerland, CEO Paul Bulcke told analysts portfolio management had become a priority for the company as part of its long-term strategy to “attack a difficult industry and a volatile marketplace”. This, he emphasised, was about resource management as much as divestitures.
“We are business people. We want to do business, not getting rid of business. But there are certain things that we don’t see we can fix,” he said. “We want to be in business, not in agony. If something doesn’t really show it, well, we have to be sharp and say, ‘Okay, fine, let’s put our energy not in evading the question, but let’s put the energy in getting into a solution to the problem,’ and that’s how it is.”
Bulcke suggested that Nestle has identified a hit-list of under-performing peripheral businesses, a “shortlist of fixing”, but did not reveal details of which businesses were targeted.
Alongside Jenny Craig, other units rumoured for the block included energy bar brand Power Bar and Herta Frankfurters.
According to Euromonitor International senior analyst Ildiko Szalai, Nestle’s drive to become a slimmed-down operation should be viewed in the context of a wider strategy among food industry peers to increase the focus of their operations. Players from Unilever to the Campbell Soup Company and ConAgra have been on a selling spree, disposing of non-core assets in order to focus on fewer, bigger brands.
“Portfolio streamlining has been a key strategy in packaged food for many multinationals in recent years but Nestle has not divested any significant assets so far, but rather made a number of bolt-on acquisitions,” Szalai says. “Strategically the sale of a non-fitting, non-performing division makes perfect sense.”
However, Szalai does not believe that Nestle would necessarily turn its nose up at the change to further expand through M&A. “Looking at the bigger picture, recently Nestle has been linked to a bid to take over Ferrero, to enhance its scale in confectionery and boost its premium chocolate lines, which, if it’s true, could come at a high price for Nestle.”
The link to Ferrero has been rigorously rebuffed by the family-owned Italian chocolate maker who has insisted that it is not for sale. However, for Nestle it would seem that portfolio management will be about more than selling-off under-performers.
