Nestle’s fresh baby formula woes challenge new CEO’s revamp plan

Just months after taking charge of Nestlé SA, the Swiss food maker’s CEO is tackling a deepening baby food contamination crisis that has spread from a handful of countries in Europe to more than 50 countries around the world in less than a week.

Numerous products from brands such as BEBA, SMA and Alfamino are being recalled and several production facilities have been affected after cerulidine, a toxin that can cause nausea and vomiting, was detected in an ingredient at one of the oil suppliers.
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Nestlé initiated the recall, no babies were reported sick and the food maker said the financial impact would be limited but damage had occurred.

Nestlé shares have fallen more than 4% since the recall began, and analysts at Jefferies are predicting a drop in sales of as much as 1.2 billion Swiss francs ($1.5 billion). Revelations this week about the new markets affected have raised questions about trust in a company with a checkered history when it comes to selling baby food.
ALSO READ: Nestle’s baby food recall expands to Africa, America and Asia Navratil, which promised openness last year after its predecessor was sacked in an office romance scandal, is now facing its first major operational challenge while also trying to cut thousands of jobs and turn around performance.

“It’s important for Nestlé to come forward in terms of transparency around the recall,” said Christopher Rossbach, chief investment officer of Nestlé shareholder J. Stern & Co. “A supplier has failed. That’s something that can happen, but there needs to be radical transparency. That’s the only way to deal with it.”

Toxin Detection

News of the potential contamination first came to Nestlé’s attention more than a month ago, following testing the manufacturer conducted through its own safety protocols. The company, which also produces coffee, pet food and chocolate, later traced the source of the contamination to a compound known as arachidonic acid oil. This discovery sparked a chain reaction, with Nestlé identifying the affected batches and notifying local authorities; This process became more challenging over the holiday period. The name of the supplier was not disclosed.

Navratil, 49, a Nestlé veteran, has been coordinating the response from company headquarters in Vevey since the first recall began on December 10.

“The orders on how to handle this are coming from the top,” a Nestlé spokesman said. “Philip Navratil pays close attention, is informed every day and follows every decision.”

The spokesman said Nestlé had received thousands of calls from worried parents this week, with each conversation lasting from a few minutes to half an hour on average. He added that since baby food is a highly regulated product, strict protocols are followed.

According to Professor Monika Ehling-Schulz from the University of Veterinary Medicine Vienna, one of the biggest challenges for Navratil and Nestlé is that initial detection of cereulide is difficult and testing it is expensive and complex. And when he is found, the battle is just beginning.

Ehling-Schulz, who developed a standard method for the detection and quantification of cerulidine, said, “Since the molecule is very small, it cannot be removed by filtration. Moreover, it is resistant to very high temperatures due to its structure.” “It is therefore almost impossible to remove a contaminated product. Affected facilities must be cleaned appropriately.”

Food safety standards in many countries mandate a zero-tolerance policy for cerulide in products; This means that a detectable level cannot be accepted. The Netherlands had first-hand experience of this nearly 15 years ago, when more than 100 students contracted food poisoning after eating a rice dish contaminated with cerulide. Even trace amounts can affect large numbers of people.

“Safety, quality and compliance are non-negotiable for Nestlé,” the company said in an emailed statement. It added that all affected factories have been thoroughly cleaned and “operations have been restarted with strengthened quality management, in full compliance with local authority requirements.”

Resurrection Plan

The recall is an unexpected challenge for former Nespresso boss Navratil, who is trying to revive Nestlé’s performance. Since taking office, Navratil has announced plans to cut 16,000 jobs, including 4,000 in the manufacturing sector. He wants to refocus the company’s attention on increasing product volumes and free cash flow, while also winning back customers, reducing debt and maintaining the dividend. He also plans to increase advertising spending so the company can invest in fewer but larger product initiatives.

As Nestlé strives to contain this negative impact, pressure to control costs across the business will intensify to ensure the company can achieve its targets.

This isn’t the first time Nestlé has issued recalls, and some have been much more serious. In 2022, two children in France died after eating the company’s Buitoni Fraîch’Up pizza contaminated with E. coli. But the Austrian health ministry described this as the largest action in Nestlé’s history, expanding from a limited regional action to one covering six continents.

Nestlé has previously faced years of criticism and boycotts for baby food marketing practices dating back to the 1970s in developing countries, where limited access to clean water contributes to widespread health problems.