Nestlé's "Darkest Hour": The Food Empire Under Siege—What Did It Really Do Wrong?

Produced by/Yi Lan Business

Edited by/Meng Jiayi

Nestlé — This 160-year-old food empire presents a contradictory picture in 2025: on one hand, the group achieves sales of 89.49 billion Swiss francs, maintaining its position as the top global food company; on the other hand, it has repeatedly initiated infant formula recalls, faced collective rights protests from Chinese distributors, seen CEOs and chairmen leave abnormally, and laid off 16,000 employees worldwide.

The glamorous financial figures coexist with a series of negative events, pointing to a question worth asking: what’s really going on with this century-old company?

These frequent negative incidents are not isolated accidents but tangible manifestations of the failure of scale effects in an era of fragmented consumption. The trust foundation that Nestlé relies on is cracking from within.

Nestlé’s “Fake Growth”

In the course of business development, large scale has historically been a core barrier against market risks, a belief that supported Nestlé’s century-long growth. But the 2025 financial report exposes hidden cracks beneath this giant’s scale halo.

Nestlé achieved 3.5% organic growth in 2025, up 1.3 percentage points from the previous year, with a slight recovery in the second half. However, a breakdown of the financials reveals that 2.8 percentage points of this growth came from price increases, while the actual internal growth reflecting genuine consumer demand was only 0.8%. Essentially, this growth structure is a passive choice to hedge operational pressures through price hikes.

From late 2024 to 2025, global inflation persisted, compounded by supply chain disruptions caused by climate anomalies. Prices for bulk raw materials like coffee and cocoa fluctuated wildly; Arabica coffee futures in New York once surged past 430 cents per pound, reaching a 47-year high. The purchase price for Yunnan coffee beans, a key part of Nestlé’s supply chain, increased by over 28%.

Faced with cost pressures, Nestlé relied on its bargaining power to pass costs onto consumers via price hikes. But when pricing contributed far more than actual consumption growth, the brand could only maintain its profit margins at the expense of market penetration.

In the first half of 2025, Nestlé’s sales in the U.S. declined by 4.9% year-over-year, and sales in Asia, Oceania, and Africa fell by 1.4%. Consumer feedback from mature and emerging markets confirms that their tolerance for continuous price increases has reached a limit.

The sharp fluctuations in financial data more directly expose the flaws in this growth model. In 2025, Nestlé’s net profit dropped sharply by 17% to 9.033 billion Swiss francs. This decline was not caused by a single factor but by multiple negative pressures stacking up.

Globalization has made Nestlé highly sensitive to exchange rate fluctuations. The continuous strengthening of the Swiss franc has eroded profits from overseas markets. Its core coffee business faces dual challenges: raw material costs spiraling out of control and brand aging. Even with price hikes, gross margins continue to narrow.

Deeper losses stem from quality control and trust crises. In May 2025, a report from the French Senate’s investigation committee confirmed that Nestlé’s water source was contaminated, and the company had long used illegal filtration processes to treat bacteria without disclosing this to consumers. This misconduct dates back to 2020 and shattered Nestlé’s image of “natural” high-end bottled water.

Since December 2025, the global infant formula recall has caused a one-time sales loss of about 200 million Swiss francs, with adjusted operating profit down by 75 million Swiss francs.

Premium products rely on brand trust and emotional connection. When core narratives are proven false, brand valuation suffers irreversibly. Nestlé’s repeated lapses in food safety reveal weaknesses in its global supply chain quality control system, which has become strained under extreme cost-cutting and efficiency pressures.

But the crisis goes beyond that. As growth pressures mount, deep-seated organizational and governance flaws begin to surface.

Organizational Transformation Under Performance Pressure

2025 may become the most turbulent year in Nestlé’s management history.

In September, CEO Füller Hong was dismissed due to an undisclosed workplace romance. The same month, Chairman Paul Bulcke resigned early amid investor dissatisfaction with frequent management changes.

The simultaneous departure of top executives is rare for a century-old enterprise. Sudden leadership changes directly impact strategic deployment, leading to organizational shifts.

The current CEO, Fainerui, inherited a large organization with a constantly shifting strategic direction. For example, in 2022, Greater China was upgraded to an independent region, reflecting high importance from headquarters. But by 2025, this region was re-integrated into the Asia-Africa-Oceania zone.

Such repeated organizational restructuring reveals a misjudgment of the complexity of emerging markets. Each change involves switching regional teams’ execution paths, which objectively increases the difficulty of responding to local market changes.

Governance issues translate into market failures, such as the collapse of traditional distribution models. In 2025, Greater China’s organic growth rate fell to -6.4%, making it the worst-performing region globally. Nestlé’s long reliance on offline distribution channels to achieve market coverage is challenged by the rapid rise of new channels like tea and coffee shops and instant retail, which directly impact traditional supermarkets. These new channels have become barriers between brands and consumers.

To meet headquarters’ performance targets, regional sales teams have long used stockpiling strategies, requiring distributors to prepay for inventory, with the brand reimbursing marketing costs afterward.

When consumer demand weakens and inventories pile up, cash flow for distributors slows. Meanwhile, due to performance pressures, Nestlé delays reimbursements, causing accounts receivable to accumulate. To recover cash, distributors are forced to sell below cost across regions, triggering a collapse of the entire channel pricing system. Profits of legitimate distributors are squeezed, reducing their ability to repay downstream debts, eventually leading to a large-scale triangular debt crisis.

In April 2025, South China distributors collectively protested over debts worth hundreds of millions of yuan. Nestlé admitted this problem has existed since 2017, promising to pay only 50-70%. In December of the same year, many distributors reported long delays in payments for stock and display fees, with individual amounts reaching millions.

Market competition further amplifies Nestlé’s operational pressures. According to the 2025 China Coffee Industry Development Report, the Chinese coffee market reached 218.1 billion yuan, with fresh coffee sales exceeding 188 billion yuan. The number of stores increased by over 40,000 to 215,000, with chain penetration rising from 46% to 53%.

The rise of fresh coffee has exerted multidimensional pressure on Nestlé. Domestic brands like Luckin and Cudy, with over 20,000 stores, achieve high-density coverage, faster product launches, and continuous freshness. Their prices are also significantly lower, lowering consumers’ barriers to trying new products. Meanwhile, brands like Mixue Bingcheng and Tea Baidao are expanding their coffee lines rapidly, leveraging existing store networks to divert traffic.

Most importantly, fresh coffee is ready-to-drink, while Nestlé’s core instant and capsule products still require consumers to brew themselves, creating a clear convenience gap.

Under these multiple shocks, despite launching many new products, Nestlé struggles to meet the needs of young consumers, falling into brand aging and generational disconnect. It loses pricing advantages and market influence.

Nestlé Begins “Weight Loss”

Faced with adjustments in growth logic and weakening trust, Nestlé has started to shrink its business scope, pushing strategic transformation by divesting non-core assets and focusing on key business segments, shifting from scale-driven growth.

After Fainerui took office, he quickly pushed asset restructuring, clearly defining coffee, pet care, nutrition, and food & snacks as the four core strategic areas. These four segments contribute over 70% of sales and most profits. All peripheral businesses that do not deliver high net asset returns or lack global leadership are on the divestment list.

The sale of Blue Bottle Coffee’s global store operations is a flagship move. According to multiple media reports, Nestlé may transfer store operations to CapitaLand, with a transaction price below $400 million, retaining only capsule and machine businesses.

During its nine years owning Blue Bottle, the number of stores grew from 29 to over 140. In mainland China, only 16 stores were opened over four years, mostly in Shanghai, and as of June 2025, the business was still unprofitable. The operational efficiency of this business differs from Nestlé’s core FMCG model, making divestment a practical choice.

Meanwhile, Nestlé is also planning to sell its ice cream business, injecting Canadian, Latin American, and Asian assets into joint ventures. In Q1 2026, it plans to divest bottled water and high-end beverage units, aiming to complete the restructuring by 2027. In 2025, Nestlé completed ten small asset transactions, reflecting a shift from diversification to focusing on core areas.

In response to market slowdown in Greater China, Nestlé is shifting from distribution-driven to consumer-driven models.

First, Nestlé is pushing channel destocking to repair the pricing system caused by channel stockpiling and rebuild trust with distributors. Then, it is increasing digital investment, planning to invest an additional 600 million Swiss francs in 2026 for consumer insights and digital marketing upgrades, leveraging AI for supply chain forecasting and personalized product distribution. CFO Anna Mance expects this channel transformation to show results in the second half of 2026.

Second, Nestlé is also restructuring organizationally. It launched its largest-ever leaner plan, cutting 16,000 white-collar jobs over two years, simplifying approval layers, and strengthening local market responsibility to improve decision-making efficiency.

At the same time, Nestlé is overhauling its performance evaluation system, making internal growth rate the core KPI instead of just sales figures. This encourages business units to shift from price competition to product innovation. Under high raw material costs, they rely on product premiumization and operational efficiency to boost profits.

Currently, the efficiency of white-collar operations has already achieved 20% of the annual savings target of 1 billion Swiss francs. Quality control is also accelerating; Nestlé has completed infant formula recalls, replaced raw material suppliers, and restored full-capacity production. It has implemented comprehensive testing across the production process and set stricter risk management standards for infant formula than current EU thresholds. However, rebuilding trust and quality control still requires time.

Based on these transformation efforts, Nestlé provides a 3-4% organic growth guidance for 2026, expecting internal growth to improve compared to 2025, with gradual recovery in operating margins.

For Nestlé, the current pain of transformation is a necessary cost of self-revolution. Whether this century-old company can find a new growth path after strategic contraction will not only determine its future but also serve as a case study for large enterprises facing scale and agility dilemmas.