Nestlé SA said it doesn’t plan to increase advertising and promotion spending for Gerber after it buys the baby food brand from Novartis for $5.5 billion later this year.
“Gerber was allowed to run effectively under Novartis with adequate [marketing] levels,” Richard Laube, chief executive office of Nestlé Nutrition, told analysts yesterday. “We’re not making any different assumptions than the going rates we’ve seen.”
Gerber spent $13.8 million on measured advertising last year, according to TNS Media Intelligence. Nestlé USA spent $190 million across its full portfolio.
Nestlé does gain more leverage with retailers, especially in the U.S.
“This gives us critical mass in baby aisles and complements our own distribution,” Nestlé Chief Financial Officer Paul Polman said.
That could prompt retailers to partner more closely with Nestlé, leveraging Gerber’s Retail Innovation Center and what Polman calls Gerber’s “excellent category expertise in the baby aisle.”
Nestlé also will push Gerber’s Graduates brand for expansion. Gerber “tapped a nerve to growth” with the line of toddler foods, Laube said. The brand is one key way that “Gerber’s team has figured out how to grow in what looks like a mature market.”
Buying Gerber gives Nestlé a bigger footprint in the U.S. overall, increasing U.S. sales to 37% of Nestlé Nutrition’s total business, up from 16% in 2005, Polman said. The purchase will push Nestlé Nutrition annual sales to $8.5 billion; Gerber’s sales are $1.95 billion. In the U.S., Gerber’s 80% market share in baby food strongly complements Nestlé’s 13% market share in the infant formula segment.
Laube also praised Gerber’s marketing expertise with mothers, via geographically targeted ads, as well as direct mail that segment babies by age.
“They contact every mother several times a year,” Laube said. “That gives us incredible competitive insulation.”
The acquisition is expected to close in the second half of 2007, probably late in the third quarter.
This is Novartis’ second deal with Nestlé. Last year, it sold its $1 billion Novartis Medical Nutrition division to the food giant. Nestlé also bought the $400 million Jenny Craig business last year. Both are part of the Nestlé Nutrition division that will house Gerber.
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