Nestlé cuts staff in equatorial Africa as middle class fails to emerge

Nestlé pares costs after four years of slow sales growth in Asia, Oceania and Africa unit

A Zimbabwean shopper picks up a packet of Nestle porridge in a shop in Harare. The Swiss food and drinks company is cutting 15 per cent of its workforce in 21 African countries. Photograph: Reuters/Philimon Bulawayo

A Zimbabwean shopper picks up a packet of Nestle porridge in a shop in Harare. The Swiss food and drinks company is cutting 15 per cent of its workforce in 21 African countries. Photograph: Reuters/Philimon Bulawayo

 

Nestlé, the world’s largest food company, cut 15 per cent of its workforce in equatorial Africa amid slower growth of the continent’s middle class. Nestlé employs about 11,000 workers on the continent.

The KitKat maker, grappling with a crisis in India amid a nationwide recall of its Maggi instant noodles, is paring costs after four years of slowing sales growth in its Asia, Oceania and Africa unit.

“We thought this would be the next Asia, but we have realised the middle class here in the region is extremely small, and it is not really growing,” Cornel Krummenacher, chief executive of Nestlé’s equatorial Africa unit, was cited as saying by the Financial Times late on Tuesday.

He also told the newspaper Nestlé would be lucky to reach yearly 10 per cent sales growth in the region in coming years.

“On a group level the cuts don’t make a difference – and Africa is huge – but the comments on middle class will have people talking,” said Michael Romer, head of equity research at J Safra Sarasin in Zurich. “It comes at a time where it seems that Nestlé is fighting at several fronts, so investors will take note of it.”

Nestlé’s organic sales growth in the Asia, Oceania and Africa region started slowing in 2012, slipping from 12 per cent in 2011 to 2.6 per cent last year. Revenue there declined 0.2 per cent in the first quarter.

Equatorial Africa is the smallest of Nestlé’s African markets, accounting for 10 to 15 per cent of sales there, said Nestlé spokesman Robin Tickle. The biggest, central and west Africa, has shown good growth, while the southern part of the continent was the top performer in the first quarter.

Africa accounts for 5 per cent of the Swiss company’s total sales, Bank Vontobel estimates.

The company has no plans to close its four factories in equatorial Africa. It will cut its product line by 50 per cent and may close some of its 15 warehouses by September. – (Bloomberg)