Mr Nestle gets angry

The Thursday morning press conference could not have begun more ordinarily. Twenty reporters shuffled sleepily into a room at London's Mandarin Oriental Hotel. Led by chief executive Peter Brabeck - correct, formidable, a Hollywood matinee version of a continental European businessman - the Nestle team filed in a few moments later.

The odds on the occasion generating news were small, since the company had released its first quarter results a day earlier. "Nestle Sees Improvement in Full Year," ran the Wall Street Journal headline on Thursday. "Nestle plans to cut costs further," said the FT. On Wednesday Nestle had reported a 2.7 per cent fall in first quarter turnover, but said sales momentum was picking up, and so was forecasting a rise in turnover and profits for 1999 as a whole.

But, as Brabeck came to the end of his introductory remarks, a funny tension crept into the room. The Nestle finance man began pursing and unpursing his lips. The PR man stared into the middle distance. The managing director of Nestle UK squirmed in his chair.

It all happened so quickly that the reporters missed Brabeck's change of gears. Suddenly he had stopped talking about Nestle's numbers, and had begun talking about food policy issues - genetically modified food and Nestle's baby food products in Africa.

Out of the 100 countries in which Nestle operates, it became clear, the UK occupies a special place in Brabeck's mental map; London and Oxford are head offices for food activists round the world.

At first, the Nestle boss read prepared remarks. He carefully set out his company's position about what should happen at the intersection between commerce, science and politics. Brabeck declared the resources going into global food production - land, water, pesticides - must be cut by three-quarters to avoid hunger in the future.

He accepted that GM and other new food technologies posed risks. But he argued that the risks could be controlled, so experiments should proceed. At the same time, he announced that - if UK consumers did not want genetically modified ingredients in Nestle KitKats, Nescafe or its other 8,500 brands - the company would do all it could to accommodate them.

Then, during the question and answer session, Brabeck went further. He seemed impatient, both with the strictures of political correctness and his spin doctors.

"Emotion rather than reason rules the GM debate in the UK," he said. "We have good relations with Save the Children in the US and in South Africa. But not in Britain."

He even named names, singling out Carol Bellamy, the New York-based executive director of Unicef, for particular scorn. "We wanted to start a dialogue," he said. "We went to New York for a meeting. After an hour and a half, Madame Bellamy said she had to make a phone call, and did not return. Six weeks later we got a letter saying she did not wish to continue the dialogue."

By the end of the press conference the reporters were stunned almost into silence. But Brabeck's advisers were not surprised. "He wanted to do this," said one.

Brabeck was clearly speaking from the heart. But his candour in a world dominated by spin doctors also revealed much about Nestle's newly aggressive corporate strategy.

Founded in 1868 in Vevey, a small town on Lake Geneva, by a German named Henri Nestle, who invented a concoction of powdered milk and flour to combat infant mortality, the company became one of the world's first multinationals. For more than a century, however, it remained highly secretive. Until 10 years ago, non-Swiss were not even allowed to own the company's registered shares.

From 1981 to 1997, Nestle was run by Helmut Maucher, who began to open up the company, bringing it down from its Alpine redoubt. And it was Maucher who masterminded Nestle's controversial 1988 takeover of Rowntree.

Two years ago Brabeck, who is now 54 and the first Austrian to run a Swiss company in a country not known for its love of Austrians, took over. If tradition holds, Brabeck will remain chief executive for at least another 10 years. Based on his performance in London on Thursday, it is reasonable to assume that by the time he steps down Nestle will have completed its transformation into a modern, open, even high-profile multinational. And Brabeck is likely to have emerged as a key spokesman for the food industry in debates about GM and other food policy issues.

Nestle's financial and competitive position is AAA strong. Shares in its arch rival, Unilever, may be trading at a 17 per cent premium to the Swiss company, but Nestle's $11bn (pounds 7bn) turnover in the first quarter is more than that of the next two largest food companies.

Nevertheless, Brabeck sees three challenges confronting the company. The first is the rise in power of institutional investor shareholders. Nestle believes the vogue for "shareholder value" promotes short-termism at the expense of sound planning. "We reject it," Brabeck says flatly. "You do not start with the goal of maximising shareholder value, and then decide what to do. You decide what to do with your business and then comes the shareholder value."

The second strategic challenge facing Nestle is state of emerging markets. Until the global financial crisis last year, economic growth there seemed relatively steady. Now it seems anything but. Yet Nestle has pinned its hopes for future sales growth and profits in emerging markets. In 1997, its business in Asia generated profit margins of 15 per cent, compared to 9 per cent in Europe.

To realise these hopes, Nestle must manage increased risks and volatility in emerging markets. Brabeck diplomatically acknowledges this changed set of circumstances. The globalisation of financial flows has gone "a little bit too far for our taste", he says.

Yet he adds that Nestle corporately, and he personally, are long-experienced in developing-country turmoil. "I was working in Chile when Allende took over," he recalls. "Allende started talking about Nestle's milk as white gold. He wanted to nationalise it. But then economic conditions deteriorated and we stayed while other multinationals went. The government ended up thinking it was better to work with us than against us. We increased our share of the Chilean market."

Brabeck adopted a similar formula when the Russian economy imploded last August. While other multinationals fled, Nestle set about building four new factories. Its share of the Russian chocolate and confectionery market - one of the biggest in the world - grew from 7 per cent in 1997 to 13 per cent in February.

If the power of financial markets and the weakness of emerging markets constitute two strands of Brabeck's strategic thinking, changing attitudes towards food production in Europe and North America make up the third.

Brabeck's initiative at Thursday's press conference was admirable in its defiance of political correctness and on a high standard of intellectual honesty and rigour in food policy debates. He even waded into the Aids debate, suggesting that Nestle's baby foods could help stop the spread of HIV via contaminated mother's milk.

But it also was a measure of how seriously Brabeck takes the threat of critics arguing for a small-is-beautiful model of food production in which food manufacturers such as Nestle lose business to local and non-manufactured food producers.

Brabeck's performance on Thursday also exposed a limitation. In his critique of food technology's critics, Brabeck made little distinction between animal liberation crazies and backbench MPs opposed to GM foods. He implied that anyone applying intellectual rigour in a food policy debate would come to the same conclusions that Nestle had.

Still, Thursday morning turned out to be anything but an ordinary press conference. Both Brabeck and Nestle will henceforth be associated with a more aggressive, more risky stance in the food world. Investors - as well as food policy activists - take note.