The Kit Kat that treats irritable bowel syndrome sounds like a dream for confectionery makers in need of social acceptance. Nestle's hiring of a medical-sector executive as its first outside chief executive in almost a century looks like a nod in that direction. In reality, the convergence between food and pharmaceuticals will be slow, and works best when the transfusion runs in the other direction.
Ulf Mark Schneider, formerly chief of Germany's Fresenius, is set to take over at the Swiss consumer goods giant from 2017. He brings solid credentials, from an investor's point of view. Fresenius, which makes equipment and drugs for patients with kidney trouble, has returned an annualised 23 per cent to its shareholders via dividends and a higher share price over the past five years. Nestle has managed 10 per cent. While the Swiss group is unlikely to switch its focus to drugs and medication - at least 80 per cent of its operating profit comes from consumer goods - Schneider's scientific background fits with Nestle's focus on what it calls "health sciences", which basically means consumables that make people healthier.
Attractive as that sounds for a company that makes sugary treats, it's pharmaceuticals companies that may have most to learn from their consumer goods cousins. Years of undisciplined spending are incompatible with increasingly tough healthcare pricing regimes, notably in the United States, and the rise of generic drug producers. GlaxoSmithKline is one pharmaceutical company that has hired liberally from consumer goods makers. Companies like Nestle, Anheuser-Busch InBev and Reckitt Benckiser are used to having to squeeze more profit out of price-sensitive customers.
Nestle, meanwhile, has a condition that this latest transplant won't cure. Bulcke is the ninth Nestle chief executive to be made chairman of the group. That puts extra pressure on Schneider, who will report to the architect of a strategy that he may decide needs an overhaul. First among the logical changes would be to ditch Nestle's target - missed for the past three years - of increasing revenue by five to six percent a year. Schneider has the added disadvantage of coming from a company just a quarter Nestle's size. If only there were a pill - or a chocolate bar - for good governance.
