War and Labor

Early on, Nestl pushed its business overseas, and it opened its first American factory in 1900. The outbreak of World War I led to rich government contracts for condensed milk and chocolate. By the end of the war, Nestl had 40 factories around the globe. In 1938, the companys factory in Brazil led to the invention of Nescaf, the first commercial product for instant coffee.

During World War II, the Swiss companys global operation supplied both sides of the conflict. Nestl won a contract to feed the German Army, and the food giants American factories sold Nescaf to the United States military.

That approach would later come back to haunt it. In 2000, the company agreed to pay $14.6 million to settle Holocaust-era claims that some of its companies in countries under German control used slave labor. As a rule they were not worried or uneasy about the situation, and as long as production was maintained they had no thoughts of intervening in the management or personnel policy of their subsidiaries, said a 2001 report by a Swiss historian.

Nestls growth accelerated after World War II. In 1947, the company merged with Maggi, the maker of the Fondor seasoning brand. It was followed by the acquisition of:

Crosse & Blackwell (a British maker of preserves and canned foods) in 1960

Findus frozen foods in 1963

Libbys fruit juices in 1971

Stouffers frozen foods in 1973

In the 1970s, Nestl executives predicted a sluggish future for the food industry and diversified into cosmetics and pharmaceuticals. The company acquired a stake in LOral, the worlds No. 1 cosmetics company, and bought Alcon Laboratories, the No. 1 company in eye care products.

When Helmut Maucher took over as chief executive in 1981, he said that he saw his task as getting this somewhat the sleepy company to move ahead. The first German to lead the Swiss company since Mr. Nestl, Mr. Maucher set off a wave of food industry megamergers in the 1980s.

In 1984, Mr. Maucher (pronounced MAO-ker) made a $3 billion deal to acquire the Los Angeles-based dairy and foods company Carnation. At the time, it was the largest acquisition not involving oil in American corporate history. Like Nestl, Carnation had a long history that began with milk and then diversified. Founded in 1899, Carnation sold condensed milk to prospectors embarking on the Yukon gold rush. It later expanded into Friskies cat food.

In 1988, Nestl spent $5.5 billion to buy the pasta giant Buitoni and the British chocolate maker Rowntree. And in 1992, the company won a battle for Source Perrier, the worlds leading mineral water company.

Maucher has used acquisitions to help pep up the corporate culture and get the whole organization thinking about growth, Paul Strebel, a professor at the Imede business school in Lausanne, Switzerland, said in an interview in 1989.

In 2002, Nestl struck a $2.6 billion deal to buy the maker of Hot Pockets and Toaster Pizza snacks. But a joint bid with Cadbury Schweppes to buy Hersheys for $12.5 billion was rejected.

As the worlds largest food company, Nestl has been tied to a number of food scandals.

In 1976, Nestls marketing of baby formula in developing countries was tied to higher infant mortality rates. Critics said that Nestl sold its substitute for breast-feeding without regard for a lack of clean drinking water and refrigeration. A seven-year boycott of its products ended after Nestl agreed to change its marketing practices in compliance with World Health Organization bylaws on infant formula. Critics said the company began to revert almost immediately.

A 1998 report by Unicef said that children from Mali and Burkina Faso were brought by traffickers to work in Ivory Coast, the worlds top cocoa exporter. Small farmers could then sell the cocoa to the worlds big chocolate makers. A New York Times investigation later found that the widely cited number of 15,000 child slaves working on Ivory Coasts cocoa plantations was exaggerated.

In 2007, Canada confirmed an investigation into price-fixing in the chocolate industry. Nestl Canada later settled a class-action lawsuit for $9 million without admitting guilt.

In 2008, Hong Kong found that the toxic industrial chemical melamine in Chinese-made milk supplies had sickened 50,000 children, caused at least four deaths and led to global recalls.

And in 2015, a Nestl report cited widespread labor and human rights abuses in the seafood industry, exposing companies that bought seafood from Thailand to endemic risk. Sometimes, the net is too heavy, and workers get pulled into the water and just disappear, one Burmese worker said, according to the report. When someone dies, he gets thrown into the water. The report followed an article by The Times on sea slaves.

Last month, The Times reported that Nestl pays a $200 annual permit fee and nothing else to pump more than 130 million gallons of water a year from a well it owns in Michigan. That Nestl does it for free? Thats just crazy, said Jeff Ostahowski, vice president of Michigan Citizens for Water Conservation. Businesses in the United States often get free water if they are willing to drill and pump it.

Nestls growth over the years has been driven by its expansion beyond the kitchen. Today, it sells more than 2,000 brands around the world.

It has recently tried to respond to shifts in regional appetites. In the United States, the chocolate business is waning as people eat healthier. Nestl said this month that it was exploring a sale of its American candy business.

That change may not come soon enough for investors. The hedge fund billionaire Daniel S. Loeb has urged the company to also sell its stake in LOral and sell off nonessential operations. As grocery shoppers go online and choices expand, classic food brands have stalled. Nestl now has to compete with a rising demand for organic foods and meal kits.

You cant take the way of life of one country and try to impose that on the whole world, seeing yourself in control and everyone else as a satellite, Mr. Maucher told The Times in 1989. Then youre not global. You have to remember there are different tastes around the globe.

Read the rest here:

How Nestl Expanded Beyond the Kitchen - New York Times