By Martinne Geller
LONDON (Reuters) - Nestle (VX:NESN) told shareholders on Thursday it was taking steps to maintain its position at the head of the global food industry, where consolidation will create two big new rivals.
Nestle Chairman Peter Brabeck-Lemathe told the company's annual shareholder meeting the creation of Kraft Heinz Co and Jacobs Douwe Egberts, as well as "spectacular" growth of some other companies in developing markets, required two things of Nestle in order to remain the global leader.
"First of all, an acceleration in our policy of adjusting our portfolio of activities and at the same time better use of our size," Brabeck said.
Nestle, the world's biggest food group by sales, has already taken steps toward both of those goals. It has sold underperforming businesses including PowerBar and the bulk of Jennie Craig, and created a new executive board role to oversee several corporate support functions globally. The move was aimed at making the most of its scale.
Brabeck's comments come three weeks after the announcement that H.J. Heinz Co agreed to buy Kraft Foods (O:KRFT), backed by Warren Buffett's Berkshire Hathaway (N:BRKa) and private equity firm 3G Capital, creating the third-largest packaged food company in North America.
"3G and Buffett have pulverized the food industry market, particularly in America with serial acquisitions," Brabeck said. "3G's partners are known in our industry for ruthless cost-cutting and have already proven numerous times that they are capable of reducing operating costs in particular by between 500 and 800 basis points, which has a revolutionary impact on all the other members of the industry."
A spokesman for 3G declined to comment on the remarks.
3G's founders orchestrated the formation of Anheuser-Busch InBev (BR:ABI), and the takeovers of Burger King, Tim Hortons and Heinz.
European coffee company D.E Master Blenders is in the process of forming a joint venture with the coffee business of Mondelez International (O:MDLZ). The combined company will be the world's largest standalone coffee company, though it will still be far behind Nestle's coffee business.
Brabeck also voiced support for the Swiss National Bank's recent currency move, saying the stronger Swiss franc would aid Swiss competitiveness in the long run by encouraging innovation. He also dismissed the possibility of Nestle moving to report in any other currency.
"I've often said that for as long as the Swiss flag flies over our corporate buildings, Nestle will stick with the Swiss franc," he added.