Nestlé still threatening Perrier sale

Related tags Mineral water Bottled water

Nestlé Waters, the world's largest bottled water company, is taking
a tough stance on the future of the Perrier mineral water business
- either productivity increases or we sell the company.

Nestlé has been at loggerheads with the unions at Perrier, based in Vergèze in the south of France, for several months now, but the root of the problem dates back much further than that, even predating Nestlé's acquisition of the business in 1992.

"Perrier has been struggling for the last 12 years, and we have finally had enough,"​ said Nestlé spokesman François-Xavier Perroud. "During the heady days of enormous growth in the 1980s, Perrier was run by a weak management, which bowed into the demands of the workers there. That culture has continued ever since, and we have struggled to cope with it - but no more."​The Nestlé Waters business is seen as a core unit for the diversified Nestlé group, with sales of SF6.4 billion in the first nine months of the year, but despite its worldwide popularity, Perrier's role within the division is actually quite minor.

"Perrier accounts for less than 5 per cent of Nestlé Water's sales, and less than 1 per cent of total Nestlé food sales, so the effect on our business would be nil if we sold it,"​ said Perroud. "Perrier has always been loss producing - it has never contributed anything to profits as part of the Nestle group. So we would in fact be better off if we sold it."

But with such a strong brand awareness - Perrier is one of the very few truly global mineral water brands - and a desire to improve its standing as a supplier of healthy foods (a factor which has seen global water sales rise steadily in recent years), Nestlé does not particularly want to sell the company, preferring instead to seek a solution which satisfies both parties.

But the unions at the plant - in particular the "militant"​ Confederation Generale de Travail - have been intransigent in their opposition to job cuts, necessary, according to Perroud, because of the extremely low levels of productivity at the site. "The productivity of the French workers in Vergèze is three times lower than that of their Italian counterparts at our Nestlé Waters business there,"​ Perroud said.

He added that none of Nestlé's other French water businesses, such as Volvic or COntrex, ahd the same problem, which seemed to be particular to Perrier. It was "socially unacceptable, to say nothing of economically unacceptable, that the Perrier workers expect their colleagues elsewhere in France to work so hard for the company when they do not"​.

Nestlé is proposing early retirement for 1,000 workers (some 25 per cent of the Perrier workforce) to help reduce costs, all the more necessary given growing competition from Badoit, another French sparkling water brand owned by Danone, whose water operations (and international growth pretensions) rival those of the Swiss group.

Nicolas Sarkozy, France's opportunistic finance minister (and future presidential hopeful) intervened in the dispute in September, persuading the unions to back down, but that simply left matters at an impasse: Nestlé claims that only the restructuring will restore profitability, while the unions (supported by some local politicians) refuse to accept job cuts, invoking the decimation of the local economy and the threat to one of France's best known brands.

But Nestlé is clearly not prepared to maintain the status quo for much longer, and has once again threatened to sell the business.

But would anyone be interested in buying such a hot potato, in dire need of restructuring but with a workforce adamant that no changes are necessary? Yes, according to Perroud, although a trade buyer is looking increasingly unlikely. "Perrier, with all its problems, might not be of interest to another drinks group but what about a financial investor?,"​ he said. "If Peter Brabeck [Nestlé's CEO] decides to put the company up for sale, then it will be because he believes that there is sufficient interest from financial bidders."

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