Why Nestlé and Danone stake on medical nutrition

February 6, 2012 by LISA Infant Milk

Nestle R&D center in Tours (courtesy of Nestle)Translated by Lisa Infant Milk, from Archives Journal des Finances, 11/13/2010

 

[…] Both companies invested the medical nutrition market segment, that is a universe " halfway between the food-processing industry and the pharmacy ", such as defined it the leaders of Nestlé at the end of September at the time of the announcement of the creation of a subsidiary dedicated to this activity.

 

Until now, the Nutrition, Well-being and Health Division (10 % of the total turnover) integrated at the same time clinical nutrition, products of food diet Jenny Craig and Gerber infantile activities acquired in September, 2007. Convinced of the potential of growth of medical nutrition, the Swiss group has shifted into high gear by also investing in a dedicated research center: 500 million Swiss francs will be dedicated in the next five years to R&D in this branch, while this activity  generated last year a turnover of 1,6 billions!

 

By acquiring in July, 2007 the subsidiary of medical nutrition of Novartis (for which it did not hesitate to pay the full price, that is to say 28 times the operating profit of the target), Nestlé had already clearly shown its ambitions. The same year, Danone, which claims its mission is to bring health to people through food supply, purchased Numico, the European leader of infant nutrition, and, against all expectations, kept the activity of medical nutrition.

 

The interest of Nestlé and Danone is utterly justified because the medical nutrition market, estimated at 6,5 billion dollars, is in strong growth (+ 12 % a year on average between 2005 and 2010) and allows more than 20% operating profit. But we can wonder which legitimacy have these two companies to trespass on the pharmaceutical companies’ preserves, and their will to conquer a market dominated by Abbott.

 

In the past, Nestlé and Danone sold their first products (respectively an infant milk and yoghurts) in the shelves of pharmacies. It is not enough to break into the medical field, but in recent times, both groups worked a lot - Danone especially - at demonstrating the health benefits of their foodstuffs. The French Danone was even a precursor in this domain, recruiting R&D teams, working with scientific institutes and proceeding to clinical trials for ranges of products sold in supermarket, allying pleasure and benefactions for the health.

 

Finally, there was only a small step to be crossed in the direction of a medical world today more susceptible on the subjects of prevention. " Public authorities today  are more reluctant to reimburse some medical treatments, which opens the way to the preventive health ", explains Patrick Biecheler, consultant at Roland Berger.

 

Medical nutrition does not aim at curing, but palliating some states of undernutrition, in particular for elderly people, to prevent diseases like diabetes, or at bringing solutions to infants suffering from allergy problems.

 

The ageing of the population, changes in the modes of consumption accelerate the development of some pathologies, which then become major public health stakes. This is true in mature countries as well as in emerging countries. "In Europe, the major part of our products are prescribed by doctors and paid off. Here is the main difference with emerging countries", explains William Green, Communication Director of Nutricia (Danone).

 

In Brazil, in China, in Turkey, etc., the potential of growth is also considerable. "When we intend to sell medical nutrition products in these countries, we should necessarily know how to speak to consumers; this is Danone strength ", continues William Green. »