Nestlé's global recall of infant formula products could result in sales losses of up to 12 billion Swiss francs for the company, while also posing a risk of reputational damage to its brand. This represents a significant setback for new Chief Executive Philippe Naftila—who is attempting to rebuild investor confidence in the Swiss food giant.
This past Monday, Nestlé announced the recall of multiple batches of its infant formula brands, including NAN, Beba, Guigoz, Wyeth S-26, and Alfaré. The recall was initiated due to potential contamination of these products with Bacillus cereus toxin, which can cause symptoms of nausea and vomiting.
The recall was first launched in Europe and subsequently spread throughout the week to Asia, Latin America, the Middle East, and Africa, affecting a total of 46 countries worldwide.
Analysts at Jefferies investment bank estimate that approximately 1.3% of the Nestlé Group's sales could be impacted by this incident, corresponding to a total potential loss of 12 billion Swiss francs.
Barclays analyst Warren Ackerman provided a similar estimate, suggesting the potential impact on group sales lies between 0.8% and 1.5%. So far this year, Nestlé's share price has declined by 4.6%.
It is noteworthy that the backdrop to this recall is quite particular. Last September, former CEO Laurent Freixe was dismissed after an "undisclosed relationship" with a subordinate was exposed, and Naftila took the helm at this juncture.
Naftila is currently focused on driving growth and reducing debt at Nestlé—a company that owns well-known brands such as Nespresso capsules and KitKat chocolate bars. According to its plan, Nestlé will cut 16,000 jobs over the next two years.
Analysts warn that the infant formula recall could cause long-term reputational harm to the affected brands. Nestlé has already faced a series of operational problems and been criticized for corporate governance deficiencies; this recall will undoubtedly further erode its credibility.
Compounding its troubles, Nestlé is also facing deep difficulties in France. Last July, French authorities conducted a surprise raid on Nestlé's offices, investigating allegations of the use of unauthorized filtration processes in the production of bottled water. Furthermore, last year Nestlé also recalled frozen food products in the US market due to contamination risks.
Vontobel analyst Jean-Philippe Bertschy stated that the reputational risk triggered by this recall is more concerning than the financial impact.
He pointed out: "This incident has caused dissatisfaction with Nestlé's execution and communication capabilities—both are core priorities for the new leadership, and the market had high expectations for them. For investors, this outcome is far from reassuring and has once again raised concerns about internal control management within this highly reputation-sensitive product category."
Nestlé responded by stating that the sales corresponding to the recalled products are "significantly less than 0.5% of the group's annual sales," and added that it does not expect the matter to have a material financial impact on the group. However, the company did not elaborate on the basis for this calculation.
Nestlé further clarified that during routine testing, it identified a quality issue with an ingredient used in the infant formula—arachidonic acid (ARA) oil. To date, no illness reports related to the affected products have been received.
Jefferies analyst David Hayes believes that consumer reactions to the recall may vary across different markets. He specifically highlighted China as a market requiring close attention—noting that in 2013, Danone's Dumex brand lost 800 million euros in sales in China following a recall incident.
However, another reference case presents a different trajectory: in 2022, Abbott's Similac infant formula lost market share due to a recall but managed to regain it within a year.
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