Food giant Nestle pivots to gain a foothold in the personal nutrition market

Key Points
  • Nestle Health Science, a wholly-owned subsidiary of the food giant, specializes in nutritional products to improve overall health and has been investing heavily in companies that treat everything from gut health to Alzheimer's.
  • Its latest acquisition is Persona, a personalized vitamin program delivered right to customers' doors.
  • On Thursday the company reported sales of $68.4 billion for the first nine months of the year and remains on track for its target of mid-single-digit expansion in 2020.
Nestle's CEO Mark Schneider believes acquiring product lines to improve overall health will shake up the 100-year-old brand. In a recent bold move, the company purchased Persona, a personalized vitamin program delivered right to customers' doors.
Scott Mlyn | CNBC

Mention global food behemoth Nestle and the name will likely conjure up images of chocolate, frozen pizza and ice cream. Yet recent moves by its Lausanne, Switzerland-based Nestle Health Science division is making the company look more like a drug giant. The wholly-owned subsidiary, which specializes in nutritional products to improve overall health, has been investing heavily in companies that treat everything from gut health to Alzheimer's. Its latest acquisition: Persona, a personalized vitamin program delivered right to customers' doors.

Nestle Health Science's August purchase of Persona comes at a time when interest in personalized nutrition is exploding. The category includes wellness products, dietary supplements, so-called nutraceuticals (pharmaceutical alternatives that promise health benefits) and functional foods that help aid in overall well-being or performance. Analysts at Grand View Research in San Francisco estimate that retail sales for these products will reach $50 billion by 2025, up from around $11 billion today.

It makes sense. With health-care costs skyrocketing, consumers are doing all they can to get and stay healthy. Preventative measures — getting enough sleep, exercising and eating a diet with more fruits and vegetables — have always been part of the equation. But now the rising trend for customization of everything from movie recommendations to the kinds of workouts we do is expanding to vitamins, supplements and medical foods, and companies like Nestle are taking notice.

Nestle Health Lab

"In the deal between Persona and Nestle, both companies anticipated the considerable market potential of personalized nutrition," says Rubik Barar, a research manager of biotech, diagnostics and pharmaceuticals at Grand View Research. He believes larger companies will continue to form alliances and collaborations with smaller, personalized nutrition companies to ensure they don't miss out on this revenue stream.

The acquisition demonstrates the moves CEO Mark Schneider is making to shake up the 100-year-old brand since he took the reins in 2017. Diversifying into new lines of business has been key. On Thursday the company announced sales of $68.4 billion for the first nine months of 2019, noting it is on track to meet its target for operating margin a year early. It also plans to return another $20 billion to shareholders by 2022.

Scanning the market

Greg Behar joined Nestle Health Science as president and CEO in 2014 after spending more than a decade in the pharmaceutical industry. He says the division was founded in 2011 as a way for Nestle to tap into the rapidly growing field of nutritional science. Over the past eight years, the unit has developed a portfolio of science-based consumer health, medical nutrition and supplement brands, including its purchase of Persona. Nestle Health Science has made more than a dozen acquisitions so far, focusing on nutritional therapies for brain health, gastrointestinal issues, aging, food allergies and obesity, among others.

In September, Nestle invested in Before Brands, specialists in early childhood allergy prevention. Before Brands is the developer of a line of childhood nutritional products called SpoonfulOne, aimed at reducing food allergy development. Earlier this year, Nestle Health Science acquired an equity stake in Amazentis and now has global rights to use its patented Urolithin A technology for dietary supplements and medical nutrition products.

Behar says "consumers are really looking for more custom solutions, so we've been scanning the marketplace searching for start-ups and more established companies that have at their core strong science and technology."

The main focus for Nestle so far has been on lightly regulated dietary supplements. After all, they don't require expensive and time-consuming clinical trials the way pharmaceuticals do, so products (like Persona vitamins) can get to consumers fairly quickly. In fact, two of Nestle Health Science's biggest sellers — Boost, a high-protein nutritional shake, and the Meritene brand of shakes and soups to combat fatigue — account for about 25% of Nestle Health Science's $2 billion annual revenue. That's still a small sliver of parent company Nestle's global revenues of $93 billion, but NHS executives have said they envision sales increasing to as much as $10 billion in the coming years.

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That doesn't mean Nestle is shying away from the regulated side of the business. It recently got the go-ahead from the U.S. Food and Drug Administration to start late-stage human trials for a proprietary medical food that targets Crohn's disease. It's also submitted paperwork to the FDA explaining its plans for late-stage testing for a drug compound to treat ulcerative colitis, a disease that affects more than 1 million people worldwide.

But not every investment by Nestle Health Science has gone smoothly. In 2012 it invested in Accera (now known as Cerecin), a biotech firm focused on acute and chronic neurodegenerative diseases, including Alzheimer's. Accera had developed a product called Axona, which was marketed as a medical food to manage the metabolic processes associated with mild to moderate Alzheimer's. In 2014 the FDA issued a warning to Accera, saying it failed to prove that Alzheimer's has distinct dietary or nutritional requirements. The company stopped marketing Axona as a medical food and is now trying to develop a more traditional drug to treat Alzheimer's.

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The event highlights the challenge food companies face when they attempt to make health claims about vitamins, supplements and medical foods. To keep things like this from happening more frequently, the FDA in 2015 created the new Office of Dietary Supplement Programs. It comes as the supplement industry has grown from about $6 billion to more than $35 billion over the past 20 years.

The office has been busy. In February the FDA posted 12 warning letters and five online advisory letters to overseas and domestic companies that are illegally selling nearly 60 products — many sold as dietary supplements — that are unapproved new drugs or misbranded drugs that claim to prevent, treat or cure Alzheimer's and other serious diseases and health conditions.

Custom-designed vitamins

By contrast, the Persona acquisition fits in nicely with NHS's personalization strategy, says Behar. The Seattle-based company was launched in 2017 by Jason Brown, Tamara Bernadot and Prem Thudia, longtime business colleagues who have worked in the health-care and supplement business for the past 20 years. One of the features that Behar says he found so intriguing about Persona is its technology. A detailed, online questionnaire based on a proprietary algorithm lets consumers answer questions about their biggest health and nutrition concerns. Persona CEO Brown claims the questionnaire goes one step further than any other personalized vitamin program on the market because it also includes detailed questions about a person's prescription drug usage.

Nestle Health Lab

"We can give customers the finest nutritional products out there, but we've got to make sure that we're not going to give them anything that interferes with any prescription medication they're on," Brown says. "Our questionnaire makes sure we're not recommending anything that would conflict with that medicine."

Once a customer completes all the questions, Persona makes a recommendation of which vitamins and supplements best address their particular health and nutrition concerns, whether that's stress, fatigue or weight management. The products are packaged into daily dose packets — typically, there's a morning and evening pack — and shipped to customers once a month. The price of each monthly program varies by customer, but Brown says that on average it breaks down to about $1 to $3 per day.

Now that it's part of the company fold, Nestle Health Science is looking to launch Persona even further afield. So far, Brown says more than 750,000 people have filled out Persona's online questionnaire. Last year the company posted revenues of $4 million, up from $200,000 in 2017. By November the products — manufactured in the U.S. — will be launched globally and be available in 32 countries throughout Europe and Asia. Persona currently has 50 employees, but with Nestle Health Science's investment, Brown says that number will grow by 150% over the next 12 months.

Of course, it's not lost on Behar that a company better known for products like Hot Pockets and Haagen-Dazs ice cream is backing a portfolio of vitamin and wellness brands that aims to make us all healthier, more energetic and better rested. But he says customers are willing to listen.

"Consumers recognize what Nestle is doing to reduce the amount of sugar and salt in its products and to reduce its packaging impact on the environment," he says. "We're moving the needle on a number of things, and consumers recognize that and trust us."

Correction: This story has been updated to reflect that Nestle invested in Before Brands in September. An earlier version stated that Nestle purchased the company.